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Q&A: Association Retirement Plans

Recently, we released an article regarding new DOL rules affecting retirement plan access for small businesses. These changes may expand the availability of multiple employer plans (MEPs), which may, in turn, encourage more small employers to offer workplace retirement plans. Specifically, on July 31, the DOL finalized rules so that starting September 30, 2019, chambers of commerce or other certain associations can sponsor a special kind of MEP called an “association retirement plan” (ARP).

The DOL also issued relief for MEPs that made certain mistakes on their Form 5500’s, as set forth in Field Assistance Bulletin (FAB) 2019-01 (July 24, 2019).

Taking a closer look at ARPs and Form 5500, we’ve compiled some of the top questions to understand what these changes mean for your small business.

Understanding Association Retirement Plans

Who can sponsor an ARP?

The DOL’s final ARP regulation clarifies that employer groups or associations and PEOs can be ‘‘employers’’ within the meaning of ERISA for purposes of establishing or maintaining defined contribution retirement plans such as 401(k) plans, but not for defined benefit pension plans. An employer group or association that wishes to sponsor an ARP must satisfy the following criteria:

  • Although providing the plan may be the primary purpose of the group or association, the group or association must also have at least one substantial business purpose unrelated to offering the plan, or other employee benefits to its employer members.
    • A substantial business purpose exists if the group would be viable without the plan or other employee benefits plans.
    • “Business purpose” includes promoting common business interests of its members or the common economic interests in a given trade or employer community and is not required to be a for-profit activity.
  • The group or association must have a formal organizational structure with a governing body, by-laws, etc.
  • Employer members must control, in both form and substance, the group or association’s functions and activities, including controlling the plan.
  • Employer members must have a commonality of interest, based on either being in the same trade or industry or having a principal place of business in the same geographic area, which includes metropolitan areas that extend beyond one state.

Can working owners join?

The final regulation permits certain working owners without employees to participate in an ARP. To qualify as a working owner, the individual must satisfy these conditions:

  • Have an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including as a partner or self-employed individual.
  • Earn income from providing personal services to the trade or business.
  • Either (i) work at least 20 hours per week or 80 hours per month, on average, or (ii) have wages or self-employment income from such trade or business that at least equals the working owner’s cost of coverage for participation by the working owner and any covered beneficiaries in any group health plan sponsored by the employer group or association in which the individual is participating or is eligible to participate.

The final rule does not extend the working-owner provision to MEPs sponsored by PEOs. Thus, a working owner’s trade or business must have at least one common-law employee to participate in a PEO’s MEP. Working owners without employees generally would not need PEO’s employment services like payroll, compliance with federal and state workplace laws, and human resources support.

Who is the plan’s ERISA fiduciary?

Importantly, the ARP rule reduces ERISA fiduciary liability exposure for adopting employers, which many businesses consider to be a major impediment to retirement plan sponsorship. The rule transfers substantial legal risk from employers to professional fiduciaries who are responsible for managing the plan. Employers essentially now only have ERISA fiduciary responsibility for choosing and monitoring the ARP vendors and for timely depositing contributions to the ARP. As plan administrator, the ARP sponsor is responsible for compliance with ERISA’s fiduciary, reporting and disclosure obligations, including filing a single Form 5500 for the entire plan.

What’s next for ARPs?

Simultaneously with publishing the final ARP rule, the DOL issued an extensive request for information seeking comments on how the program can be improved and expanded. Comments are due October 29, 2019. All or part of the ARP rule may be rescinded if a federal appeals court upholds the federal district court case vacating the DOL’s association health plan final rule. Interestingly, the final rules include a severability provision, which provides that if any part of the rule is invalid, the rest of the rule will continue in full force. It is likely the Supreme Court may have the final say on whether the DOL exceeded its authority in crafting a new, expansive interpretation of ERISA’s definition of “employer” in creating association health plans and ARPs.

Changes for Form 5500

What is the penalty for incorrectly filing?

In FAB 2019-01, the DOL recently gave some welcome penalty relief for existing MEPs that incorrectly filed Form 5500s by failing to include a complete list of participating employers for the 2017 and earlier plan years. The relief is solely from ERISA civil penalties for Form 5500 reporting obligations, so there is no relief for any other ERISA or IRC issues. Going forward, DOL expects MEPs to fully comply with the reporting obligations as outlined in the FAB.

Is my plan eligible for extension?

The FAB also creates a special, one-time, 2 ½ month extension of time to file the 2018 Form 5500. MEPs should check the “special extension” box under Part I, Line D on the 2018 Form 5500 and enter “FAB 2019-01” as the description to use this extension. MEPs using this special extension do not need to file a Form 5558 with the IRS. The relief provided in the FAB is also available for MEPs that already filed their 2018 Form 5500, provided that such MEPs file an amended annual report for the 2018 plan year that complies with Section 103(g) reporting requirement by October 15, 2019.

What’s the problem?

In 2014, Congress added Section 103(g) to ERISA as a specific Form 5500 annual report requirement for MEPs, including those sponsored by PEOs. Section 103(g) requires MEPs to include with their Form 5500s a list of participating employers and a good faith estimate of the percentage of total contributions made by such participating employers during the plan year. The DOL issued rules implementing Section 103(g) and updated Form 5500 and its instructions accordingly. However, in reviewing Form 5500s filed in 2015 and later, the DOL observed significant errors in how MEPs were disclosing the list of participating employers. For example, the DOL found filings that:

  • Replaced participating employer names with abbreviated names or initials, client numbers, or other labels such as “Client 1,” “Client 2,” etc.
  • Reported only the last 4 digits of participating employers’ EINs.
  • Included an attachment with no information and a note saying, “Details available upon request.”
  • Incorrectly listed the PEO as the only participating employer.

While the DOL believes that it provided clear instructions on what was supposed to be included on the list of participating employers, the FAB says that the DOL understands that some PEOs may have been confused. So this one-time, retroactive penalty relief and special 2 ½ month transition period is intended to allow a fresh start so that the DOL receives the information on participating employers in PEOs that DOL was expecting to get in the Form 5500 filings.

If you have questions about the recent changes for MEPs, contact a member of our Retirement Plan Advisory Team.

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