Industry & Regulatory News

Washington Pulse: Final Regulations Expand MEP Options

In 2018, roughly 38 million private-sector employees did not have access to a retirement plan*. This troubling statistic led the Trump Administration to issue an Executive Order, directing the Department of Labor (DOL) and the Treasury Department to issue guidance that would help increase participation levels in employer-sponsored retirement plans.

On July 31, 2019, the DOL fulfilled this directive by releasing final regulations on association retirement plans (ARPs)—also known as multiple employer plans, or MEPs. A MEP typically allows multiple employers to participate in a single retirement plan, which may—among other things—help reduce plan administrative and fiduciary responsibilities for participating employers. The final regulations are substantially similar to the proposed regulations, which were covered in detail in a previous Washington Pulse.

 

Why the Final Regulations are Important

One of the most important outcomes of the final regulations is the expanded interpretation of the term “employer.” The current definition of “employer” under ERISA Section 3(5) is unclear because the term “group or association of employers” is not defined. As a result, many in the retirement industry have relied on various DOL advisory opinions that seemed unnecessarily narrow.

The final regulations clarify that a “bona fide group or association of employers,” and a “bona fide professional employer organization” that satisfy certain criteria are deemed to be able to act in the interest of an employer for MEP purposes. Although the final regulations expand the term “employer,” the guidance does not create “open MEPs,” under which multiple participating employers share no common characteristic, affiliation, or purpose (as has been proposed in pending legislation).

 

Commonality of Interest Requirement Remains

To qualify as a “bona fide group or association of employers,” the group or association of employers must meet seven requirements—one of which is the “commonality of interest” requirement. To meet this requirement, the employers within the group or association must

  • be in the same industry, trade, line-of-business, or profession; or
  • have a business in the same region.

The DOL is taking a “middle-of-the-road” approach toward expanding or restricting the commonality requirement. Responding to the proposed regulations, some commenters asked the DOL to impose a less restrictive test by eliminating the commonality of interest requirement. The elimination of this requirement would essentially allow groups or associations of employers to form open MEPs. The DOL, however, decided to keep the commonality of interest requirement. Although this provision is not required by statute, the DOL believes that keeping this requirement is important for several reasons—one of which is that it aligns the final ARP regulations with the final association health plan (AHP) regulations.

In the preamble to the final ARP regulations, the DOL stated that it would “construe[ ] broadly” what constitutes an industry, trade, line-of-business, or profession. The DOL believes that this broad interpretation will help expand access to MEPs. The DOL also indicated that, in general, it will not challenge

  • any “reasonable and good faith” industry classification or categorization of employers, or
  • the inclusion of businesses that share an economic or representational interest with other members of the group or association.

 

Special Rules for Owner-Employees

The 2018 Executive Order directed the DOL to consider how working owners (e.g., sole proprietors without employees) might be included in MEP arrangements. The final regulations clarify that working owners without common law employees may consider themselves to be both an employer and an employee, and therefore eligible to participate in a MEP. To qualify for MEP participation, an owner-employee must 1) have an ownership interest in the trade or business, 2) have income from providing personal services to the trade or business, and 3) meet minimum work hours or earnings tests.

 

New PEO Requirements
Under the final regulations, a professional employer organization (PEO) must meet four requirements in order to qualify as a “bona fide PEO.” A bona fide PEO may act as an “employer” for purposes of sponsoring a MEP that covers the employees of its client employers. To qualify as a bona fide PEO, a PEO must

  • perform substantial employment functions for its client employers;
  • have substantial control over the MEP’s functions and activities and continue to have employee-benefit-plan obligations to MEP participants after the contract between the PEO and its client employers ends;
  • ensure that each client employer has at least one participant covered under the MEP; and
  • limit MEP participation only to current and former employees of the PEO and the PEO’s client employers, to former client employers, and to beneficiaries.

Whether a PEO performs “substantial employment functions” on behalf of its client employers is generally based on the facts and circumstances. But PEOs needing more regulatory certainty can take advantage of a new safe harbor, which is separate from the facts-and-circumstances test. (The proposed regulations contained a complicated regimen of safe harbors; the final regulations contain a single, simplified safe harbor with four conditions that PEOs must meet.)

 

Miscellaneous Provisions

 

Severability Provision Provides Safety Net
The final ARP regulations include a severability clause. Under this clause, if any provisions are found to be unenforceable, or stayed by court action, the remaining provisions of the regulations would remain operative and enforceable. (The regulations include examples of how this severability provision would be applied.)

The severability clause is similar to the one found in the final AHP regulations, which were released in June 2018. Since then, the final AHP regulations have encountered legal obstacles—including having certain provisions vacated by the U.S. District Court for the District of Columbia. Whether the ARP guidance generates similar concerns remains to be seen.

 

States Can Still Establish MEPs

The DOL received numerous comments questioning how the final regulations would affect other guidance—including DOL Interpretive Bulletin 2015-02, which gives states the authority to establish state-facilitated MEPs. The DOL clarified that, although the final regulations do supersede other preexisting DOL guidance, the regulations do not supersede this interpretive bulletin.

 

Open MEPs Still a Possibility

Although the final regulations don’t allow for open MEPs, the DOL has not ruled out future rulemaking that may permit them. Following the release of the proposed regulations, the DOL received approximately 60 comments; more than half of those comments addressed this issue, and the majority supported the creation of open MEPs or pooled employer plans.

Because of the comments received, the DOL has issued a request for information (RFI) that asks for responses on several questions addressing such issues as 1) the cost and complexity of open MEPs, 2) whether the DOL should allow financial institutions to sponsor open MEPs for unrelated employers, and 3) whether the DOL should expand its regulatory definition of employer to include “corporate MEPs” and affiliated service groups.

Although not officially defined, a corporate MEP typically consists of a plan that covers a group of employers related by some level of common ownership—but not enough ownership to constitute a controlled group or affiliated service group. There were three reasons the DOL included corporate MEP questions in the RFI.

  • To obtain information on the level of common ownership that would indicate enough genuine interests to permit members to act in the interests of other group members for purposes of sponsoring a MEP.
  • To determine whether the DOL should consider other facts and circumstances in addition to the level of common ownership between employers.
  • To determine what criteria two or more tax-exempt organizations or a tax-exempt organization and another organization must meet to be considered an employer under ERISA Section 3(5).

 

No Additional Reporting Requirements

The proposed regulations solicited comments on whether it should modify the current reporting and disclosure requirements. Because of the comments received, the DOL decided not to modify the current reporting and disclosure requirements. It also clarified that the MEP plan administrator is responsible for meeting these requirements.

 

The Pros and Cons of Joining a MEP

Some employers may benefit from joining a MEP—especially smaller employers that may not have the time or money to offer their own retirement plan. For example, participating employers may benefit by delegating plan duties to the MEP plan sponsor, incurring less fiduciary liability and sharing reporting responsibilities. But MEPs may not provide a substantial benefit to all who join. For example, proponents claim that participating employers could file one Form 5500 information return collectively. While this is true, many small employers don’t have to file this form, so this benefit could be minimal at best. Cost savings is another commonly perceived benefit. But because plan administration fees and investment fees have lessened in recent years, employers may not incur substantial cost savings after joining a MEP.

 

More to Come . . .

This year has seen a substantial increase in MEP-related activity. In addition to the DOL’s final regulations, the IRS released proposed regulations eliminating the “one bad apple rule,” which would provide an important improvement for MEPs. And earlier this year the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. If enacted, this proposed legislation would eliminate the current commonality requirement—resulting in open MEPs.

While the final ARP regulations may not go as far as some in the industry would like, the regulations do give employers participating in MEPs more certainty about their status under ERISA. And based on the information contained in the RFI, it appears that the DOL is at least preparing for the possibility of open MEPs sometime in the future.

The final ARP regulations are effective September 30, 2019. Those looking for additional information may refer to the DOL’s fact sheet. And, as always, visit ascensus.com for any new developments.

* “National Compensation Survey: Employee Benefits in the United States”, The U.S. Department of Labor’s Employee Benefits Security Administration, March 2018

 

Click here for a printable version of this edition of the Washington Pulse.


Service Provider’s Auto-Portability Proposal Receives DOL Blessing

The Department of Labor’s Employee Benefit Security Administration (EBSA) has published in the Federal Register a prohibited transaction exemption (PTE) granted to a service provider that has proposed what it describes as an automatic portability program for retirement plan assets.

This exemption—PTE 2019-02—was considered necessary so that Retirement Clearinghouse (RCH) could receive fee compensation in connection with the services it intends to provide in this automatic portability program. In general, receipt of such fees would be considered a prohibited transaction, but the EBSA will approve individual applications for exemptions when they meet certain criteria. PTE 2019-02 is granted to RCH for a period of five years.

The RCH program contains essentially two elements.

  • Based on agreements between RCH, participating employer plans, and participating third-party recordkeepers, certain retirement plan small balance cash-out amounts and terminating plan accounts would be automatically rolled over to an “RCH default IRA,” or to a “default IRA” of a participating recordkeeper; this would occur unless the plan participant affirmatively elected otherwise.
  • Subsequently, RCH would—by means of data matching searches—determine whether the IRA owner is participating in another employer plan that accepts rollovers. If the default IRA owner does not affirmatively consent or object, the IRA balance would be automatically rolled over to that new employer’s plan.

 

Process Began With EBSA Advisory Opinion

In November 2018, RCH applied to EBSA for an advisory opinion that would address not the receipt of fees, but instead asked EBSA to address the fiduciary status of RCH and other parties to the auto-rollover program.

The EBSA answered RCH’s inquiry on fiduciary status in Advisory Opinion 2018-01A, published in the November 5, 2018, Federal Register. EBSA simultaneously published in the Federal Register a notice of proposed prohibited transaction exemption (PTE), and invited comments on this PTE request, which it accepted through December 24, 2018.

In its granting of PTE 2019-02 now to RCH, the EBSA noted that there were several commenters who objected to an exemption, these stating that there are multiple reasons why such asset transfers should be done only as affirmative actions on the part of an account owner.

In explaining its decision to grant PTE 2019-02, the EBSA noted that its regulations permit fiduciaries to transfer small account balances to default IRAs “only if protective conditions are met,” and that the exemption now being granted contains “additional conditions applicable for [such] transfers … under the RCH program.”

PTE 2019-02 also prescribes the following.

  • A plan fiduciary that is independent of RCH must review the terms of the RCH program and determine, consistent with its duties under Section 404 of ERISA, that the plan’s participation in the RCH program is prudent.
  • All fees must be approved by the responsible plan fiduciary of the old employer plan.
  • RCH has no authority to unilaterally change these fees, and all fees under the RCH program must not exceed reasonable compensation.

Congressmen Introduce “IRA Preservation Act of 2019”

Although members of the House of Representatives have officially begun their annual August recess, among bills that have recently been introduced and referred to committee is H.R. 4117, the “IRA Preservation Act of 2019.” Its chief co-sponsors are Reps. Ron Kind (D-WI) and Mike Kelly (R-PA). The bill’s main thrust is expanding the IRS Employee Plans Compliance Resolution System (EPCRS) to cover certain errors under individual retirement plans, and providing for reduced penalties for certain self-corrections.

The bill has been referred to the House Ways and Means Committee.  The House of Representatives’ 2019 session resumes on September 9.

Key provisions of H.R. 4117—based on bill text provided by Rep. Kind’s office—include the following.

  • Require the Treasury Department to provide public education materials on IRA contribution and deduction limits, rollovers, required minimum distributions (RMDs), prohibited transactions, the 10 percent early distribution excise tax, and common IRA errors.
  • Reduce the IRA excess contribution penalty from six percent to three percent if corrected within a specified time window.
  • Reduce the penalty for failure to fully distribute an RMD from 50 percent to 10 percent of the undistributed amount if corrected within a specified time window (no reference is made to the existing procedure by which a full waiver of this penalty can be obtained).
  • Exempt earnings withdrawn in a timely IRA excess contribution correction from the 10 percent excise tax on early distributions (which generally applies to those under age 59½)
  • Eliminate the IRA prohibited transaction (PT) consequence of complete IRA disqualification; H.R. 4117 would apply the same rule to HSA, Archer MSA, and Coverdell ESA PTs.
  • Liability for an IRA, HSA, MSA, or ESA PT would be the general 15 percent (primary) and 100 percent (secondary) tax on the PT amount, unless the infraction is a pledging of assets within the account, in which case—while no excise tax—the pledged portion of the account would be deemed distributed and subject to normal taxation consequences.
  • A three-year statute of limitations on PT tax liability would apply.
  • Expand the IRS’s EPCRS program to allow IRA custodians, trustees, and issuers to self-correct errors “for which the owner of an IRA was not at fault;” to include, “but not limited to,” failure to complete a rollover within 60 days, and allow indirect rollover by a nonspouse beneficiary who had reason to believe that due to service provider error, an indirect rollover was permissible.
  • Permit self-correction of “inadvertent” RMD failures in retirement plans (those subject to EPCRS) and IRAs—presuming the existence of practices and procedures designed to prevent such failure—within 180 days; for an IRA owner, “inadvertent” to mean “due to reasonable cause.”
  • The effective date, in general, is as of the date of enactment, with transition provisions; the education elements required of the Treasury Department are to occur “as soon as reasonably practicable after the enactment,” but no later than one year following the date of enactment.

 

 


Association Retirement Plan (a.k.a. MEP) Final Regulations and RFI in Today’s Federal Register

Today’s Federal Register contains the Department of Labor (DOL) final regulations and a Request for Information pertaining to association retirement plans, also known as multiple employer plans (MEPs).

The final regulations provide guidelines under which more than one employer may be treated as a single employer for purposes of retirement plan participation. An important objective of such arrangements is the sharing of plan administration responsibilities and, potentially, costs, for a retirement plan that covers eligible employees of the participating employers.

The guidance does not create or legitimize so-called “open MEPs,” under which multiple participating employers share no common characteristic, affiliation, or purpose (as has been proposed in pending legislation). But this guidance—a response to an August 2018 Executive Order issued by President Trump—would broaden the circumstances under which MEP formation could take place.

Final regulations on association health plans were previously published and have encountered legal obstacles. Whether there will be similar issues with this association retirement plan guidance remains to be seen.

In this guidance the DOL states that “expanding access to workplace retirement plans is critical to helping more American workers financially prepare to retire.” Like the proposed regulations, this guidance applies only to defined contribution retirement plans. The final regulations have no superseding effect on DOL Interpretive Bulletin 2015-02, which gave states the authority to establish state-facilitated MEPs.

The final regulations are substantially similar to the proposed regulations. Highlights include the following.

Bona Fide PEO

The final regulations (like the proposed) include four requirements for a professional employer organization (PEO) to qualify as a “bona fide” PEO that may act as an “employer” under ERISA Section 3(5) for purposes of sponsoring a MEP covering the employees of client employers. One of these four requirements requires the PEO to perform “substantial employment functions” on behalf of the client employers.

Whether a PEO performs “substantial employment functions” on behalf of its client employers is generally determined based on facts and circumstances. But in an effort to provide regulatory certainty, the final regulations contain a safe harbor separate from the facts-and-circumstances test. This safe harbor has been simplified in the final rule.

The final rule contains only one safe harbor for all PEOs. Instead of nine criteria, the new safe harbor contains only four criteria. And instead of allowing a PEO the choice of selecting five from among the nine criteria, the new safe harbor requires that the PEO satisfy all four criteria.

Severability

The final regulations include a severability provision, which provides that if any of the provisions are found to be unenforceable, or stayed by court action—pending further agency action—the remaining provisions of the regulations would remain operative and available. (The regulations include examples of how this severability provision would be applied.)

 


DOL Issues Association Retirement Plan (a.k.a. MEP) Final Regulations

Scheduled for publication in the Federal Register this week are Department of Labor (DOL) final regulations on association retirement plans, a name that in very general terms equates to multiple employer plans, or MEPs. In addition to the final regulations, the DOL has issued a companion request-for-information document, “Open MEPs” and Other Issues.

The final regulations provide guidelines under which more than one employer may be treated as a single employer for purposes of retirement plan participation. An important objective of such arrangements is the sharing of plan administration responsibilities and, potentially, costs, for a retirement plan that covers eligible employees of the participating employers.

The guidance does not create or legitimize so-called “open MEPs,” under which multiple participating employers share no common characteristic, affiliation, or purpose (as has been proposed in pending legislation). But this guidance—a response to an August 2018 Executive Order issued by President Trump—would broaden the circumstances under which MEP formation could take place.

Final regulations on association health plans were previously published and have encountered legal obstacles. Whether there will be similar issues with this association retirement plan guidance remains to be seen.

In this guidance the DOL states that “expanding access to workplace retirement plans is critical to helping more American workers financially prepare to retire.” Like the proposed regulations, this guidance applies only to defined contribution retirement plans. The final regulations have no superseding effect on DOL Interpretive Bulletin 2015-02, which gave states the authority to establish state-facilitated MEPs.

The final regulations are substantially similar to the proposed regulations. Highlights include the following.

Bona Fide PEO

The final regulations (like the proposed) include four requirements for a professional employer organization (PEO) to qualify as a “bona fide” PEO that may act as an “employer” under ERISA Section 3(5) for purposes of sponsoring a MEP covering the employees of client employers. One of these four requirements requires the PEO to perform “substantial employment functions” on behalf of the client employers.

Whether a PEO performs “substantial employment functions” on behalf of its client employers is generally determined based on facts and circumstances. But in an effort to provide regulatory certainty, the final regulations contain a safe harbor separate from the facts-and-circumstances test. This safe harbor has been simplified in the final rule.

The final rule contains only one safe harbor for all PEOs. Instead of nine criteria, the new safe harbor contains only four criteria. And instead of allowing a PEO the choice of selecting five from among the nine criteria, the new safe harbor requires that the PEO satisfy all four criteria.

Severability

The final regulations include a severability provision, which provides that if any of the provisions are found to be unenforceable, or stayed by court action—pending further agency action—the remaining provisions of the regulations would remain operative and available. (The regulations include examples of how this severability provision would be applied.)


Retirement Spotlight: Making Sense of the New Auditing Standard for ERISA Plans

On July 10, 2019, the American Institute of Certified Public Accountants (AICPA) issued formal guidance for those who audit financial statements that are included with Form 5500, Annual Return/Report of Employee Benefit Plan, filings. The AICPA first proposed this guidance in April 2017, following a request by the Department of Labor (DOL) to improve the quality of employee benefit plan audits. This guidance, released in a new Statement on Auditing Standards No. 136 (SAS 136), will apply to audits for reporting periods ending on or after December 15, 2020.

 

What is AICPA’s Role with ERISA Plans?

Founded over 130 years ago, the AICPA is the world’s largest member association representing accounting professionals. Many view the AICPA as an important source of guidance for the accounting profession. Aside from developing audit standards, the AICPA provides educational materials, creates and evaluates CPA exams, and ensures that technical and ethical standards are maintained. The AICPA has also established an Employee Benefit Plan Audit Quality Center to help CPAs meet the various challenges of performing plan audits.

 

When is an ERISA Plan Audit Required?

Before detailing the AICPA guidance, a quick review of the plan audit requirements may help. Plan sponsors whose plans are not subject to the Employee Retirement Income Security Act (ERISA) do not need to provide audit results to the DOL. This group includes most church plans and owner-only plans. In addition, smaller plans that meet certain waiver requirements are not subject to the Form 5500 audit requirements. But an employee benefit plan is subject to an independent audit if the plan

  • had 100 or more eligible participants as of the first day of the plan year and did not file as a small plan filer for Form 5500 reporting in the prior year, or
  • filed as a small plan filer for Form 5500 reporting in prior years but now has 121 or more eligible participants as of the first day of the current plan year.

An “eligible participant” is an employee who is eligible to participate in the plan (even if not deferring), or has terminated employment but still has a plan balance.

 

Limited Scope Audit vs. Full Scope Audit

Because SAS 136 does not change ERISA, plan sponsors can still elect to have a limited scope audit (now known as the ERISA Section 103(a)(3)(C) audit) if the qualified institution holding the assets provides a certified statement confirming the accuracy and completeness of the plan’s investment information. (A “qualified institution” is a financial organization that holds plan assets and is regulated and subject to periodic examination by a state or federal agency.)

During a limited scope audit, the auditor is not required to test the accuracy or completeness of the investment information, nor does the auditor need to assess the control risk related to assets held by the certifying institution. But the auditor does need to provide required financial statement disclosures and review and test controls on plan operations related to the plan’s noninvestment information—such as participant data, contributions, and benefit payments.

Auditors must conduct a full scope audit if the institution does not provide a certified statement on the plan’s investment information, or on any investments not included in the certification. During a full scope audit, the auditor must review and test both the plan’s investment and noninvestment information.

 

What’s “New” About the New Auditing Standard?

SAS 136 clarifies and formalizes current best practices that auditors working with employee benefit plans should already be familiar with. It also provides detailed requirements unique to employee benefit plans, which will help auditors meet their obligations. Some of the most significant provisions found in SAS 136 are described below.

  • SAS 136 replaces a modified opinion (typically a disclaimer) used with ERISA Section 103(a)(3)(C) audits with a two-pronged opinion. The opinion should indicate whether the
    • information in the financial statements not covered by certification is presented fairly, and
    • investment information contained in the financial statements reconciles with, or is derived from, the information contained in the certification.
  • The auditor must obtain plan sponsor acknowledgements that the sponsor is responsible for
    • determining whether a 103(a)(3)(C) audit is permissible and whether the certification meets ERISA requirements,
    • maintaining and providing a current plan document,
    • preparing and fairly presenting financial statements, and
    • providing a substantially completed (draft) Form 5500.
  • The auditor must read the current plan document and consider relevant plan provisions when designing and performing audit procedures.
  • The auditor must identify which investment information is certified.
  • SAS 136 requires the auditor to follow detailed requirements for providing written communication to the plan sponsor about the results of the audit.
  • SAS 136 reformats and changes certain content requirements within the auditor’s report.

 

Why Did the AICPA Create a Formal Auditing Standard?

The DOL grew concerned about the quality of ERISA plan audits after it conducted an assessment of Form 5500 filings and related audit reports for the 2011 filing year. The purpose of the DOL’s assessment was to determine whether the quality of ERISA plan audits had improved since the DOL last reviewed Form 5500 filings in 2004. The DOL found that ERISA plan audits had not improved since 2004. In fact, the audits had grown worse.

During the assessment, the DOL reviewed a sample of 400 plan audits from a pool of 81,162 Form 5500 filings. The DOL found that 39% of audits contained major deficiencies with respect to one or more generally accepted auditing requirements. These deficiencies could lead to the rejection of the Form 5500 filing and put $653 billion in assets for over 22 million plan participants at risk. (In 2004, 33% of audits contained major deficiencies.) Examples of major deficiencies included no documentation of an internal control environment, failure to test timely remittance of employee contributions, inadequate work determining eligibility and calculation of benefit payments, and no testing of participant investment options.

The DOL also reviewed the number of limited scope audits that were performed. In 2004, 59% of the 400 audits reviewed were limited scope audits. In 2011, that number increased to 81%. The DOL believes that the increased number of limited scope audits has contributed to the increased number of deficiencies found in audits.

 

How Should Plan Sponsors Prepare?

Although the SAS 136 provisions won’t take effect until 2021, plan sponsors should discuss the effect of these changes with their CPAs. While the new SAS 136 primarily affects audit practices, plan sponsors that have not taken an active role in past plan audits can anticipate more involvement under this newly formalized standard.

Ascensus will continue to monitor any developments regarding this guidance. Visit ascensus.com for future updates.

Click here for a printable version of this issue of the Retirement Spotlight.

 


House Passes Union Pension Rescue Bill, Senate Passage Considered Unlikely

The House of Representatives has passed the Rehabilitation for Multiemployer Pensions Act (H.R. 397), introduced in January 2019 by House Ways and Means Committee Chairman Richard Neal (D-MA). The bill passed by a 264-169 margin, with most of its support coming from Democrats. A Senate companion bill has been introduced by lead sponsor Sen. Sherrod Brown (D-OH).

The legislation—also known as the Butch Lewis Act—is intended to address issues of insolvency common to a significant number of multiemployer (union) defined benefit pension plans. The bill as proposed would do the following.

  • Establish a Pension Rehabilitation Administration within the Treasury Department, and a related trust fund to make loans to certain union pension plans that are in critical-and-declining status, or insolvent
  • Enable the Treasury Department to issue bonds to fund the loans described above
  • Appropriate to the Pension Benefit Guaranty Corporation (PBGC) funds for additional assistance that some plans could qualify for beyond the above-described loans

Passage in the Republican-controlled Senate—where it is being called a bailout for badly managed pension plans—is considered unlikely.

 


DOL Addresses Compliance With MEP Form 5500 Filing Accuracy

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued Field Assistance Bulletin (FAB) 2019-01, which affirms earlier guidance on multiple employer plan (MEP) reporting on Form 5500, Annual Return/Report of Employee Benefit Plan, and provides temporary penalty relief for certain reporting failures.

In response to provisions in the Cooperative and Small Employer Charity Pension Flexibility Act, the EBSA issued an interim final rule in 2014 that added new reporting requirements for MEPs. In their annual filing, such plans were to report the following information on an attachment to the Form 5500 (or Form 5500-SF for small employer benefit plans).

  • A list of each employer participating in the MEP
  • A good faith estimate of each participating employer’s percentage of the plan’s overall contributions (employee and employer) made during the reporting year
  • The name, employer identification number (EIN), and plan number for the MEP as found on the Form 5500

Following the issuance of the 2014 guidance, the EBSA observed a number of failures “to include a complete and accurate list of employers” with their Form 5500 or Form 5500-SF.

EBSA identified several common failures in 35 percent of the 286 plans that were included in an enforcement effort earlier in 2019. The following were among the failures.

  • Employer names were not complete (e.g., abbreviated or initials-only).
  • EINs were truncated to include only the last four digits of the EIN.
  • The Form 5500 attachment noted that the EBSA-required data was “available upon request.”
  • A PEO was incorrectly listed as the only participating employer.

Rather than initiating civil enforcement action against MEPs guilty of such failures, the EBSA is granting transition relief in FAB 2019-01 “to plan administrators of MEPs who voluntarily comply…and commence filing complete and accurate participating employer information…for the 2018 and following plan years…”

Form 5500 Filing Deadline Extension for MEPs

Because the 2018 Form 5500/5500-SF filing deadline for calendar year plans is imminent—July 31, 2019—the EBSA is granting such MEPs a filing extension of up to 2½ months. EBSA also noted the following.

  • Plans should check the “special extension” box under Part I, Line D of the 2018 Form 5500/5500-SF, and enter “FAB 2019-01” as the description for the extension.
  • Filers may instead choose to File Form 5558 with the IRS to obtain the general 2½ month extension, but if so, this must be done by July 31, 2019, for calendar year plans.
  • Plans that have already filed their 2018 plan year Form 5500/5500-SF must file an amended return by October 15, 2019, to obtain the relief provided by FAB 2019-91.

The EBSA reserves the right in individual cases to request prior-year filing data.


Eugene Scalia Chosen to Replace Departing DOL Secretary Acosta

Eugene Scalia—son of the late Supreme Court Justice Antonin Scalia, and a litigator in the recent lawsuit that vacated Department of Labor (DOL) investment fiduciary regulations—has been picked by President Trump to succeed Alexander Acosta as DOL Secretary. Acosta resigned, effective today, amid controversy over a plea bargain arrangement in which he participated as a federal prosecutor before his appointment in 2017 as Secretary of Labor.

Scalia’s current employer, the law firm Gibson, Dunn & Crutcher, practices labor relations law. Scalia also served as an attorney in the DOL during the presidential administration of George W. Bush.

 


House Passes Legislation to Repeal Cadillac Tax

The U.S. House of Representatives has overwhelmingly passed the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748), which eliminates the so-called “Cadillac tax” element of the Patient Protection and Affordable Care Act—often referred to simply as the Affordable Care Act, or ACA.

The Cadillac tax was intended to fund certain benefits provided by ACA, and—as some economists claimed it could—exert downward pressure on rising healthcare costs. Application of this tax—40 percent on the value of healthcare benefits exceeding specified thresholds—has been delayed twice by Congress.

The Cadillac tax was to apply to what were claimed to be the most generous and expensive employer-provided healthcare plans. Opponents contended, however, that, in operation, it would have been levied on employer-provided health plans offered to many middle-class workers, and adversely affect employer incentives to offer health benefits. Notably, health benefits included in the calculation to determine application of the Cadillac tax included employer-provided health savings account (HSA) and health reimbursement arrangement (HRA) benefits.

While the 419-6 vote in the House is an indication of broad bipartisan support for repeal of the Cadillac tax, it is unclear at this time when—or whether—the legislation will be taken up in the U.S. Senate in the limited time remaining in the 2019 session of Congress. Repeal cannot occur without the Senate and House passing identical legislation, enacted with President Trump’s signature.