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How Employers Are Adopting the New Effective Plan

The employer who decides to join an MEP is legally adopting the plan as its own, becoming a co-sponsor of the MEP and the other PEs and the LE. The PE will sign a joinder agreement that serves as an adoption agreement of a prototype plan, under which it will identify the terms of the projects which will apply to its employees. The joinder accordance may also outline the delegation of authority necessary to make the particular Multiple Employer Plan Provider program work.

Existing Plans

Existing plans adopting the MEP will be consolidating their current project into the MEP, adopting that new document as its own. This is more than a straightforward restatement; it is an actual merger of plans. The PE will file a final Form 5600 on its old program and, in most cases, the Form 5310-A will not be required to be filed.

New Plans

An employer not currently sponsoring a project, which then joins the Multiple Employer Plan Provider, is merely adopting the MEP as its current plan. It will sign the joinder report in the same manner as if they were adopting a prototype plan, relying upon the same corporate authority as required to adopt any new 401k MEPs plan.

Delegating Authority

Proper delegation of power under the MEP is key to making the program work efficiently. The PE is a plan donated, but care should be taken that any statutory obligations of a Plan Sponsor be allocated to the LE. It is also delicate for the LE to have the status of Plan management and Named Fiduciary to delegate other fiduciary duties.

This means that the plan presented itself should name the LE, whether it be the connected plan’s governing body or the Lead Employer on an Open MEP as the Plan Sponsor, Plan Administrator, and Named Fiduciary. Failure for this delegation to occur in the plan document could, in some instances, such as in specific Association plans, cause the PEs to be considered Plan Administrators. The LE should reserve the right to amend and terminate the program while protecting participant rights.

With PE’s, however, they are not totally without rights and commission under the plan document. PEs need to act according to terminating their involvement in the plan by directing the LE to spin off its assets. Employers will want to reserve a reasonable request to notice of amendment and dissolvent as well. In certain situations, the PE will be a fiduciary (albeit with limited responsibilities) about the MEP portion, which covers its employees.

 Individual rights and obligations of the LE and the PE should be well presented to minimize any confusion. They can be done in either the document by which the PE adopts the plan or by a separate agreement between the LE and the PE where specific delegations, representations, disclosures, and approvals are undertaken.

Terminating MEP participation

A PE that decides to leave the MEP accomplishes this by directing the LE to spin off the plan’s portion, which is related to its employees, into a new project. The PE will need to establish the original intent, and the subsequent transfer of assets is considered a spin-off and plan–to–plan transfer. It is not considered a termination of the PE’s plan, and therefore not a distributable event for elective deferrals. Where a PE wishes to discontinue altogether its offering of a 401(k) plan to its employees, the LE will generally spin-off that PE’s assets into a new project, which is then immediately terminated. This results in an allowed distributable event. The MEP plan document should reserve to the PE this right to the spin-off. Some members have noted that it may be possible for an MEP to reserve the right to partially terminate the PE’s portion of the plan at the PE’s instruction and then fully vest and distribute those funds. There is nothing in the Code or regs that identify the partial termination of an MEP or any plan as a distributable event for elective deferral distribution purposes. Absent further guidance; the better-defined alternative is to spin-off and then terminate.

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