``Open MEPs'' and Other Issues Under Section 3(5) of the Employee Retirement Income Security Act, 37545-37548 [2019-16072]
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Federal Register / Vol. 84, No. 147 / Wednesday, July 31, 2019 / Proposed Rules
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Parts 2510
RIN 1210–AB92
‘‘Open MEPs’’ and Other Issues Under
Section 3(5) of the Employee
Retirement Income Security Act
Employee Benefits Security
Administration, U.S. Department of
Labor.
ACTION: Request for information.
AGENCY:
This document is a request for
information regarding the definition of
‘‘employer’’ in section 3(5) of the
Employee Retirement Income Security
Act of 1974, as amended (ERISA). The
document mainly seeks comments on
whether to amend our regulations to
facilitate the sponsorship of ‘‘open
MEPs’’ by persons acting indirectly in
the interests of unrelated employers
whose employees would receive
benefits under such arrangements. The
term ‘‘open MEP’’ in this document
refers to a single defined contribution
retirement plan that covers employees
of multiple unrelated employers. The
information received in response to the
questions in this document may form
the basis of future rulemaking under
ERISA. This request for information was
triggered in part by public comments
received on a related rulemaking action
under section 3(5) of ERISA, with
respect to which a final rule is being
published elsewhere in this issue of this
Federal Register. This document also
solicits information on other issues
raised by these commenters, but which
were considered beyond the scope of
that final rule.
DATES: Comments should be submitted
to the Department on or before October
29, 2019.
ADDRESSES: You may submit written
comments, identified by 1210–AB92, to
either of the following addresses:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Office of Regulations and
Interpretations, Employee Benefits
Security Administration, Room N–5655,
U.S. Department of Labor, 200
Constitution Avenue NW, Washington,
DC 20210, Attention: 1210–AB92 ‘‘Open
MEPs’’ and Other Issues Under Section
3(5) of ERISA.
Instructions: All submissions received
must include the agency name and
Regulatory Identifier Number (RIN) for
this rulemaking. Persons submitting
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SUMMARY:
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comments electronically are encouraged
not to submit paper copies. Comments
will be available to the public, without
charge, online at http://
www.regulations.gov and http://
www.dol.gov/agencies/ebsa, and at the
Public Disclosure Room, Employee
Benefits Security Administration, Suite
N–1513, 200 Constitution Avenue NW,
Washington, DC 20210.
Warning: Do not include any personally
identifiable or confidential business
information that you do not want publicly
disclosed. Comments are public records
posted on the internet as received and can be
retrieved by most internet search engines.
FOR FURTHER INFORMATION CONTACT:
Colleen Brisport, Office of Regulations
and Interpretations, Employee Benefits
Security Administration, (202) 693–
8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
I. Background
A. In General
The Department of Labor
(Department) published a final rule
(MEP Final Rule) in this issue that
expands access to affordable quality
retirement savings options by clarifying
the circumstances under which an
employer group or association or a
professional employer organization
(PEO) may sponsor a single workplace
defined contribution retirement plan
under title I of ERISA (as opposed to
providing an arrangement that
constitutes multiple retirement plans).
The final regulation does this by
clarifying that employer groups or
associations and PEOs can, when
satisfying certain criteria, constitute
‘‘employers’’ within the meaning of
section 3(5) of ERISA. As an
‘‘employer,’’ the group or association, or
PEO, can sponsor a single definedcontribution ‘‘employee pension benefit
plan’’ within the meaning of section 3(2)
of ERISA, for its members or client
employers (such plans, whether
characterized as ‘‘Association
Retirement Plans’’ or not, are
collectively referred to hereinafter as
Multiple Employer Plans, ‘‘MEPs,’’
unless otherwise specified).
The MEP Final Rule responds to
Executive Order 13847, ‘‘Strengthening
Retirement Security in America’’ issued
on August 31, 2018 (Executive Order),
which directed the Secretary of Labor to
examine policies that would: (1) Clarify
and expand the circumstances under
which United States employers,
especially small and mid-sized
businesses, may sponsor or adopt a MEP
as a workplace retirement option for
their employees, subject to appropriate
safeguards; and (2) increase retirement
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security for part-time workers, sole
proprietors, working owners, and other
entrepreneurial workers with nontraditional employer-employee
relationships by expanding their access
to workplace retirement plans,
including MEPs.
B. The Statute
ERISA applies not to every employee
benefit plan, but, as relevant here, to an
‘‘employee benefit plan’’ sponsored by
an ‘‘employer.’’ ERISA § 4(a)(1); 29
U.S.C. 1003(a)(1).1 Section 3(5) of
ERISA, in turn, defines the term
‘‘employer.’’ In relevant part it states
that the term ‘‘employer’’ means ‘‘any
person acting directly as an employer,
or indirectly in the interest of an
employer, in relation to an employee
benefit plan; and includes a group or
association of employers acting for an
employer in such capacity.’’ 29 U.S.C.
1002(5).
C. Bona Fide Groups or Associations of
Employers
Under the MEP Final Rule, a bona
fide group or association of employers is
considered an ‘‘employer’’ and may
sponsor a MEP for its members if certain
conditions are satisfied. Four of these
criteria are that the group or association
must have a formal organizational
structure, be controlled by its employer
members, have at least one substantial
business purpose unrelated to offering
and providing employee benefits to its
members, and limit plan participation to
employees and former employees of
employer members. In addition,
employer members must have a
commonality of interest, each employer
must directly act as an employer of at
least one employee participating in the
MEP, and the group or association must
not be a financial services firm. The
commonality criteria is satisfied if the
employer members have common
geography or industry—i.e., they are in
the same trade, industry, line of
business or profession; or each
employer has a principal place of
business in the same region that does
not exceed the boundaries of a single
State or metropolitan area (even if the
metropolitan area includes more than
one State).
D. Bona Fide Professional Employer
Organizations
Under the MEP Final Rule, a bona
fide PEO is considered an ‘‘employer’’
and may sponsor a MEP for its client
employers if four conditions are
1 ERISA also covers benefit plans established or
maintained by employee organizations and such
plans established or maintained by both employers
and employee organizations.
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satisfied.2 The PEO must perform
substantial employment functions on
behalf of its client employers. The PEO
must have substantial control over the
functions of the MEP, as the plan
sponsor, administrator, and a named
fiduciary. The PEO must ensure that
each client employer has at least one
employee covered under the MEP. The
PEO also must ensure that participation
in the MEP is available only to
employees and former employees.
E. Need for This Request for Information
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The MEP Final Rule was preceded by
a notice of proposed rulemaking
(Proposed Rule) on the same topic.3 The
Proposed Rule solicited comments on,
inter alia, so-called ‘‘open MEPs’’ or
‘‘pooled employer plans,’’ which
generally are arrangements that cover
employees of employers with no
relationship other than their joint
participation in the MEP. The Proposed
Rule specifically requested comments
on whether, and under what
circumstances, these arrangements
should and could be operated as ERISAcovered plans. The solicitation asked
commenters who believe that these
arrangements should be addressed by
rulemaking to include a discussion of
why such an arrangement should be
treated as one employee benefit plan
within the meaning of title I of ERISA
rather than as a collection of separate
employer plans being serviced by a
commercial enterprise that provides
retirement plan products and services.
Such commenters also were encouraged
to provide suggestions regarding the
regulatory conditions that should apply
to these particular arrangements.
The Department received
approximately sixty (60) comments in
response to the Proposed Rule. More
than half of the comments received
addressed this issue, and the majority
were supportive of the Department
promulgating a rule that would facilitate
these arrangements.4 Supporting
commenters argued that open MEPs
would best promote the objectives of
Executive Order 13847 and that open
MEPs are not precluded by ERISA. They
2 A PEO generally refers to an organization that
enters into an agreement with a client to perform
some or all of the federal employment tax
withholding, reporting, and payment functions
related to workers performing services for the
client. The provisions of a PEO arrangement
typically state that the PEO assumes certain
employment responsibilities that the clientemployer would otherwise fulfill with respect to
employees.
3 83 FR 53534 (October 23, 2018).
4 Comments on the Proposed Rule are available
here: https://www.dol.gov/agencies/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB88.
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argued that the text of ERISA
demonstrates that open MEPs may be
sponsored by ‘‘any person acting . . .
indirectly in the interest of an employer,
in relation to an employee benefit plan.’’
They asserted that the Proposed Rule
contained an unnecessarily narrow
interpretation of ‘‘employer’’ under
section 3(5) of ERISA. They speculated
that the narrow view in the Proposed
Rule was likely influenced by the
Department’s experience with abusive
Multiple Employer Welfare
Arrangement (MEWA) schemes in the
past, but they aver that defined
contribution MEPs are structurally
different arrangements with
fundamentally different regulatory
ecosystems than MEWAs.
But even among the supporters of
open MEPs, there were very different
ideas on how the Proposed Rule might
best be amended to facilitate open
MEPs. Some commenters, for example,
recommended eliminating some or all of
the substantial business purpose,
control, and commonality requirements
from the Proposed Rule’s bona fide
group or association provisions, and the
provision that prohibits financial
services firms from being the group or
association that establishes the MEP.
Other commenters, however,
recommended modifications to, and an
expansion of, the Proposed Rule’s bona
fide PEO provisions. These commenters
argued that the bona fide PEO
framework, with appropriate
modifications, could readily be
expanded beyond the narrow scope of
PEOs to include commercial enterprises
more generally. To these commenters, a
commercial entity’s willingness to exert
substantial control over the functions
and activities of the MEP, as the plan
sponsor, plan administrator, and as a
named fiduciary provides a sufficient
basis to conclude that such an entity is
acting ‘‘indirectly in the interest of an
employer . . . in relation to an
employee benefit plan’’ for purposes of
section 3(5) of ERISA, without regard to
whether the entity is a PEO.
Not all commenters, however,
supported the idea of open MEPs. Some
commenters supported the prohibition
against commercial entities and
financial services firms being able to
sponsor MEPs as an ‘‘employer’’ under
section 3(5) of ERISA. Among other
things, these commenters raised issues
regarding statutory authority and
potential conflicts of interests among
those businesses, entities, and other
commercial ventures that most likely
would be interested and willing to
sponsor open MEPs. A few commenters
viewed the topic of open MEPs as
perhaps being better suited for
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legislation, given the wide range of
issues presented under ERISA and the
Internal Revenue Code (Code).
After reviewing the comments, the
Department is persuaded that open
MEPs deserve further consideration.
The Department does not believe that it
has acquired a sufficient public record
on, or a thorough understanding of, the
complete range of issues presented by
the topic. In light of this and the conflict
in the comments about whether and
how to permit open MEPs, as well as
legislation pending in the 116th
Congress, the Department has decided
to stimulate further debate and to
further develop the public record by
soliciting comments on a broad range of
issues relating to open MEPs, as set
forth in Section II of this document.
F. Regulatory Authority
The Department has broad authority
to craft regulations under section 505 of
ERISA. This section provides, in
relevant part, that ‘‘the Secretary may
prescribe such regulations as he finds
necessary or appropriate to carry out the
provisions of this subchapter.’’ This
authority extends to situations where, as
here, the text of ERISA section 3(5) is
ambiguous on its face.5
II. Request for Information
This document contains a number of
questions. Respondents need not answer
every question, but should identify, by
number, each question addressed.
Interested persons also are encouraged
to address any other matters they
believe are germane to the general topic
of the request for information.6
A. ‘‘Open MEPs’’
1. Should the Department amend 29
CFR 2510.3–55 to expressly permit
financial institutions or other persons to
maintain a single defined contribution
retirement plan on behalf of multiple
unrelated employers (hereinafter ‘‘open
MEP’’)? Many commenters on the
Proposed Rule argued in support of
open MEPs. Do you agree with the
commenters? If the answer is yes or no,
why?
2. What type of person or persons
should be recognized as capable of
being an ‘‘employer’’ under the
‘‘indirectly in the interest’’ clause in
section 3(5) of ERISA for purposes of
establishing and maintaining an open
MEP? For example, many commenters
suggested that banks, insurance
companies, broker-dealers, and other
5 See 83 FR 28912, 14 (June 21, 2018); 83 FR
53534, 37 (Oct. 23, 2018) (citing case law that
observed the ambiguity).
6 Comments will be shared with the Department
of the Treasury.
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Federal Register / Vol. 84, No. 147 / Wednesday, July 31, 2019 / Proposed Rules
similar financial services firms
(including pension recordkeepers and
third-party administrators) (hereinafter
‘‘Commercial Entities’’) should be
recognized for this purpose. Are these
commenters correct, and why? What, if
any, are appropriate limitations on the
types of Commercial Entities that
should be recognized as employers?
3. If a Commercial Entity could
sponsor an open MEP, what conflicts of
interest, if any, would the Commercial
Entity, affiliates, and related parties
likely have with respect to the plan and
its participants? To what extent could a
Commercial Entity that sponsors the
open MEP affect its own compensation
or the compensation of affiliates or
related parties through its actions as a
sponsor, fiduciary, or service provider
to the plan? What categories of fees and
compensation, direct or indirect, would
Commercial Entities, affiliates, and
related parties likely receive as a result
of sponsoring the MEP, rendering
services to the MEP, or offering
investments (including proprietary
products) to the MEP? How could these
or other such conflicts of interest be
appropriately mitigated? How effective
would the suggested conflict-mitigation
approaches likely be in safeguarding
MEPs from conduct that favors the
interests of the Commercial Entity,
affiliates, or related parties at the plan’s
expense? Would prohibited transaction
exemptions be necessary to avoid
violations of Section 406 of ERISA and
imposition of excise taxes under Section
4975(c) of the Internal Revenue Code?
Are different mitigating provisions
appropriate for different Commercial
Entities, and why or why not?
4. The current regulation contains
provisions that limit the breadth of
ERISA section 3(5)’s ‘‘indirectly in the
interest’’ clause as applied to the two
types of multiple employer plans
covered by that regulation. For instance,
in the case of a bona fide group or
association, the regulation contains the
commonality and control requirements.
As another example, in the case of a
bona fide PEO, the regulation contains
the substantial employment functions
and control requirements. Are limiting
principles or conditions needed in the
case of open MEPs? Please explain why
or why not. If such principles or
conditions are necessary or helpful,
please provide examples of principles or
conditions that would be appropriate
limitations along with reasons for such
limitations.
5. Commenters offered two distinctly
different approaches on how the current
regulation could be reformulated to
facilitate open MEPs. For example, some
commenters recommended amending
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the bona fide group or association
provisions by deleting the commonality
and control requirements, and the
prohibition on Commercial Entities.
Other commenters, by contrast,
recommended modifying the bona fide
PEO provisions to cover Commercial
Entities, but with additional or different
criteria to reflect the differences
between PEOs and these other entities.
What are the benefits and drawbacks of
each of these approaches, and are there
other approaches or alternatives the
Department should consider?
6. If the Department took either
approach described in the prior
question, what would the impact be on
MEPs offered by existing groups or
associations of employers or by existing
PEOs? Is there a risk that open MEPs,
under either approach, would
undermine or destabilize these existing
arrangements? For example, would
nationwide open MEPs undermine or
destabilize geography-based MEPs
sponsored by groups or associations? If
so, what steps could the Department
take to mitigate such impacts? For
instance, commenters on the Proposed
Rule suggested that bona fide group or
association MEPs should be permitted
to cover regions larger than the
boundaries of a single State or
metropolitan area that includes more
than one State. Are these commenters
correct? Why or why not?
7. Some commenters raised concerns
about the potential cost and complexity
arising from the application of the
various qualification requirements
under section 401(a) of the Code (e.g.,
nondiscrimination, exclusive benefit,
minimum participation, minimum
coverage, and top-heavy requirements)
to the potentially large numbers of
employers that theoretically could
participate in a nationwide open MEP.
These commenters are concerned that
the cost and complexity of these
requirements in this context may offset
some of the savings otherwise
associated with establishing and
maintaining an open MEP. Are these
commenters correct? If so, do the
potential costs and complexities
outweigh the benefits of offering open
MEPs?
8. Would a regulation facilitating the
adoption and marketing of open MEPs
by Commercial Entities have an impact
on the implementation, administration,
or enforcement of any State or federal
laws, apart from ERISA and the Internal
Revenue Code, particularly including
securities, insurance, and banking laws?
Are there any specific issues relating to
such other laws, which the Department
should consider in connection with any
rulemaking effort?
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37547
B. Corporate MEPs
The Proposed Rule solicited
comments on whether the MEP Final
Rule should address the status of socalled ‘‘corporate MEPs,’’ a term not
defined in ERISA. For that purpose, the
Proposed Rule considered ‘‘corporate
MEPs’’ to be defined contribution plans
that cover employees of employers
related by some level of common
ownership, but that are not in the same
controlled group or affiliated service
group within the meaning of section
414(b), (c), or (m) of the Code.
In response, one commenter provided
an example of what it described as a
common fact pattern that should be
addressed by rulemaking or other
guidance. The example involves two
companies, A and B, in different
industries and different parts of the
country, where, as a result of an
acquisition, A now owns 60% of B but
the remaining 40% of B is owned by
unrelated parties. If A and B jointly
maintain a retirement plan for the
benefit of their employees, it does not
appear that A and B would meet the
commonality of interest conditions to
qualify as a MEP and, consequently, this
‘‘corporate MEP’’ would not be a single
plan under the Proposed Rule, but
instead would be two plans for purposes
of ERISA.
The Department recognizes that
meaningful levels of common
ownership may serve as an indicator
that the members of the ownership
group have among themselves a
sufficient relationship, unrelated to the
provision of benefits. This relationship
may be enough such that one or more
of these members can be said to be
acting ‘‘indirectly in the interest of’’ the
others within the meaning of ERISA
section 3(5) to sponsor a MEP for the
group’s participation. In DOL Advisory
Opinion 89–06A, for example, the
Department opined that a member of a
controlled group of corporations that
establishes a benefit plan for its
employees and the employees of other
members of the controlled group is
considered to be an employer within the
meaning of ERISA section 3(5), such
that only one plan exists for all
members of the group.7
On the existing public record,
however, the Department lacks a
meaningful basis on which to determine
the precise level of ownership, below
the controlled group of corporations
7 With respect to a plan maintained by one or
more members of a controlled group of corporations
(within the meaning of section 1563(a) of the Code,
determined without regard to sections 1563(a)(4)
and (e)(3)(C)), all employees of such corporations
shall be treated as employed by a single employer.
29 USC 1060(c).
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threshold established in section 414(b)
of the Code (or the corresponding
threshold for a controlling interest in a
trade or business in section 414(c) of the
Code), that conclusively distinguishes
bona fide ownership groups from
commercial enterprises in which
members have nominal ownership
levels and which exist primarily or
solely to market, distribute, underwrite
or otherwise provide employee benefits
to the nominal owners.
9. Should the Department amend 29
CFR 2510.3–55 to address ‘‘corporate
MEPs,’’ and if so, why and how? Apart
from the definition of a controlled group
of corporations within the meaning of
section 414(b) of the Code, (or a group
of trades or businesses under common
control within the meaning of section
414(c) of the Code), is there a precise
level of common ownership that could
and should be used to deem two or
more corporations, trades, or businesses
to have sufficient ownership ties such
that any one of these corporations,
trades, or businesses can be said to be
able to act ‘‘indirectly in the interest of’’
the others within the meaning of ERISA
section 3(5) to sponsor a MEP for the
group’s participation? Are there aspects
of control or commonality that the
Department should consider in addition
to the precise level of common
ownership? Put another way, if the
Department were to consider facts and
circumstances, either in addition to, or
in lieu of, level of common ownership,
what facts and circumstances would be
appropriate to consider? Also, what
sufficient ties are needed for two or
more tax-exempt organizations or a taxexempt organization and another
organization to be treated as an
employer within the meaning of section
3(5) of ERISA?
10. Should members of an ‘‘affiliated
service group’’ within the meaning of
section 414(m) of the Code be treated as
an employer within the meaning of
section 3(5) of ERISA? If so, why?
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C. Economic Analysis, Paperwork
Reduction Act, and Regulatory
Flexibility Act Questions
Executive Order 12866 (E.O. 12866)
requires an assessment of the
anticipated costs and benefits to the
government and the public of a
significant rulemaking action, and of the
alternatives considered, using the
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guidance provided by the Office of
Management and Budget. Under E.O.
12866, a determination must be made
whether implementation of this rule
will be economically significant. A rule
that has an annual effect on the
economy of $100 million or more is
considered economically significant.
In addition, the Regulatory Flexibility
Act may require the preparation of an
analysis of the impact on small entities
of proposed rules and regulatory
alternatives. A regulatory flexibility
analysis must generally include, among
other things, an estimate of the number
of small entities subject to the
regulations (for this purpose, plans,
employers, and issuers and, in some
contexts small governmental entities),
the expense of the reporting,
recordkeeping, and other compliance
requirements (including the expense of
using professional expertise), and a
description of any significant regulatory
alternatives considered that would
accomplish the stated objectives of the
statute and minimize the impact on
small entities. For this purpose, the
Agency considers a small entity to be an
employee benefit plan with fewer than
100 participants.
The Paperwork Reduction Act
requires an estimate of how many
‘‘respondents’’ will be required to
comply with any ‘‘collection of
information’’ requirements contained in
regulations and how much time and
cost will be incurred by the respondents
as a result. A collection of information
includes recordkeeping, reporting to
governmental agencies, and third-party
disclosures.
The Department is requesting
comments that may contribute to the
analyses that will be performed under
these requirements, both generally and
with respect to the following specific
areas:
11. What costs and benefits would be
associated with allowing an open MEP
consisting of employers with no
relationship other than their joint
participation in the MEP to be operated
as a single ERISA-covered plan? How
would the costs and benefits of open
MEPs compare to those associated with
MEPs sponsored by bona fide groups
and associations and (PEOs)? Please
explain.
12. What types of entities would have
business motives to sponsor open
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MEPs? For each type, how prevalent
would their sponsorship likely be? What
would be the economic advantages and
disadvantages of each type of entity for
employers and participants and
beneficiaries? Please explain.
13. What types of employers would
join open MEPs? What size would they
be (i.e., would large employers, mid-size
employers, or small employers be
particularly interested in joining an
open MEP)? How many would join open
MEPs to begin offering retirement
benefits to workers who previously did
not have access to them? How many
employers would be switching away
from another type of retirement savings
vehicle or plan? What type? Please
explain.
14. Please describe how prevalent
automatic enrollment would likely be
among employers that join open MEPs.
15. Please describe how common it
will likely be for employers
participating in open MEPs to accept
rollovers from other qualified plans.
16. Please indicate how many selfemployed people are likely to join open
MEPs.
17. Please compare the overall cost of
providing defined contribution
retirement benefits among the following
types of retirement plans:
a. Open MEPs.
b. MEPs sponsored by bona fide
groups and associations.
c. MEPs sponsored by PEOs.
d. Single-employer plans sponsored
by small businesses.
Additionally, please compare what
the likely total plan fees will be for a.–
d. Please compare the likely costs and
fees for various component services,
such as asset management,
recordkeeping, and marketing and
distribution, across a–d.
18. What costs and benefits would be
associated with allowing corporate
MEPs described in Section B., above, to
operate as single ERISA-covered defined
contribution plans?
Signed at Washington, DC, on July 22,
2019.
Preston Rutledge,
Assistant Secretary, Employee Benefits
Security Administration, Department of
Labor.
[FR Doc. 2019–16072 Filed 7–29–19; 8:45 am]
BILLING CODE 4510–29–P
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Agencies
[Federal Register Volume 84, Number 147 (Wednesday, July 31, 2019)]
[Proposed Rules]
[Pages 37545-37548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16072]
Federal Register / Vol. 84, No. 147 / Wednesday, July 31, 2019 /
Proposed Rules
[[Page 37545]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2510
RIN 1210-AB92
``Open MEPs'' and Other Issues Under Section 3(5) of the Employee
Retirement Income Security Act
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Request for information.
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SUMMARY: This document is a request for information regarding the
definition of ``employer'' in section 3(5) of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The document mainly
seeks comments on whether to amend our regulations to facilitate the
sponsorship of ``open MEPs'' by persons acting indirectly in the
interests of unrelated employers whose employees would receive benefits
under such arrangements. The term ``open MEP'' in this document refers
to a single defined contribution retirement plan that covers employees
of multiple unrelated employers. The information received in response
to the questions in this document may form the basis of future
rulemaking under ERISA. This request for information was triggered in
part by public comments received on a related rulemaking action under
section 3(5) of ERISA, with respect to which a final rule is being
published elsewhere in this issue of this Federal Register. This
document also solicits information on other issues raised by these
commenters, but which were considered beyond the scope of that final
rule.
DATES: Comments should be submitted to the Department on or before
October 29, 2019.
ADDRESSES: You may submit written comments, identified by 1210-AB92, to
either of the following addresses:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention:
1210-AB92 ``Open MEPs'' and Other Issues Under Section 3(5) of ERISA.
Instructions: All submissions received must include the agency name
and Regulatory Identifier Number (RIN) for this rulemaking. Persons
submitting comments electronically are encouraged not to submit paper
copies. Comments will be available to the public, without charge,
online at http://www.regulations.gov and http://www.dol.gov/agencies/ebsa, and at the Public Disclosure Room, Employee Benefits Security
Administration, Suite N-1513, 200 Constitution Avenue NW, Washington,
DC 20210.
Warning: Do not include any personally identifiable or
confidential business information that you do not want publicly
disclosed. Comments are public records posted on the internet as
received and can be retrieved by most internet search engines.
FOR FURTHER INFORMATION CONTACT: Colleen Brisport, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
I. Background
A. In General
The Department of Labor (Department) published a final rule (MEP
Final Rule) in this issue that expands access to affordable quality
retirement savings options by clarifying the circumstances under which
an employer group or association or a professional employer
organization (PEO) may sponsor a single workplace defined contribution
retirement plan under title I of ERISA (as opposed to providing an
arrangement that constitutes multiple retirement plans). The final
regulation does this by clarifying that employer groups or associations
and PEOs can, when satisfying certain criteria, constitute
``employers'' within the meaning of section 3(5) of ERISA. As an
``employer,'' the group or association, or PEO, can sponsor a single
defined-contribution ``employee pension benefit plan'' within the
meaning of section 3(2) of ERISA, for its members or client employers
(such plans, whether characterized as ``Association Retirement Plans''
or not, are collectively referred to hereinafter as Multiple Employer
Plans, ``MEPs,'' unless otherwise specified).
The MEP Final Rule responds to Executive Order 13847,
``Strengthening Retirement Security in America'' issued on August 31,
2018 (Executive Order), which directed the Secretary of Labor to
examine policies that would: (1) Clarify and expand the circumstances
under which United States employers, especially small and mid-sized
businesses, may sponsor or adopt a MEP as a workplace retirement option
for their employees, subject to appropriate safeguards; and (2)
increase retirement security for part-time workers, sole proprietors,
working owners, and other entrepreneurial workers with non-traditional
employer-employee relationships by expanding their access to workplace
retirement plans, including MEPs.
B. The Statute
ERISA applies not to every employee benefit plan, but, as relevant
here, to an ``employee benefit plan'' sponsored by an ``employer.''
ERISA Sec. 4(a)(1); 29 U.S.C. 1003(a)(1).\1\ Section 3(5) of ERISA, in
turn, defines the term ``employer.'' In relevant part it states that
the term ``employer'' means ``any person acting directly as an
employer, or indirectly in the interest of an employer, in relation to
an employee benefit plan; and includes a group or association of
employers acting for an employer in such capacity.'' 29 U.S.C. 1002(5).
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\1\ ERISA also covers benefit plans established or maintained by
employee organizations and such plans established or maintained by
both employers and employee organizations.
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C. Bona Fide Groups or Associations of Employers
Under the MEP Final Rule, a bona fide group or association of
employers is considered an ``employer'' and may sponsor a MEP for its
members if certain conditions are satisfied. Four of these criteria are
that the group or association must have a formal organizational
structure, be controlled by its employer members, have at least one
substantial business purpose unrelated to offering and providing
employee benefits to its members, and limit plan participation to
employees and former employees of employer members. In addition,
employer members must have a commonality of interest, each employer
must directly act as an employer of at least one employee participating
in the MEP, and the group or association must not be a financial
services firm. The commonality criteria is satisfied if the employer
members have common geography or industry--i.e., they are in the same
trade, industry, line of business or profession; or each employer has a
principal place of business in the same region that does not exceed the
boundaries of a single State or metropolitan area (even if the
metropolitan area includes more than one State).
D. Bona Fide Professional Employer Organizations
Under the MEP Final Rule, a bona fide PEO is considered an
``employer'' and may sponsor a MEP for its client employers if four
conditions are
[[Page 37546]]
satisfied.\2\ The PEO must perform substantial employment functions on
behalf of its client employers. The PEO must have substantial control
over the functions of the MEP, as the plan sponsor, administrator, and
a named fiduciary. The PEO must ensure that each client employer has at
least one employee covered under the MEP. The PEO also must ensure that
participation in the MEP is available only to employees and former
employees.
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\2\ A PEO generally refers to an organization that enters into
an agreement with a client to perform some or all of the federal
employment tax withholding, reporting, and payment functions related
to workers performing services for the client. The provisions of a
PEO arrangement typically state that the PEO assumes certain
employment responsibilities that the client-employer would otherwise
fulfill with respect to employees.
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E. Need for This Request for Information
The MEP Final Rule was preceded by a notice of proposed rulemaking
(Proposed Rule) on the same topic.\3\ The Proposed Rule solicited
comments on, inter alia, so-called ``open MEPs'' or ``pooled employer
plans,'' which generally are arrangements that cover employees of
employers with no relationship other than their joint participation in
the MEP. The Proposed Rule specifically requested comments on whether,
and under what circumstances, these arrangements should and could be
operated as ERISA-covered plans. The solicitation asked commenters who
believe that these arrangements should be addressed by rulemaking to
include a discussion of why such an arrangement should be treated as
one employee benefit plan within the meaning of title I of ERISA rather
than as a collection of separate employer plans being serviced by a
commercial enterprise that provides retirement plan products and
services. Such commenters also were encouraged to provide suggestions
regarding the regulatory conditions that should apply to these
particular arrangements.
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\3\ 83 FR 53534 (October 23, 2018).
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The Department received approximately sixty (60) comments in
response to the Proposed Rule. More than half of the comments received
addressed this issue, and the majority were supportive of the
Department promulgating a rule that would facilitate these
arrangements.\4\ Supporting commenters argued that open MEPs would best
promote the objectives of Executive Order 13847 and that open MEPs are
not precluded by ERISA. They argued that the text of ERISA demonstrates
that open MEPs may be sponsored by ``any person acting . . . indirectly
in the interest of an employer, in relation to an employee benefit
plan.'' They asserted that the Proposed Rule contained an unnecessarily
narrow interpretation of ``employer'' under section 3(5) of ERISA. They
speculated that the narrow view in the Proposed Rule was likely
influenced by the Department's experience with abusive Multiple
Employer Welfare Arrangement (MEWA) schemes in the past, but they aver
that defined contribution MEPs are structurally different arrangements
with fundamentally different regulatory ecosystems than MEWAs.
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\4\ Comments on the Proposed Rule are available here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB88.
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But even among the supporters of open MEPs, there were very
different ideas on how the Proposed Rule might best be amended to
facilitate open MEPs. Some commenters, for example, recommended
eliminating some or all of the substantial business purpose, control,
and commonality requirements from the Proposed Rule's bona fide group
or association provisions, and the provision that prohibits financial
services firms from being the group or association that establishes the
MEP. Other commenters, however, recommended modifications to, and an
expansion of, the Proposed Rule's bona fide PEO provisions. These
commenters argued that the bona fide PEO framework, with appropriate
modifications, could readily be expanded beyond the narrow scope of
PEOs to include commercial enterprises more generally. To these
commenters, a commercial entity's willingness to exert substantial
control over the functions and activities of the MEP, as the plan
sponsor, plan administrator, and as a named fiduciary provides a
sufficient basis to conclude that such an entity is acting ``indirectly
in the interest of an employer . . . in relation to an employee benefit
plan'' for purposes of section 3(5) of ERISA, without regard to whether
the entity is a PEO.
Not all commenters, however, supported the idea of open MEPs. Some
commenters supported the prohibition against commercial entities and
financial services firms being able to sponsor MEPs as an ``employer''
under section 3(5) of ERISA. Among other things, these commenters
raised issues regarding statutory authority and potential conflicts of
interests among those businesses, entities, and other commercial
ventures that most likely would be interested and willing to sponsor
open MEPs. A few commenters viewed the topic of open MEPs as perhaps
being better suited for legislation, given the wide range of issues
presented under ERISA and the Internal Revenue Code (Code).
After reviewing the comments, the Department is persuaded that open
MEPs deserve further consideration. The Department does not believe
that it has acquired a sufficient public record on, or a thorough
understanding of, the complete range of issues presented by the topic.
In light of this and the conflict in the comments about whether and how
to permit open MEPs, as well as legislation pending in the 116th
Congress, the Department has decided to stimulate further debate and to
further develop the public record by soliciting comments on a broad
range of issues relating to open MEPs, as set forth in Section II of
this document.
F. Regulatory Authority
The Department has broad authority to craft regulations under
section 505 of ERISA. This section provides, in relevant part, that
``the Secretary may prescribe such regulations as he finds necessary or
appropriate to carry out the provisions of this subchapter.'' This
authority extends to situations where, as here, the text of ERISA
section 3(5) is ambiguous on its face.\5\
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\5\ See 83 FR 28912, 14 (June 21, 2018); 83 FR 53534, 37 (Oct.
23, 2018) (citing case law that observed the ambiguity).
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II. Request for Information
This document contains a number of questions. Respondents need not
answer every question, but should identify, by number, each question
addressed. Interested persons also are encouraged to address any other
matters they believe are germane to the general topic of the request
for information.\6\
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\6\ Comments will be shared with the Department of the Treasury.
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A. ``Open MEPs''
1. Should the Department amend 29 CFR 2510.3-55 to expressly permit
financial institutions or other persons to maintain a single defined
contribution retirement plan on behalf of multiple unrelated employers
(hereinafter ``open MEP'')? Many commenters on the Proposed Rule argued
in support of open MEPs. Do you agree with the commenters? If the
answer is yes or no, why?
2. What type of person or persons should be recognized as capable
of being an ``employer'' under the ``indirectly in the interest''
clause in section 3(5) of ERISA for purposes of establishing and
maintaining an open MEP? For example, many commenters suggested that
banks, insurance companies, broker-dealers, and other
[[Page 37547]]
similar financial services firms (including pension recordkeepers and
third-party administrators) (hereinafter ``Commercial Entities'')
should be recognized for this purpose. Are these commenters correct,
and why? What, if any, are appropriate limitations on the types of
Commercial Entities that should be recognized as employers?
3. If a Commercial Entity could sponsor an open MEP, what conflicts
of interest, if any, would the Commercial Entity, affiliates, and
related parties likely have with respect to the plan and its
participants? To what extent could a Commercial Entity that sponsors
the open MEP affect its own compensation or the compensation of
affiliates or related parties through its actions as a sponsor,
fiduciary, or service provider to the plan? What categories of fees and
compensation, direct or indirect, would Commercial Entities,
affiliates, and related parties likely receive as a result of
sponsoring the MEP, rendering services to the MEP, or offering
investments (including proprietary products) to the MEP? How could
these or other such conflicts of interest be appropriately mitigated?
How effective would the suggested conflict-mitigation approaches likely
be in safeguarding MEPs from conduct that favors the interests of the
Commercial Entity, affiliates, or related parties at the plan's
expense? Would prohibited transaction exemptions be necessary to avoid
violations of Section 406 of ERISA and imposition of excise taxes under
Section 4975(c) of the Internal Revenue Code? Are different mitigating
provisions appropriate for different Commercial Entities, and why or
why not?
4. The current regulation contains provisions that limit the
breadth of ERISA section 3(5)'s ``indirectly in the interest'' clause
as applied to the two types of multiple employer plans covered by that
regulation. For instance, in the case of a bona fide group or
association, the regulation contains the commonality and control
requirements. As another example, in the case of a bona fide PEO, the
regulation contains the substantial employment functions and control
requirements. Are limiting principles or conditions needed in the case
of open MEPs? Please explain why or why not. If such principles or
conditions are necessary or helpful, please provide examples of
principles or conditions that would be appropriate limitations along
with reasons for such limitations.
5. Commenters offered two distinctly different approaches on how
the current regulation could be reformulated to facilitate open MEPs.
For example, some commenters recommended amending the bona fide group
or association provisions by deleting the commonality and control
requirements, and the prohibition on Commercial Entities. Other
commenters, by contrast, recommended modifying the bona fide PEO
provisions to cover Commercial Entities, but with additional or
different criteria to reflect the differences between PEOs and these
other entities. What are the benefits and drawbacks of each of these
approaches, and are there other approaches or alternatives the
Department should consider?
6. If the Department took either approach described in the prior
question, what would the impact be on MEPs offered by existing groups
or associations of employers or by existing PEOs? Is there a risk that
open MEPs, under either approach, would undermine or destabilize these
existing arrangements? For example, would nationwide open MEPs
undermine or destabilize geography-based MEPs sponsored by groups or
associations? If so, what steps could the Department take to mitigate
such impacts? For instance, commenters on the Proposed Rule suggested
that bona fide group or association MEPs should be permitted to cover
regions larger than the boundaries of a single State or metropolitan
area that includes more than one State. Are these commenters correct?
Why or why not?
7. Some commenters raised concerns about the potential cost and
complexity arising from the application of the various qualification
requirements under section 401(a) of the Code (e.g., nondiscrimination,
exclusive benefit, minimum participation, minimum coverage, and top-
heavy requirements) to the potentially large numbers of employers that
theoretically could participate in a nationwide open MEP. These
commenters are concerned that the cost and complexity of these
requirements in this context may offset some of the savings otherwise
associated with establishing and maintaining an open MEP. Are these
commenters correct? If so, do the potential costs and complexities
outweigh the benefits of offering open MEPs?
8. Would a regulation facilitating the adoption and marketing of
open MEPs by Commercial Entities have an impact on the implementation,
administration, or enforcement of any State or federal laws, apart from
ERISA and the Internal Revenue Code, particularly including securities,
insurance, and banking laws? Are there any specific issues relating to
such other laws, which the Department should consider in connection
with any rulemaking effort?
B. Corporate MEPs
The Proposed Rule solicited comments on whether the MEP Final Rule
should address the status of so-called ``corporate MEPs,'' a term not
defined in ERISA. For that purpose, the Proposed Rule considered
``corporate MEPs'' to be defined contribution plans that cover
employees of employers related by some level of common ownership, but
that are not in the same controlled group or affiliated service group
within the meaning of section 414(b), (c), or (m) of the Code.
In response, one commenter provided an example of what it described
as a common fact pattern that should be addressed by rulemaking or
other guidance. The example involves two companies, A and B, in
different industries and different parts of the country, where, as a
result of an acquisition, A now owns 60% of B but the remaining 40% of
B is owned by unrelated parties. If A and B jointly maintain a
retirement plan for the benefit of their employees, it does not appear
that A and B would meet the commonality of interest conditions to
qualify as a MEP and, consequently, this ``corporate MEP'' would not be
a single plan under the Proposed Rule, but instead would be two plans
for purposes of ERISA.
The Department recognizes that meaningful levels of common
ownership may serve as an indicator that the members of the ownership
group have among themselves a sufficient relationship, unrelated to the
provision of benefits. This relationship may be enough such that one or
more of these members can be said to be acting ``indirectly in the
interest of'' the others within the meaning of ERISA section 3(5) to
sponsor a MEP for the group's participation. In DOL Advisory Opinion
89-06A, for example, the Department opined that a member of a
controlled group of corporations that establishes a benefit plan for
its employees and the employees of other members of the controlled
group is considered to be an employer within the meaning of ERISA
section 3(5), such that only one plan exists for all members of the
group.\7\
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\7\ With respect to a plan maintained by one or more members of
a controlled group of corporations (within the meaning of section
1563(a) of the Code, determined without regard to sections
1563(a)(4) and (e)(3)(C)), all employees of such corporations shall
be treated as employed by a single employer. 29 USC 1060(c).
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On the existing public record, however, the Department lacks a
meaningful basis on which to determine the precise level of ownership,
below the controlled group of corporations
[[Page 37548]]
threshold established in section 414(b) of the Code (or the
corresponding threshold for a controlling interest in a trade or
business in section 414(c) of the Code), that conclusively
distinguishes bona fide ownership groups from commercial enterprises in
which members have nominal ownership levels and which exist primarily
or solely to market, distribute, underwrite or otherwise provide
employee benefits to the nominal owners.
9. Should the Department amend 29 CFR 2510.3-55 to address
``corporate MEPs,'' and if so, why and how? Apart from the definition
of a controlled group of corporations within the meaning of section
414(b) of the Code, (or a group of trades or businesses under common
control within the meaning of section 414(c) of the Code), is there a
precise level of common ownership that could and should be used to deem
two or more corporations, trades, or businesses to have sufficient
ownership ties such that any one of these corporations, trades, or
businesses can be said to be able to act ``indirectly in the interest
of'' the others within the meaning of ERISA section 3(5) to sponsor a
MEP for the group's participation? Are there aspects of control or
commonality that the Department should consider in addition to the
precise level of common ownership? Put another way, if the Department
were to consider facts and circumstances, either in addition to, or in
lieu of, level of common ownership, what facts and circumstances would
be appropriate to consider? Also, what sufficient ties are needed for
two or more tax-exempt organizations or a tax-exempt organization and
another organization to be treated as an employer within the meaning of
section 3(5) of ERISA?
10. Should members of an ``affiliated service group'' within the
meaning of section 414(m) of the Code be treated as an employer within
the meaning of section 3(5) of ERISA? If so, why?
C. Economic Analysis, Paperwork Reduction Act, and Regulatory
Flexibility Act Questions
Executive Order 12866 (E.O. 12866) requires an assessment of the
anticipated costs and benefits to the government and the public of a
significant rulemaking action, and of the alternatives considered,
using the guidance provided by the Office of Management and Budget.
Under E.O. 12866, a determination must be made whether implementation
of this rule will be economically significant. A rule that has an
annual effect on the economy of $100 million or more is considered
economically significant.
In addition, the Regulatory Flexibility Act may require the
preparation of an analysis of the impact on small entities of proposed
rules and regulatory alternatives. A regulatory flexibility analysis
must generally include, among other things, an estimate of the number
of small entities subject to the regulations (for this purpose, plans,
employers, and issuers and, in some contexts small governmental
entities), the expense of the reporting, recordkeeping, and other
compliance requirements (including the expense of using professional
expertise), and a description of any significant regulatory
alternatives considered that would accomplish the stated objectives of
the statute and minimize the impact on small entities. For this
purpose, the Agency considers a small entity to be an employee benefit
plan with fewer than 100 participants.
The Paperwork Reduction Act requires an estimate of how many
``respondents'' will be required to comply with any ``collection of
information'' requirements contained in regulations and how much time
and cost will be incurred by the respondents as a result. A collection
of information includes recordkeeping, reporting to governmental
agencies, and third-party disclosures.
The Department is requesting comments that may contribute to the
analyses that will be performed under these requirements, both
generally and with respect to the following specific areas:
11. What costs and benefits would be associated with allowing an
open MEP consisting of employers with no relationship other than their
joint participation in the MEP to be operated as a single ERISA-covered
plan? How would the costs and benefits of open MEPs compare to those
associated with MEPs sponsored by bona fide groups and associations and
(PEOs)? Please explain.
12. What types of entities would have business motives to sponsor
open MEPs? For each type, how prevalent would their sponsorship likely
be? What would be the economic advantages and disadvantages of each
type of entity for employers and participants and beneficiaries? Please
explain.
13. What types of employers would join open MEPs? What size would
they be (i.e., would large employers, mid-size employers, or small
employers be particularly interested in joining an open MEP)? How many
would join open MEPs to begin offering retirement benefits to workers
who previously did not have access to them? How many employers would be
switching away from another type of retirement savings vehicle or plan?
What type? Please explain.
14. Please describe how prevalent automatic enrollment would likely
be among employers that join open MEPs.
15. Please describe how common it will likely be for employers
participating in open MEPs to accept rollovers from other qualified
plans.
16. Please indicate how many self-employed people are likely to
join open MEPs.
17. Please compare the overall cost of providing defined
contribution retirement benefits among the following types of
retirement plans:
a. Open MEPs.
b. MEPs sponsored by bona fide groups and associations.
c. MEPs sponsored by PEOs.
d. Single-employer plans sponsored by small businesses.
Additionally, please compare what the likely total plan fees will
be for a.-d. Please compare the likely costs and fees for various
component services, such as asset management, recordkeeping, and
marketing and distribution, across a-d.
18. What costs and benefits would be associated with allowing
corporate MEPs described in Section B., above, to operate as single
ERISA-covered defined contribution plans?
Signed at Washington, DC, on July 22, 2019.
Preston Rutledge,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2019-16072 Filed 7-29-19; 8:45 am]
BILLING CODE 4510-29-P