5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
A 401(k) plan that covered employees of multiple unrelated employers was not a single "multiple employer" plan for purposes of ERISA, according to an EBSA advisory opinion letter. Instead, the plan was an arrangement under which each participating employer established and maintained a separate employee benefit plan for its employees. EBSA determined that the plan was not established by an employee organization under ERISA §3(4), the plan sponsor/fiduciary was not an "employer" within the meaning of ERISA §3(5), and neither the plan sponsor/fiduciary nor the plan administrator was a bona fide employer association that was capable of sponsoring the plan as a single "multiple employer" plan.
A registered investment advisory firm was the plan administrator, within the meaning of ERISA §3(16)(A), of a plan that was intended to be a single "multiple employer" 401(k) profit-sharing plan. A limited purpose corporation, which was formed to operate the 401(k) plan, signed the plan’s Form 5500s as the "plan sponsor" and was the "named fiduciary" of the plan. The plan covered employees of the plan sponsor/fiduciary and employees of the unrelated employers that adopted the plan. It was represented that the plan sponsor/fiduciary assumed "the risk and liability associated with the trustee role and remove[d] every adopting employer from the liability associated with that role."
The current participation agreement form described each participating employer as acting "directly as an employer" and as a "co-sponsor" of the plan. Under the agreement, participating employers delegated to the plan administrator "full responsibility of Plan Administrator." In doing this, each participating employer exercised its independent fiduciary judgment "in selecting this plan and, initially, the attendant offering of investment contracts and funds." The participating employer also acknowledged its ongoing fiduciary duty to review the plan administrator’s performance and to determine whether to continue the arrangement. However, a participating employer was only responsible for the portion of the plan covering the employer’s employees. The participating employers further acknowledged that the plan sponsor/fiduciary retained complete authority over the plan document, including the right to amend or restate the plan. The plan administrator and the plan sponsor/fiduciary also retained the authority to terminate any employer’s participation in the plan, and the participating employers could discontinue or revoke participation in the plan at any time with 60 days written notice.
The term "employee pension benefit plan," as defined in ERISA §3(2)(A), requires, among other things, that the plan be "… established or maintained by an employer or by an employee organization, or both…." Guidance was requested on whether the plan was a single "employee pension benefit plan" within the meaning of ERISA §3(2) where many unrelated employers adopted the plan to provide retirement benefits for their employees.
Although the plan appeared to provide benefits described in ERISA §3(2), EBSA concluded that the plan did not seem to be established by an employee organization as defined in ERISA §3(4). There was no indication in the materials provided that the employees "participate[d]" in the plan sponsor/fiduciary or the plan administrator. In addition, neither of these entities constituted an "employees’ beneficiary association" under ERISA §3(4). There was no evidence that membership or ownership of the plan sponsor/fiduciary or the plan administrator was conditioned on one’s status as an employee.
Although submitted documents listed the plan sponsor/fiduciary as the sponsor of the plan, it did not appear that the plan sponsor/fiduciary was acting as an "employer" within the meaning of ERISA §3(5). While the employees of the plan sponsor/fiduciary would be participating in the plan, the plan sponsor/fiduciary would not have a direct employment relationship with the "vast majority" of the participants in the plan. Thus, the plan sponsor/fiduciary would not be acting directly as an employer under ERISA §3(5) in establishing and maintaining the plan.
In addition, EBSA stated that it did not appear from the submitted documents that the plan sponsor/fiduciary or any other entity involved in the administration or operation of the plan would be a bona fide employer association acting in the interest of the direct employers of the employees participating in the plan. EBSA has taken the position that, absent the involvement of an employee organization, a single "multiple employer" plan might exist where a group or association of employers, acting in the interest of its employer members, established a benefit plan or program for the employees of the member employers and exercised control over the amendment process, the plan termination, and other like functions for these members with respect to a trust established under the plan or program. A number of factors are involved in determining whether an entity claiming to be a plan sponsor is a bona fide group or association of employers. Among other things, employers that participate in a plan or program must, directly or indirectly, exercise control of the plan or program, both in form and in substance.
EBSA observed that there was nothing in submitted documents that supported a conclusion that a bona fide association or group of employers was sponsoring the plan. According to EBSA, there was no employment-based common nexus or other genuine organizational relationship that was unrelated to the provision of benefits between the plan sponsor/fiduciary or plan administrator and the participating employers, or among the different groups of participating employers. Instead, it appeared to EBSA that the plan sponsor/fiduciary and the plan administrator were acting more like service providers to the plan. Thus, it was EBSA’s view that neither the plan sponsor/fiduciary nor the plan administrator was an employer under ERISA §3(5) that was capable of sponsoring the plan as a single "multiple employer" plan.
In the submission, it was asserted that there was no need for a bona fide employer group or association or for any person to be acting indirectly in the interest of the direct employers because each employer entering the participation agreement would be acting as a plan "co-sponsor," and acting on its own behalf in adopting the plan for its employees. EBSA responded that "the mere execution of identically worded trust agreements or similar documents by unrelated employers" was not a sufficient basis for concluding that the employer established or maintained a single plan for purposes of ERISA. Participation agreements that label signatory employers as co-sponsors did not change this conclusion. Thus, EBSA concluded that the plan was not a single "multiple employer" plan for ERISA purposes, but was an arrangement under which each participating employer was establishing or maintaining a separate employee benefit plan for its own employees.
Source: EBSA Advisory Opinion 2012-04A.
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