What is a Multiple Employer Plan?
A multiple employer plan (MEP) is a type of employee benefit plan where several employers can participate. In certain instances, the employers participating in the plan can operate as one plan.
What are the benefits?
A significant reason why employers do not offer a benefit plan to their employees is due to cost. MEPs are generally less expensive to participate in, especially for small companies, due to economies of scale. A MEP can potentially allow for costs of administration, preparing required Form 5500 filings, compliance testing and performance of an annual audit to be spread across all employers participating in the plan. Other benefits result in a reduction of fiduciary responsibility/risk and support as the fiduciary role and administration of the plan is usually handled by the plan sponsor and not the individual employer.
Things to know
Not all MEPs are the same. An MEP can be either an open or closed plan. A closed plan is a MEP that is sponsored by a bona fide group or association. Criteria of a bona fide group or association are that they:
- Are only open to employers who have common interest and/or organizational relationships, or
- Are created by an employee organization which includes:
- Common interests for employment relationships or representation of employees, and
- Control that is held by the employees.
If the MEP does not meet the closed requirements and is classified as open, each employer participating in the MEP will be considered as an individual plan which requires individual Form 5500 filings, ERISA bonding requirements and is subject to individual annual audits, if applicable. A closed MEP only requires one Form 5500 filing, ERISA bonding requirement and annual audit on the entire group, if applicable. Therefore, MEPs classified as open might not be able to take the full cost savings and/or reduction of fiduciary responsibility benefits.
Patrick Herrera, CPA