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Retirement

Final DOL regs expand small business retirement plan options

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Federal Register – Definition of Employer under Section 3(5) of ERISA – Association Retirement Plans and Other Multiple-Employer Plans

The Department of Labor (DOL) has issued final regs that make it easier for small businesses to provide retirement savings plans through “association retirement plans” (ARPs), by allowing small businesses to band together to offer 401(k) and other defined contribution plans to their employees.

Background. On October 23, 2018, DOL published proposed regs under which ARPs (also referred to as “multiple employer plans,” or MEPs) could be offered by associations of employers that are in a local, state, or multi-state metropolitan area, or that are part of a specific industry nationwide. Sole proprietors, as well as their families, would also be permitted to participate in an MEP.

In addition to using association sponsors, the plans could also be sponsored through professional employer organizations (PEOs). A PEO is a human resource company that contractually assumes certain employment responsibilities for its client employers. One requirement for a PEO to be a sponsor is that the PEO perform substantial employment functions on behalf of its client employers.

DOL finalizes regs. DOL has now issued final regs, which are substantially similar to the proposed regs, except for safe harbor rules with respect to PEOs.

Unlike the proposed regs, which contained one safe harbor for PEOs that are certified professional employer organizations (CPEOs) and a second safe harbor for PEOs that are non-CPEOs, the final regs contain only one safe harbor for all PEOs regardless of their status under the Code’s CPEO provisions.

The safe harbor in the final regs provides that a PEO will be considered to perform substantial employment functions on behalf of its client employers under the following circumstances (all of which must be satisfied to meet the safe harbor):

(1) The PEO assumes responsibility for and pays wages to employees of its client-employers that adopt the MEP, without regard to the receipt or adequacy of payment from those client employers. (Labor Reg. 2510.3-55(c)(2)(i))

(2) The PEO assumes responsibility to pay and perform reporting and withholding for all applicable federal employment taxes for its client employers that adopt the MEP, without regard to the receipt or adequacy of payment from those client employers. (Labor Reg. 2510.3-55(c)(2)(ii))

(3) The PEO plays a definite and contractually specified role in recruiting, hiring, and firing workers of its client-employers that adopt the MEP, in addition to the client-employer’s responsibility for recruiting, hiring, and firing workers. A PEO is considered to satisfy this standard if it recruits, hires, and fires, assumes responsibility for recruiting, hiring, and firing, or retains the right to recruit, hire, and fire workers of its client-employers that adopt the MEP, in addition to the client-employer’s responsibility for recruiting, hiring, and firing workers. (Labor Reg. 2510.3-55(c)(2)(iii))

(4) The PEO assumes responsibility for and has substantial control over the functions and activities of any employee benefits which the contract with a client employer may require the PEO to provide, without regard to the receipt or adequacy of payment from those client employers for those benefits. (Labor Reg. 2510.3-55(c)(2)(iv))

Severability. The final regs add a severability provision that provides that if any of the provisions in the final regs are found to be invalid, or stayed pending further agency action, then the remaining portions of the regs are to remain operative and available for qualifying employer groups or associations or PEOs. (Labor Reg. 2510.3-55(e))

Effective date. The final regs are effective on September 30, 2019.

References: For the rules applicable to multiple employer plans, see FTC 2d/FIN ¶H-9600.1 et seq.; United States Tax Reporter ¶4134.03.

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