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Given that employers do not directly oversee the plan, there was also some concern from Labor officials regarding the risk of MEP abuses, such as charging excess fees or mishandling the plan’s assets. Additionally, because all of the participating employers are responsible for maintaining the MEP, if one employer becomes noncompliant with the tax requirements the plans of all the employers in the MEP may lose their tax-qualified status. The U.S. Department of Labor regulates MEPs for participant protections under the Employee Retirement Income Security Act of 1974 (ERISA), while the IRS regulates them for preferential tax treatment under the Internal Revenue Code (IRC). However, ERISA places requirements on plans that are not required under the IRC, and the Labor Department and the IRS do not coordinate to reduce the impacts of defining a MEP differently. For example, although the DOL recently opined that open MEPs are a collection of single plans, each separately sponsored by participating employers for their employees (see “DOL Says Open MEPs Not Single Employee Plans”), open MEPs still qualify for preferential tax treatment under the IRC. Pension experts told GAO that such differing treatment can create compliance challenges. For example, an open MEP may be able to file a single annual report for the IRS but may also have to file annual reports for each of its component plans for the DOL. GAO recommends that the DOL lead an effort to collect data on the employers that participate in MEPs, and that the DOL and IRS formalize their coordination with regard to statutory interpretation efforts with respect to MEPs. In addition, GAO suggested the DOL and IRS jointly develop guidance on the establishment and operation of MEPs. The full GAO report can be downloaded from http://www.gao.gov/products/GAO-12-665.
Given that employers do not directly oversee the plan, there was also some concern from Labor officials regarding the risk of MEP abuses, such as charging excess fees or mishandling the plan’s assets. Additionally, because all of the participating employers are responsible for maintaining the MEP, if one employer becomes noncompliant with the tax requirements the plans of all the employers in the MEP may lose their tax-qualified status.
The U.S. Department of Labor regulates MEPs for participant protections under the Employee Retirement Income Security Act of 1974 (ERISA), while the IRS regulates them for preferential tax treatment under the Internal Revenue Code (IRC). However, ERISA places requirements on plans that are not required under the IRC, and the Labor Department and the IRS do not coordinate to reduce the impacts of defining a MEP differently.
For example, although the DOL recently opined that open MEPs are a collection of single plans, each separately sponsored by participating employers for their employees (see “DOL Says Open MEPs Not Single Employee Plans”), open MEPs still qualify for preferential tax treatment under the IRC. Pension experts told GAO that such differing treatment can create compliance challenges. For example, an open MEP may be able to file a single annual report for the IRS but may also have to file annual reports for each of its component plans for the DOL.
GAO recommends that the DOL lead an effort to collect data on the employers that participate in MEPs, and that the DOL and IRS formalize their coordination with regard to statutory interpretation efforts with respect to MEPs. In addition, GAO suggested the DOL and IRS jointly develop guidance on the establishment and operation of MEPs.
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