The DOL said it has been its consistent view that where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of the Employee Retirement Income Security Act (ERISA) section 3(5).
The response was given related to the situation in which Advantage, a limited purpose corporation formed to operate the 401(k) Advantage LLC 401(k) Plan, intended to be a single “multiple employer” 401(k) profit-sharing plan covering employees of Advantage as well as employees of other unrelated employers that adopt the plan. The current participation agreement form describes each participating employer as acting “directly as an employer” and as a “co-sponsor” of the Advantage Plan. There are currently more than 500 unrelated employers participating in the plan.TAG Resources LLC (TAG), a registered investment advisory firm based in Knoxville, Tennessee, is designated as the plan’s administrator, within the meaning of ERISA section 3(16). Advantage signs the Forms 5500 filed for the plan as the “plan sponsor.” Advantage is also the “named fiduciary” for the Advantage Plan, and “assumes the risk and liability associated with the trustee role and removes every adopting employer from the liability associated with that role.”
Based on its review of the information provided, the DOL found there is no employment based common nexus or other genuine organizational relationship that is unrelated to the provision of benefits between Advantage or TAG and the employers of employees that benefit from the plan, or among the different groups of employees that participate in the Plan. Rather than acting in the interest of an employer with respect to the plan, Advantage and TAG appear to be acting more as service providers to the plan, much like a third party administrator or investment adviser.
As a result, in the Department’s view, neither Advantage nor TAG would constitute an employer for purposes of section 3(5) of ERISA that is capable of sponsoring the plan as a single “multiple employer” plan.
The DOL noted, however, that persons who operate the arrangement would be subject to the fiduciary provisions of Title I of ERISA to the extent they have control over plan assets or have discretionary control over the administration or management of the participating employers' separate plans. They would also be subject to the prohibited transaction provisions in ERISA section 406 to the extent they are “parties in interest” within the meaning of ERISA section 3(14) either as service providers to the separate employer plans or otherwise.
Similarly, each employer sponsor of a plan that participates in the arrangement will be subject to ERISA's fiduciary provisions. Specifically, in selecting a service provider, plan fiduciaries must, consistent with the requirements of section 404(a), act prudently and solely in the interest of the plan’s participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan.The advisory opinion is at http://www.dol.gov/ebsa/regs/AOs/ao2012-04a.html.
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