The proposed regulations would provide an exception, if certain requirements are met, to the application of the “unified plan rule” for a defined contribution MEP in the event of a failure by an employer participating in the plan to satisfy a qualification requirement or to provide information needed to determine compliance with a qualification requirement.

Read the proposed regulations [PDF 408 KB] (19 pages) as published in the Federal Register on July 3, 2019.

Comments and requests for a public hearing must be received by a date that is 90 days after the July 3 publication date.

President Trump in August 2018 issued Executive Order 13847 providing a policy to expand access to workplace retirement plans for U.S. workers and to enhance workplace retirement plan coverage. Part of this policy was to expand access to MEPs so that employees of different private-sector employers may participate in a single retirement plan, and thereby efficiently reduce administrative costs of retirement plan establishment and maintenance while expanding the availability of workplace retirement plans, especially among small employers.

Executive Order 13847 directed the Treasury Secretary to consider proposing amendments to regulations or other guidance regarding the circumstances under which a MEP may satisfy the tax qualification requirements and to address what would be the consequences if one or more employers that sponsored or adopted the plan failed to take one or more actions necessary to meet those requirements.

The preamble to the proposed regulations notes that some had expressed concerns about the risk that the actions of one or more participating employers might disqualify a MEP and that some employers would be reluctant to join MEPs without an exception to the unified plan rule. In particular, it was asserted that without an exception to the unified plan rule, many employers perceived that the benefits of joining a MEP would be outweighed by the risk of plan disqualification based on the actions of an uncooperative participating employer.

According to the preamble to the proposed regulations, a defined contribution MEP would be eligible for the exception to the unified plan rule on account of certain qualification failures due to actions or inaction by a participating employer, if certain conditions were satisfied.

• The exception generally would be available if the participating employer in a MEP is responsible for a qualification failure that the employer is unable or unwilling to correct. It would also be available if the participating employer fails to comply with the section 413(c) plan administrator’s request for information about a qualification failure that the section 413(c) plan administrator reasonably believes might exist.
• For the exception to the unified plan rule to apply, certain actions would be required to be taken—including, in certain circumstances, a spinoff of the assets and account balances attributable to participants who are employees of such an employer to a separate plan and a termination of that plan.
• Under the exception to the unified plan rule in the proposed regulations, a defined contribution MEP would not be disqualified on account of a participating employer failure, provided that certain conditions (listed in the proposed regulations) are satisfied.
• Under the proposed regulations, a threshold condition for the exception to the unified plan rule is that the MEP meet certain eligibility requirements. Specifically, the proposed regulations would require the section 413(c) plan administrator to have established practices and procedures (formal or informal) that are reasonably designed to promote and facilitate overall compliance with applicable Code  requirements—including procedures for obtaining information from participating employers. In addition, the plan document would need to include language describing the procedures that would be followed to address participating employer failures, including the procedures that the section 413(c) plan administrator would follow if, after receiving notice from the section 413(c) plan administrator, an unresponsive participating employer fails to take appropriate remedial action or to initiate a spinoff from the MEP pursuant to the regulations.
• A MEP would not be eligible for the exception to the unified plan rule if, as of the date that the first notice is provided to an unresponsive participating employer, the MEP is under examination.

The proposed regulations include definitions of certain key terms.