Under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), employers are permitted to sponsor two broad categories of pension plans. They are (1) defined benefit plans—in which employers generally maintain a fund to provide a fixed level of monthly retirement income based on a formula specified in the plan—or (2) defined contribution plans—in which retirement income is based on employer and employee contributions and the performance of investments in individual employee accounts.contribution plan. A MEP may be a defined benefit plan or a defined There are three types of pension plans that share some features with MEPs but are not the focus of this report: (1) A single-employer plan is established and maintained by only one employer and for that employer’s employees. (2) A multiemployer plan is another form of multiple employer arrangement where a plan is established and maintained pursuant to the terms of a collective bargaining agreement between at least one employee organization and more than one employer. Specifically, management and labor representatives must jointly govern these plans, in which participants can negotiate the plan benefits through a union. (3) A master or prototype plan is based on a largely uniform plan document sponsored by an organization for adoption by employers who are either its customers or members. An employer who adopts a master or prototype plan completes an adoption agreement to elect certain options specified in detail in a separate plan document, but generally the provider or sponsor centrally administers the plan and, in the case of a master plan, pools the assets of the adopting employers into a central investment trust. Banks, trade or professional organizations, insurance companies, and mutual funds are generally allowed by the IRS to provide master or prototype plans. In addition to employee pension benefit plans, ERISA covers employee welfare benefit plans for health care and other employee benefits as well. MEPs as pension plans have an analogous welfare arrangement called multiple employer welfare arrangements (MEWA). These are also maintained by multiple employers, and depending on the facts and circumstances, are single employer or multiple employer plans subject to requirements under ERISA. Labor, IRS, and PBGC share federal responsibility for regulating pension plans under ERISA. Labor enforces rules concerning how pension plans should operate in the best interest of participants and beneficiaries. Accordingly, Labor has the statutory authority to bring legal action against all fiduciaries under ERISA. Within Labor, the Employee Benefits Security Administration (EBSA) is charged with interpreting and enforcing laws designed to assure the security of the pension, health, and other employment-based benefits of American workers and their families. EBSA issues advisory opinions in which it facilitates compliance with ERISA through interpretative guidance. A plan sponsor may request a determination from EBSA that its arrangement constitutes an employee benefit plan under ERISA. Through its advisory opinions, EBSA provides the position of the department as to the application of one or more sections of ERISA. An advisory opinion, which is limited to the facts in the opinion, can be relied upon, as a legal matter, only by the parties in the opinion. However, these opinions serve as guidance to others on what arrangements are considered employee benefit plans under ERISA. 26 U.S.C. §§ 401(a) and 501(a). terms of the plan as presented to the IRS, conform to the requirements of the IRC. Lastly, PBGC acts as an insurer of private-sector defined benefit pension plans by guaranteeing participant benefits up to certain statutory limits and, in the case of covered single-employer plans, protecting participants when the plan terminates with insufficient assets to pay all benefits, such as the bankruptcy of plan sponsors with underfunded plans. Little is known about the characteristics of private sector MEPs, particularly information about the employers that participate in them. No information with respect to participating employers in MEPs is currently collected in the Form 5500, which is the primary source of pension plan information for government oversight activities. However, basic plan and sponsor-level information on MEPs is available in the Form 5500 data, and we were able to analyze this data. The data show that MEPs are a small portion of the overall pension universe and that the bulk of plan assets and participants reside among the largest 25 defined contribution and defined benefit MEPs. Lastly, we identified a new sponsor type of MEP: the “open” MEP. Unlike the other sponsors we identified, the employers that participate in open MEPs share no common relationship or affiliation with the other employers in the plan. As described previously, a MEP is a type of pension plan maintained by more than one employer. Typically, employers participating in a MEP have a common interest in some business or association, but do not share common ownership control. When employers decide to participate in a MEP, they legally adopt the plan as their own, as do other participating employers. A participating employer may sign an agreement that serves to identify the plan terms that will apply to its employees. Oversight agencies and plan administrators treat individual employers within the MEP as maintaining separate, single-employer plans for some purposes. For example, the IRS tests individual employers in a MEP separately against certain requirements designed to promote equity and inclusiveness of contributions and benefits across employees. Additionally, a MEP may allow each participating employer to specify employer and employee contributions and allow participating employers to maintain unique plan benefit formulas. For other purposes, notably certain reporting and auditing requirements, oversight agencies treat the MEP as one plan. under ERISA must only file a single Form 5500. In addition, a defined benefit MEP pays a single-employer insurance premium to PBGC for the plan as a whole. Generally, ERISA requires pension plans with 100 or more participants to have an audit as part of their obligation to file an annual return/report, known as the Form 5500. 29 U.S.C. §§ 1023(9)(3)(A) and 1024(a)(2)(A). When an audit is required, the plan administrator must select an independent qualified public accountant. A plan audit is one way to help protect the assets and financial integrity of the pension plan and ensure that the necessary funds will be available to pay promised retirement benefits. An audit helps the sponsor carry out legal responsibilities to file a complete and accurate annual return/report for the plan each year. In addition, the audit serves as financial disclosure to the participants and beneficiaries. current data with respect to participating employers in a MEP.Participating employer information for a MEP is important because each employer may be unique in relation to the plan overall, with regard to discretionary plan options or its portion of the overall participants in the MEP. According to the official, the agencies could change the Form 5500 to include participating employer information after the department complies with the legally required steps for implementing regulations, including regulatory analysis and notice-and-comment rulemaking, as well as requirements under the Paperwork Reduction Act of 1995 (Pub. L. No. 104-13, 109 Stat. 163 (codified as amended at 44 U.S.C §§ 3501-3521)) and the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. No. 104-121, tit. II 110 Stat. 847, 857-74. Any added information would require changes to systems administered by Labor’s contractor, with the cost of such a change depending on the format of the change. that having access to participating employer information could have in targeting plans that may have such plan testing issues. Besides participating employer information, Labor officials suggested that information identifying key MEP sponsor types or employer relationships may also be useful. As a possibility for gathering information about MEPs, Labor officials suggested requiring an initial Form 5500 filing immediately upon plan establishment. Another option would be to implement a registration requirement for newly-formed MEPs, though officials stated that Labor has no specific statutory authority to initiate collection of such information. According to some MEP sponsors, reporting basic information about the number of participating employers in a MEP would not be burdensome. However, a few sponsors also told us that, to avoid creating complex and burdensome reporting requirements, agencies would need to carefully consider the information to be collected. For example, dynamic interrelationships among participating employers, such as one employer being a subsidiary of another, would require carefully defining the term “participating employer.” Nevertheless, a plan sponsor representative said participating employer information could be used for measuring a MEP’s cost-effectiveness. The 2009 plan and sponsor-level Form 5500 data, the most current and complete year of data at the time of our analysis, show that MEPs comprise a relatively small portion of the universe of pension plans. Defined benefit and defined contribution MEPs each represent only 0.7 percent of approximately 46,000 private sector defined benefit plans and approximately 654,000 private sector defined contribution plans. The vast majority of pension plans are single-employer plans. More specifically, MEPs account for only 318 defined benefit plans and 4,593 defined contribution plans. MEP sponsorship seems to be following the general trend away from traditional defined benefit plans and towards defined contribution plans. For example, from 2001 to 2009 the number of defined contribution MEPs appears to have grown by 20 percent, while the number of defined benefit MEPs shrank by over a third. (See fig. 1). While MEPs represent a relatively small percentage of pension plans, based on available data, they appear to represent a somewhat larger percentage of pension assets. For example, defined benefit MEPs represented about $110 billion in plan assets as of 2009—about 6 percent of all defined benefit assets. Defined contribution MEPs represented an estimated $175 billion in assets—also about 6 percent of all defined contribution assets. The portion of all participants represented by MEPs is generally similar to the proportion of all assets represented by MEPs. In 2009, defined benefit MEPs included about 2.2 million participants—about 5 percent of all defined benefit plan participants. At the same time, defined contribution MEP participation grew—defined contribution MEPs currently cover over 4.5 million participants (about 5 percent of all defined contribution participants). (See fig. 2.) The preponderance of MEP assets and participants reside in a relatively small number of plans. Specifically, the largest 25 defined benefit MEPs ranked by number of participants represent nearly 76 percent of all defined benefit MEP assets and 72 percent of all defined benefit MEP participants. Similarly, the largest 25 comparably ranked defined contribution MEPs represent about 51 percent of all defined contribution MEP assets and about 41 percent of all defined contribution MEP participants. Three major sponsor types appear among the largest 25 MEPs: large corporations, associations, and professional employer organizations (PEO). Additionally, we identified an emerging plan sponsor type that does not appear among the largest plans: the open MEP. Large, Fortune 500, or Fortune Global 500 corporations make up the majority of plan sponsors among the largest 25 MEPs (see figs. 3 and 4 in appendix I). For example, the defined benefit MEP maintained by General Electric is overall the third largest defined benefit plan in terms of total participants—representing 24 percent of all defined benefit MEP participants. The defined contribution MEP maintained by General Electric is the second largest defined contribution MEP and, when compared to all defined contribution plans, is the ninth largest defined contribution plan overall. Each of the sponsors we interviewed among these large corporate MEPs told us their plans became MEPs as a result of their corporate structure or transactions under which some or all employers were no longer in the same controlled group. corporation and its subsidiaries that are not under common control of the parent corporation. The large corporate MEP sponsors we interviewed reported few participating employers in their plans. One sponsor reported only two participating employers. The sponsor with the largest number of participating employers reported eight. For most purposes, all employees of employers in the same controlled group are treated as employed by a single employer. 26 U.S.C. § 414(b). The status of these large, corporate plans as MEPs may be temporary if the transactions that resulted in them becoming MEPs are undone. For example, one plan sponsor representative we interviewed said that the sponsor’s defined benefit and defined contribution plans became MEPs in the early-to-mid 2000s as a result of a merger within a business segment. Not long after, however, that particular segment was spun-off from the company and, by sometime in 2012, both the defined benefit and defined contribution plans will no longer be MEPs, but may be single-employer plans. Association-sponsored plans also appear among the 25 largest defined benefit and defined contribution MEPs. The largest association-related defined benefit MEPs include the National Rural Electric Cooperative Association Retirement Security Plan, the United Benefits Group Co-op Retirement Plan, and the Pentegra Defined Benefit Plan for Financial Institutions. Among the largest defined contribution MEPs are The Young Men’s Christian Association Retirement Fund Retirement Plan and the National Rural Electric Cooperative Association 401(k) Pension Plan. In contrast to our interviews with the large corporations that did not have common control of one or more employers in the plan, the associations had long-standing, continuously operating MEPs that, in most cases, were established prior to the enactment of ERISA. Additionally, these associations included a relatively large number of participating employers—well over 100 in most cases—and tended to be organized around a common trade or industry that served smaller employers. Two of the associations we interviewed reported an average of between 20 and 60 employees per participating employer. The association representatives we interviewed also said that they had a number of common operational structures. For example, each association had an appointed board made up of association members that served as the named fiduciary of the plan. Most of these associations required member representatives who sat on the association board to participate in the MEP. Additionally, a number of the association representatives noted the many advantages of the MEP model for associations. For example, especially in the case of defined benefit plans, as long as a participant remains an employee of an employer within the association, they can change jobs and continue earning additional benefits and vesting service credit towards association plan benefits. Moreover, because MEPs can pool resources, the plans can offer a broad enough array of benefit options to satisfy association members and participants. In order to leverage economies-of-scale, the MEP must keep the number of investment and benefit options manageable. However, one expert we spoke with said that certain association plans have been very effective at offering efficient, cost-effective retirement options for their members. PEOs are the last sponsor type that appeared among the largest MEPs. Specifically, two PEOs existed among the list of the largest 25 defined contribution MEPs in 2009—the ADP Totalsource Retirement Savings Plan and the Gevity 401(k) plan. According to the National Association of PEOs (NAPEO), PEOs provide human resource services to their small business clients by processing and administering wage and tax payments and assuming responsibility and liability for compliance with various state and federal laws and regulations. By NAPEO’s estimate, PEO arrangements include between 2 and 3 million employees. The PEO representatives we interviewed said their PEOs operated under what they referred to as a “coemployer” contract. Though the term coemployer is not well-defined, according to the PEO sponsor representatives we interviewed, generally it means that a client employer signs a contract whereby the PEO assumes certain employer rights and responsibilities through the establishment and maintenance of an employer relationship with the workers assigned to its client. This usually includes administering a suite of human resources functions for the client such as payroll services, a worker’s compensation program, and a health insurance plan. Additional services may also be offered or required, but each PEO representative we interviewed said their PEO also offered a 401(k) defined contribution plan. According to one PEO representative, the PEO-sponsored 401(k) MEP was the fourth-most selected service option by clients. However, another PEO noted that the client could also sponsor a separate, non-MEP, single-employer plan—such as a 401(k)- style defined contribution plan—if it so chose. The PEOs from which we interviewed representatives offered many plan benefit features that could be highly customized to the client. For example, one PEO representative said their plan allows client employers to specify vesting schedules, choose among various levels of employer contributions or matches, and add profit-sharing features. The PEO representatives we interviewed said their PEOs had large numbers of participating employers in their plans. Each PEO-sponsored defined contribution plan had at least 400 participating employers, but one had about 2,700—nearly three times the largest number of participating employers that we estimated for 2001. The size of the typical client employer varied significantly and ranged both across and within industry sectors. For one PEO, the typical client employer had between 20 and 50 employees, but the PEO also had a client with nearly 3,000 employees. Two PEO representatives reported that their PEOs serve a broad array of industry sectors, though one representative noted that client employers are generally in various “white collar” industries, such as health care or public relations. According to pension experts familiar with the industry and our analysis, PEO-sponsored MEPs grew both in size and number after IRS issued guidance in 2002 that identified defined contribution MEPs as a plan design some PEOs could use to avoid plan tax disqualification.According to one plan sponsor, since the guidance was issued, MEPs have been the default plan design for PEOs—but the guidance did not address what constituted a PEO. Though not found among the largest plans, our review found that another MEP sponsor type emerged in recent years. As PEO-sponsored MEPs continued to grow, one firm, TAG Resources, LLC, started a new type of MEP: a defined contribution plan it called an “open” MEP. differences between PEO MEPs and open MEPs appear to be that open MEPs do not (1) offer payroll management or other administrative services PEOs typically offer, or (2) purport to be an employer of plan participants. Employers in open MEPs are related solely by their participation in the MEP. Since its inception in 2003, the TAG Resources open MEP grew to include 8,402 plan participants and about $64 million in assets at the end of the 2010 plan year. Another open MEP sponsored by 401kSafe, LLC was established in 2009 and already had 1,509 plan participants at the end of its 2010 plan year. According to its website, that plan had been maintained by the largest PEO in the southeastern United States and became an open MEP to expand its pension plan to non-PEO clients. This plan is known as the 401K Advantage, LLC 401K Plan. 30 employers per month. Additionally, we identified a consulting group that was designing open MEPs to be sponsored in such a way as to appeal to third-party service providers. The third-party service provider would tailor the design of the plan to appeal to clients who might ultimately adopt the MEP as participating employers. Reflecting some of the content of the marketing material we reviewed from PEO MEPs and open MEPs, MEP representatives told us that MEPs provide several advantages for employers over single-employer plan sponsorship: reduced fiduciary liability, reduced administrative responsibility, and reduced cost. However, we found that these advantages may not always be unique to MEPs. Based on our interviews with MEP representatives and the fact that, as stated earlier in this report, PEO and open MEPs are new and different compared to the other MEP types, it may be that PEO MEPs and open MEPs are the only MEP types marketing MEPs to employers. Consequently, the following section focuses on the advantages of MEPs overall in the context of how they would be presented to employers. Reduced fiduciary liability—According to all of the PEO and open MEP representatives we interviewed, the firms that offer MEPs take on some fiduciary duties that would otherwise remain solely with the employers if employers managed their own plans; however, exactly how much relief from liability, if any, the firm can provide to employers is unclear. In taking some of the fiduciary responsibility, these firms have control over the management or assets of the plan, which, according to one MEP representative, includes fund selection, due diligence in tracking the investment performance, and employee communication. Prior GAO work identified the burden of fiduciary liability as a possible impediment to small-employer plan sponsorship. According to one open MEP representative, reducing fiduciary liability is the primary reason employers participate in MEPs. Our prior work suggests this may be because some employers are not familiar with how to manage a plan. However, there may be other ways for employers to gain the same degree of reduced fiduciary responsibility as afforded by a MEP. For example, we found a firm marketing its willingness to establish and manage the investments of single-employer plans on the behalf of individual employers. In contrast to the claims made by some MEP representatives, several plan representatives and pension experts we spoke with said firms that offer MEPs cannot assume all fiduciary liability on behalf of the participating employer. Although a firm that offers a MEP can generally control the plan on behalf of the participating employers, as Labor notes on its website, at a minimum, the employers must still select a MEP to join, which is considered a fiduciary function, and retain responsibility to monitor the plan’s investments and fees. However, some MEP marketing materials we reviewed may give an impression that enrolling in MEPs eliminates fiduciary liability for employers entirely. Further, two of the MEP representatives stated that MEPs did eliminate fiduciary liability for employers. Reduced administrative responsibility—All of the PEO and open MEP representatives we interviewed said firms that offer MEPs assume administrative responsibilities that employers would retain if they managed their own plans. Several MEP representatives said MEP administrators can complete the record keeping and annual testing, and submit required filings such as a single Form 5500 for the MEP on behalf of all the participating employers. Additionally, a couple of the interviewees said that employers not already offering plans might find it easier and faster to join a MEP than to create their own administrative structure with a single-employer plan. However, our prior work has shown that individual sponsoring employers can also use service providers to perform administrative functions similar to those that MEPs offer. Further, PEOs that offer payroll services may offer similar plan administrative services for small employers that sponsor a single- employer plan through the PEO. Consequently, it is unclear how, if at all, the administrative services offered by a MEP differ significantly from those offered for a single plan through a PEO. Finally, a couple of MEP representatives identified the difficulty involved with tracking some of the administrative tasks needed for a MEP if the participating businesses did not have a common payroll remitter. One pension expert thought that this complexity increased the chance that the MEP could fail to meet some of its administrative responsibilities. Reduced cost—All of the PEO and open MEP representatives we interviewed thought that participating in MEPs may offer reduced costs as compared to single-employer plan sponsorship since participating employers can pool assets to obtain the lower pricing available to the larger plans. Additionally, several interviewees described how employers may not need to pay for additional services from third-party administrators or financial experts, which may be similar to what our prior work described as bundled services. Further, while enrolling in MEPs can save time for employers without a prior plan, as mentioned earlier, a couple of interviewees said MEPs may also save money since the employer will not need to spend money to create an initial plan document for a new single-employer plan. Lastly, in some cases, a firm offering a MEP is only required to conduct a single plan audit, which a few interviewees told us can be expensive for individual employers sponsoring their own plans. This may reduce costs for larger participating employers; however, employers with fewer than 100 participants are not required to audit their plans. Overall, no consensus existed among MEP representatives and pension experts on whether or not MEPs such as PEO MEPs or open MEPs would substantially expand pension coverage. Several MEP representatives thought that MEPs had the potential to expand coverage, especially among small to mid-size employers that could benefit from the potential administrative and cost advantages. However, a couple of pension experts were skeptical that open MEPs would have much of an impact in expanding retirement plan coverage. For example, one pension expert said employee demand, rather than cost benefits offered by MEPs, drives whether or not a business sponsors a plan. In our prior work, small employers reported that employees may prefer to have health care coverage or may not be interested in participating in a retirement plan. The pension expert also observed that small businesses do not extensively research retirement plans or actively seek them out. As a consequence, marketing may be the biggest determinant of MEP growth. Additionally, while a couple of the MEPs we spoke with had offerings for employers to start new plans through the MEP, several targeted businesses with existing plans. For example, an open MEP representative said their adopting employers usually have over 100 employees or plan assets of $2 million to $5 million. There is also concern about whether MEPs are any more or less prone to abuse than other types of pension arrangements. Labor officials said the potential for inadequate employer oversight of the MEP is greater because employers have passed along so much responsibility to the entity controlling the MEP. Labor officials noted that potential abuses might include layering of fees, misuse of the assets, or falsification of benefit statements. One pension expert agreed that there was potential for MEPs to charge excess fees without the enrolled employer being aware of those fees. While Labor officials acknowledged that single- employer plans could be subject to similar abuses, they cautioned that MEPs’ structure and operation could make them particularly susceptible to such abuses. Finally, a number of interviewees identified the “bad apple rule” as a potential problem for MEPs. Specifically, in order to retain its tax-qualified status and the associated tax advantages for the employer and employees, IRS requires the firm offering the MEP to annually test each employer to ensure that the contributions or benefits provided under the plan do not discriminate against rank-and-file workers in favor of highly compensated employees. If the tests find that one participating employer discriminated against its rank-and-file workers, this might cause the entire MEP to be considered noncompliant. However, many MEP representatives we had spoken with said that, to date, they had never needed to expel a participating employer because of noncompliance and that making voluntary compliance corrections with the IRS was not difficult. Labor and IRS treat MEPs differently because they are charged with interpreting different titles of ERISA. Labor is primarily responsible for interpreting and applying Title I of ERISA, which, among other things, defines an employee benefit plan. In contrast to Labor, IRS is responsible for determining whether plans qualify for preferential tax treatment under Title II of ERISA, which amended the IRC. For Labor’s purposes, under ERISA a plan can be maintained only by an employer, an employee organization, or both. For the IRS’s purposes, the IRC does not contain a definition of “employee benefit plan,” nor does it include any explicit requirement that a plan be maintained by an employer or an employee organization. Labor and IRS have not fully coordinated their statutory interpretations related to MEPs with Labor’s advisory opinions. On May 25, 2012, Labor issued two advisory opinions on open MEP arrangements and found an open MEP was not a single employee benefit plan under Title I of ERISA. However, applying tax law, IRS has found at least one open MEP, operating since 2003, qualified for preferential tax treatment. IRS officials said IRS does not take into consideration a MEP’s status under Title I of ERISA when considering whether it qualifies for preferential tax treatment. IRS focuses solely on compliance with IRC provisions. In the advisory opinions, Labor, and more specifically EBSA, opined that it considers the participating employers in an open MEP to be sponsoring their own plans for their own employees. The advisory opinions mean that an open MEP is simultaneously considered both a single plan by IRS, for purposes of certain tax laws, and a series of plans by Labor. This presumably means that an open MEP will have to file annual reports on behalf of each individual employer to satisfy Labor and also as one single plan to satisfy IRS. Filing both ways would create duplications in reporting and redundancies in Form 5500 data. The May 25th advisory opinions are the latest in a series of advisory opinions dating back to at least the late 1970s on benefit plans maintained by multiple employers. On both MEWAs (arrangements providing welfare benefits such as health coverage) and MEPs, Labor has held that multiple employers may maintain a single plan through a bona fide employer group or association of employers. However, Labor has been careful to define the nature of such an association in advisory opinions. A bona fide association may establish a plan because Labor considers the association to be an “employer” under section 3(5) of ERISA. Labor clarified in the May 25th opinions that it interprets the term “employer” in ERISA as having the same meaning whether applied to MEWAs or MEPs. Labor and Treasury are required to coordinate under ERISA. IRS have discussed these issues, but they have not coordinated to develop rules, policies, or practices to reduce the duplication of reporting and the burden of compliance with ERISA. IRS officials said they recognize the need to work with Labor on these issues, but they have not yet formulated the changes that may need to be implemented. Labor and IRS maintain an agreement relating to coordinating investigations generally, but the agreement does not include any coordination of statutory interpretations reflected in Labor’s advisory opinions related to MEPs. 29 U.S.C. § 1204. participating employer in an open MEP. Employee benefit plans under ERISA are subject to ERISA’s fiduciary provisions and are required to file an annual report with Labor (using a Form 5500). Labor may fine plan administrators who fail to file an annual report up to $30,000 per year until the report is filed. The advisory opinions will likely prompt a range of responses according to those we interviewed. Two open MEP representatives reported they will take steps to bring their arrangements into compliance. An open MEP’s fiduciaries can conduct new plan audits, assure employer compliance with ERISA fidelity bond requirements, and file Form 5500s for each employer, according to an open MEP representative and a pension expert. Others will likely exit the market, according to one pension expert. Some representatives of MEPs sponsored by PEOs and associations reported that the opinions had no impact on their plans. The advisory opinions may also affect federal oversight of open MEPs. A pension expert said open MEPs would be more likely to be selected for an IRS audit as a result of the increased reporting. The pension expert also suggested that disaggregating open MEPs into their underlying ERISA plans may reveal prohibited transactions that were not obvious before. The advisory opinions could also lead to higher costs for open MEPs. Treating participating employers as plan sponsors will be expensive, according to some MEP representatives and pension experts. Some open MEP representatives said firms would pass costs associated with compliance on to plan participants. One representative estimated administrative fees covering plan maintenance costs could increase by up to 50 percent and that increased costs will create a disincentive to plan formation and contract pension coverage. MEP sponsors have already raised questions about the broader applicability of the advisory opinions. Specifically, they have made informal inquiries to Labor as to whether their pension benefit arrangements are in fact open MEPs. Labor officials encouraged those sponsors to submit a formal request for an advisory opinion. Labor officials said each advisory opinion is based on the facts presented and, as established under its procedure for advisory opinions, only the parties described in the request for the opinion may rely on the opinion. However, advisory opinions provide a legal interpretation of ERISA and a discussion of factual situations that may be useful to persons not subject to it. Labor officials said that they issued opinions on two different plan structures to show that the agency’s reasoning would hold under various circumstances. Compliance assistance from Labor or IRS would help open MEP sponsors navigate the compliance requirements, according to two pension experts. One pension expert said that prompt guidance would be vital since certain plan sponsors submit requests for IRS determinations of their plans’ tax-qualified status on a 5-year cycle, and MEPs are in such a cycle now. However, IRS officials reported that as of June 21, 2012, they were still in the process of analyzing Labor’s advisory opinions, and did not yet know if they would need to change their determination procedures accordingly. IRS officials told us it was premature to consider changes to their determination procedures until they analyze the full impact of the opinions and more fully discuss them with Labor. IRS officials noted any such change would necessitate an outreach program to employers and practitioners. Labor officials said they are responding to inquiries by open MEPs on a case-by-case basis as part of their normal compliance and enforcement activities. Policy questions may still need to be addressed. One pension expert explained that while Advisory Opinion 2012-04A clarified Labor’s position on open MEPs, it did not explain Labor’s underlying policy concerns in detail. The opinion also did not provide Labor’s view on the potential of open MEPs to lower plan costs or expand coverage. One pension expert suggested Labor officials may have felt bound to the agency’s prior position by decades of existing precedent. However, another pension expert suggested Labor could have deemed open MEPs to be plans under ERISA but gave greater weight to its objective of ensuring benefit security. Both open MEP representatives and these pension experts said open MEP-like designs will continue to receive the attention of policymakers, given interest in expanding pension coverage. Pension experts also cautioned that any legislative change allowing certain open MEPs should ensure that there are appropriate safeguards to protect plan participants. MEPs are touted by some as a way for small employers to centralize administration and reduce pension plan costs. However, given that no data are collected on participating employers in MEPs, pension experts and agency officials cannot determine how employers utilize MEPs, let alone how beneficial the MEP design may be to employers and plan participants. While MEPs have long been affiliated with associations or complicated employer relationships, new sponsor types have emerged that call into question the current understanding of these relationships, which are a key aspect of ERISA’s requirements on employee benefit plans. Furthermore, it appears that actions taken by IRS, while providing some relief to certain PEOs has fostered the adoption of these new sponsor types of MEPs, including the most recent: “open” MEPs. Yet, at this time, no one knows for certain how many open MEPs there are, who is in them, or how they may affect future pension coverage. To identify ways to assess, mitigate, and monitor risks of MEPs in the future, Labor needs comprehensive and more current information about MEPs and their designs. There also appears to be a lack of coordination between IRS and Labor on the application of different statutory requirements to MEPs. Newer MEP designs appear to be a result of practitioners interpreting IRS guidance on their tax-qualified status as a broader endorsement of their plan designs. However, following the IRC, IRS does not take into account ERISA Title I standards for employee benefit plans when determining tax- qualified status. The IRS may continue to find that an open MEP qualifies for preferential tax treatment and promoters may use such qualification as a tool for marketing their arrangements to employers—even though Labor does not consider an open MEP to be a single employer benefit plan under ERISA. Inadequate coordination, rather than setting the groundwork for sound, sensible, and cost-efficient oversight, is likely to lead to future compliance uncertainty and may ultimately risk participants’ retirement security. Labor’s recently issued advisory opinions, consistent with previous opinions on employee benefit plans, establish that a common employment nexus or other genuine organizational relationship unrelated to the provision of benefits is required to maintain a pension plan among multiple employers. Labor’s expectation is that the recently issued opinions on open MEPs will serve as guidance to the pension industry at large. However, the application of such specific opinions is not always clear, and may be shaped by future requests for additional advisory opinions. The Secretary of Labor should direct the EBSA to take the lead in gathering useful oversight information about the employers that participate in MEPs. A likely source for collection of this data would be the Form 5500, as it is the primary source of private pension data for government oversight activities. The Secretary of Labor should instruct the Assistant Secretary of EBSA and the Secretary of the Treasury should instruct the Commissioner of Internal Revenue to formalize their coordination with regard to the statutory interpretations reflected in Labor’s advisory opinions related to MEPs. Furthermore, the agencies should coordinate to develop compliance-related guidance on the establishment and operation of MEPs under ERISA and the IRC. We provided a draft of this report to Labor, Treasury (specifically including IRS), and PBGC for their review and comment. Labor, Treasury and PBGC provided written comments, which are reproduced in Appendix II, III, and IV respectively. PBGC and Labor provided technical comments, which we incorporated where appropriate. The agencies generally agreed with the findings and conclusions of the report. Additionally, they expressed a commitment to expanding retirement plan coverage while also protecting the retirement benefits of workers, retirees and their families. GAO shares this commitment to expanding and promoting pension coverage in a manner that bolsters the retirement security of American workers. However, largely due to a lack of data, we could not fully examine how MEPs are utilized by employers or how they affect pension coverage overall. With better information to permit appropriate oversight, new MEP designs may prove to be viable options for sponsors and participants. The agencies generally agreed with the recommendation on data and suggested that, as part of their regular evaluations of changes to the Form 5500, they would consider the merits of alternative methods of collecting additional data about employers that participate in MEPs, among other possible changes to the Form 5500. We believe that such an evaluation is an important first step in determining how to collect useful information on employers that participate in MEPs. The agencies also agreed with our recommendation to provide for coordination of the statutory interpretations of Title I of ERISA and Title II of ERISA (as reflected in the IRC) in connection with MEPs. We are encouraged that that the agencies coordinated on the advisory opinions to some extent during their development and issuance—consulting on the text of the opinions, making revisions, and discussing issues arising from their issuance. We added language in our report to reflect this coordination. Additionally, we modified the recommendation to acknowledge that there are a variety of mechanisms they could use to improve and formalize their coordination. Labor and IRS said they would amend their coordination agreement when compliance issues become more apparent or if the impact of the advisory opinions suggests such coordination would be helpful. While our recommendation did not specify how or when the agencies should modify or formalize coordination agreements on statutory interpretations, we believe that it would be prudent to do so sooner rather than later. With respect to mechanisms for formalizing future coordination of statutory interpretations on MEPs in a more deliberative way, the agencies could modify their existing agreement on investigations or, if more appropriate, the agencies could initiate a new agreement, for example, via a memorandum of understanding or similar document. Further, our report contains evidence that the conditions the agencies believe would warrant modifying or formalizing agreements are already evident, namely concerns about compliance and the possible impacts of the opinions. Additionally, our report notes that the advisory opinions do not preclude the IRS from determining that open MEPs qualify for preferential tax treatment in the future. Currently, each of the three primary agencies regulating MEPs uses different criteria to define these plans for plan sponsors and administrators. Absent coordinated federal decisions, the potential exists for uncertainty within the regulated community and confusion for employers. By coordinating their statutory interpretations and subsequent guidance, these agencies could start to help create a clear, unified regulatory environment to optimize the potential for MEPs as an effective vehicle of pension coverage. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 21 days from the report date. We are sending copies of this report to the Secretary of Labor, the Secretary of the Treasury, the Director of PBGC, and other interested parties. This report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. Key contributors are listed in appendix V. To determine the largest multiple employer plan (MEP) sponsors and other key MEP characteristics, we analyzed electronic Form 5500 information, the primary source of private pension data. We analyzed 2009 Form 5500 information, the most current and complete year, and also used 2001 information to compare trends over time. We chose 2001 Form 5500 data as the comparison year because 2001 information is known to have fewer errors than certain prior years. The 2001 data also includes the Schedule T, which allowed us to estimate employers participating in MEPs for that year. Problems with the electronic data of the Form 5500 have been previously documented. However, we took steps to assess the reliability of the data and determined the data to be sufficiently reliable for our purposes. For example, we performed computer analyses of the data and identified inconsistencies and other indications of error and took steps to correct inconsistencies or errors. A second analyst checked all computer analyses. We chose to use “raw” 5500 data rather than Labor’s research files because the research data do not specifically focus on MEPs. According to Employee Benefits Security Administration (EBSA) officials, the research data are cleaned for common mistakes and the main focus of the effort is to assure that the historical relationship between single and multiemployer plans is accurate. Thus, the research data are not specifically cleaned with respect to MEP identification. Thus, MEPs may be recoded in the research data to single or multiemployer plans and there is no specific effort to better identify MEPs in the data. We found the Department of Labor’s (Labor) characterization of MEPs in the research files not to be well-suited for our analysis. Labor’s research data appear to recode a sponsor’s indication of MEP status using an inconsistent method. This inconsistency is noted in certain Labor publications.information about MEP sponsorship in its Private Pension Bulletins. The bulletins include only information about single-employer and multiemployer plans and include MEPs as either a single- or multiemployer plan type. In the footnotes, which disclose how MEPs are allocated across the single- and multiemployer categories, indication of collectively bargained participants in the MEP is the key determinant. For example, one of the footnotes indicates that if the MEP includes collectively bargained participants it would be characterized as a multiemployer plan in the bulletin. This is inaccurate—and at odds with the Form 5500 instructions—as MEPs may or may not include participants that are subject to collective bargaining; however, the collective bargaining agreement does not define the conditions and maintenance of the plan as it does for a multiemployer plan. Further, MEP administrators pay single-employer premiums for the MEP as a whole for purposes of Pension Benefit Guaranty Corporation (PBGC) insurance. For example, Labor does not publish basic pension plan We also found that that Labor does not consistently recode MEPs in the Form 5500 research file according to collective bargaining status—which violates the stated allocation rules in the footnotes of the pension bulletin. Certain MEPs that include participants that are subject to collective bargaining may be recoded as single-employer plans. For our analysis we made no attempt to recode plan types, notably for those plans identified as MEPs. Labor officials told us that certain plans may be mistakenly identified as MEPs on the Form 5500, but may actually be another plan type. However, to identify such mistakes would require detailed and time-consuming review of plan and sponsor documentation that is not publically available and may not be definitive. Thus, our analysis of MEP and other plan types is limited to the self- reported plan status as indicated by the Form 5500 filer. Given that little information about MEPs is known or publically available, we have included additional tables and figures from our analysis that were not included in the body of this report. These figures and tables include information about the largest MEPs, plan funding methods, key sponsor industries, and participating employer information culled from Schedule T attachments. In addition to the contact named above, Patrick DiBattista, Assistant Director; Chuck Ford; Ted Leslie; David Reed; Craig Winslow; and Frank Todisco made key contributions to this report. Also contributing to this report were Amy Anderson, David Chrisinger, Mimi Nguyen, Jodi Munson-Rodriguez, Roger Thomas, and Paul Wright.

Summary: GAO has reported that millions of U.S. workers lack access to employer-sponsored pension plans and that some small businesses, which offered plans at lower rates than large businesses, may be deterred by the cost of plan administration. MEPs, a type of pension plan maintained by more than one employer, have been supported as an option that could expand coverage by lowering administrative costs. For this report, GAO examined (1) the characteristics of private-sector MEPs, (2) the advantages and disadvantages of MEPs and how their perceived advantages are used to market them, and (3) how IRS and Labor regulate MEPs. GAO interviewed MEP sponsors, pension experts, officials at the Department of Labor (Labor), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC), and analyzed the primary source of pension data reported to the governmentthe Form 5500. Little is known about the characteristics of private sector multiple employer plans (MEP), especially information regarding the employers that participate in them. Although no participating employer information is currently collected in the Form 5500, the primary source for pension information reported to the government, some plan-level information on MEPs is available. GAOs analysis of 2009 plan-level data shows that the bulk of MEP participants and assets resided in the largest 25 private-sector MEPs. Three major sponsor types emerged among the top 25 plans: large corporations, associations, and professional employer organizations (PEO), which are firms that provide payroll and other human resources services to clients. These sponsor types differ in various ways, but notably, associations and PEO sponsors GAO interviewed tended to have a large number of employers participating in their plans. Little is also known about a fourth category of sponsor type called open MEPs, a type of MEP in which employers in the plan share no common relationship or affiliation with the other employers in the plan. This sponsor type appears to have come about in response to 2002 IRS guidance that allowed certain PEOs to avoid tax disqualification of their pension plans if they were converted to MEPs. Soon after this guidance was issued, practitioners began offering open MEPs. MEPs are marketed as providing several advantages for employers over single-employer plans, but GAO found that these advantages may not always be unique to MEPs. MEPs are marketed as providing reduced fiduciary liability, administrative responsibility, and cost. However, other types of single-employer plans may also offer reduced fiduciary responsibility and third-party administrators can reduce administrative responsibilities. Overall, among MEP representatives and pension experts, there was no consensus on whether or not open MEPs or PEO-sponsored MEPs could substantially expand pension coverage. 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. 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 Labor and IRS do not coordinate to reduce the impacts of defining a MEP differently. For example, although Labor recently opined that open MEPs are a collection of single plans, each separately sponsored by participating employers for their employees, 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 Labor. Pension experts agreed that compliance guidance from either agency would be helpful. GAO recommends that Labor lead an effort to collect data on the employers that participate in MEPs. GAO also recommends that Labor and IRS formalize their coordination with regard to statutory interpretation efforts with respect to MEPs. Furthermore, Labor and IRS should jointly develop guidance on the establishment and operation of MEPs. Agencies generally agreed with GAOs recommendations.