	Background

Under Title I of the Employee Retirement Income Security Act of 1974  (ERISA), employers are permitted to sponsor two broad categories of  pension plans. 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. Labor, IRS, and PBGC share federal responsibility for regulating pension  plans under ERISA. 26 U.S.C. Little Is Known About Key MEP Characteristics

Little is known about the characteristics of private sector MEPs,  particularly information about the employers that participate in them. 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. 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. MEPs Are Characterized by the Employers Participating in Them

As described previously, a MEP is a type of pension plan maintained by  more than one employer. 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. 2.) Three major sponsor types appear among the largest 25  MEPs: large corporations, associations, and professional employer  organizations (PEO). The large corporate MEP sponsors we interviewed  reported few participating employers in their plans. 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. MEP Advantages Marketed to Employers May Not Be Unique

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. 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. The pension expert also observed that small businesses do not  extensively research retirement plans or actively seek them out. One pension expert agreed that there was potential for MEPs to charge excess fees without the enrolled employer being  aware of those fees. 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. 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. Labor and IRS have not fully coordinated their statutory interpretations  related to MEPs with Labor’s advisory opinions. 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. There also appears to be a lack of coordination between IRS and Labor  on the application of different statutory requirements to MEPs. 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. 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. Furthermore, the agencies should coordinate to develop  compliance-related guidance on the establishment and operation of  MEPs under ERISA and the IRC. 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.
Why GAO Did This Study

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 governmentthe Form 5500.

What GAO Found

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. GAOs 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 plans 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.

What GAO Recommends

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 GAOs recommendations.