ICI Submits Comment Letter on IRS/Treasury Proposed Regulations Regarding Unified Plan Rule for MEPs

[34164]

May 27, 2022

TO: ICI Members
Pension Committee
Pension Operations Advisory Committee SUBJECTS: Pension RE: ICI Submits Comment Letter on IRS/Treasury Proposed Regulations Regarding Unified Plan Rule for MEPs

 

Today, ICI submitted the attached comment letter to the Treasury Department and IRS on the proposed regulations relating to the "unified plan rule" for multiple employer plans (MEPs).[1] The unified plan rule (also known as the "one bad apple" rule) provides that the failure by one employer maintaining a MEP, or by the plan itself, to satisfy an applicable tax-qualification requirement will result in the disqualification of the MEP for all participating employers.[2] The proposed regulations implement an exception to the unified plan rule enacted in section 101 of the Setting Every Community Up for Retirement Enhancement Act ("SECURE Act") of 2019.[3]

The SECURE Act's exception to the unified plan rule allows pooled employer plans (PEPs)[4] (as well as other MEPs consisting of related employers) to continue to be treated as satisfying the tax-qualification requirements despite the violation of those requirements with respect to one or more participating employers. In the case of a violation of the tax-qualification requirements by a participating employer, the SECURE Act allows the plan administrator to spin off the portion of the plan's assets attributable to that participating employer, into a separate plan maintained by that employer. The proposed regulations include detailed requirements for satisfying the unified plan exception.

ICI Comments

Our comment letter expresses general support for the proposed regulations and makes recommendations on the following issues:

• Inclusion of Procedures in Plan Terms. The letter recommends eliminating the proposed requirement for the plan document to include detailed procedures for addressing a participating employer failure. (Section 1)
• Time Limit for Completing Spinoff. The letter recommends clarification that the 180-day safe harbor period for completing a spinoff would not include periods during which the plan administrator waits for information or action from the unresponsive participating employer. (Section 2)
• Option for Spinoff Initiated by Plan Administrator. The letter recommends providing an option for the plan administrator to voluntarily initiate a spinoff of the assets attributable to the employees of the unresponsive participating employer to a separate single-employer plan, followed by a termination and distribution of the assets of such plan. (Section 3)
• Model Plan Language. The letter recommends providing model plan language as soon as possible to allow plans adequate time to incorporate the model language. (Section 4)
• Crediting Service for Employment with Other Participating Employers. The letter recommends reconsidering, in a separate rulemaking, the preamble's presumption that employers participating in a PEP would be required to credit an employee with service for periods the employee was employed by another employer participating in the PEP, for purposes of plan eligibility and vesting. (Section 5)

 

 

 

Elena Barone Chism
Associate General Counsel - Retirement Policy

 

endnotes

[1] For a description of the proposal, see ICI Memorandum No. 34109, dated April 12, 2022, available at https://www.ici.org/memo34109. The proposed regulations are available at https://www.govinfo.gov/content/pkg/FR-2022-03-28/pdf/2022-06005.pdf.

[2] Internal Revenue Code (Code) section 413(c) contains the unified plan rule for MEPs.

[3] For a summary of the SECURE Act, see ICI Memorandum No. 32118, dated December 20, 2019, available at https://www.ici.org/memo32118.

[4] Section 101 of the SECURE Act also established a new type of defined contribution MEP arrangement for otherwise unrelated employers, referred to as a "pooled employer plan" or "PEP." In November 2020, DOL established registration requirements for providers of PEPs, including creating new Form PR (Pooled Plan Provider Registration). See ICI Memorandum No. 32921, dated November 18, 2020, available at https://www.ici.org/memo32921.