Lead Employer Leaves MEP

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with an advisor in Massachusetts is representative of a common inquiry involving multiple employer plans (MEPs). The advisor asked: “If the lead employer in a MEP wants to leave the arrangement, does that mean the MEP is terminated?”

Highlights of Discussion 

If the Lead Employer (a.k.a., the Controlling Member or Plan Sponsor) wants to leave a MEP, that does not mean the MEP is automatically terminated. Check the terms of the governing plan document to see if there is a process for a Lead Employer or Participating Employer (i.e., any employer who participates in the MEP) to leave the arrangement.

For example, a review of one plan document revealed the Lead Employer has some options as to how to leave the MEP. 

1. The Lead Employer could terminate the MEP.  In this case, the document states: “The Lead Employer may terminate this Plan at any time by delivering to the Trustee and each Participating Employer a written notice of such termination.” If the entire MEP is terminated, all participants become 100% vested in their assets (if a vesting schedule applies).  

2. The Lead Employer could withdrawal from the MEP.  The document states: “Upon thirty (30) days written notice to the other party, either the Lead Employer or Participating Employer may voluntarily withdraw from the Plan.” Under a withdrawal, the MEP is not terminated. The MEP could remain intact but would have to be amended to designate a new Lead Employer. If none of the Participating Employers wanted to take on the role of the Lead Employer, each could withdraw from the MEP and set up its own individual plans and transfer assets to their respective new plans.  

Conclusion

A Lead Employer may have options for leaving the MEP aside from plan termination. Be sure to check the terms of the plan document to see what alternatives—such as withdrawal—may be available.