1. Presented by Amy Cavanaugh Introduction by Dawn Frappollo AccuDraft EduCast Series presents Multiple Employer Plans

2. About the Speaker Amy Cavanaugh is a qualified retirement plan and employee benefit consultant with over 30 years of experience with respect to plan design, documentation and best practices. She is a frequent public speaker on retirement plan issues and the author of many articles on retirement plan issues. Areas of expertise include prevailing wage plans, Puerto Rico retirement plan issues, service agreements and plan design. Amy authored the Coverage and Nondiscrimination Answer Book until 2006 and has been active in industry associations such as ASPPA and NIPA. Amy lives in Palm Beach, Fl, she is a graduate of Jacksonville University and the Institute for Paralegal Training ERISA Program and serves on the Board of Governors of Jacksonville University.

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5. Purpose of our Session Review the requirements of Multiple Employer Plans Address administrative & operational compliance Discuss the business & marketing opportunities/ concerns 5

6. In General Plan established by a Sponsoring Employer Adopted by one or more Adopting Employers Often sponsored by associations and/or PEOs Sometimes unintentional due to ownership changes in what was a controlled group or ASG New trend of TPA sponsored MEPs 6

7. Not New American Bar Association American Dental Association National Association of Automobile Dealers Professional Employer Organizations 7

8. Source of Guidance Code Section 413(c) – Subject to all qualification requirements – Some applied in the aggregate, others on Adopting Employer basis Associated regulations Joint fiduciary liability under ERISA 8

9. Types of Relationships Company and Contractor Former Controlled Groups & Affiliated Service Groups Companies operating closely with each other PEOs TPAs – New trend 9

10. Types of Relationships Company and Contractor Former Controlled Groups & Affiliated Service Groups Companies operating closely with each other PEOs TPAs – New trend 10

11. Types of Relationships Company and Contractor Former Controlled Groups & Affiliated Service Groups Companies operating closely with each other PEOs TPAs – New trend 11

12. PEO Co-employment relationship Leasing Company PEO is an organization that, as a significant or principal part of its business, provides workers to other companies PEO is an organization that, as a significant or principal part of its business, provides all or substantially all of the workers at a given job site to other companies 12

13. Parties to a PEO Co-employment relationship Leasing Company PEO is an organization that, as a significant or principal part of its business, provides workers to other companies PEO is an organization that, as a significant or principal part of its business, provides all or substantially all of the workers at a given job site to other companies 13

14. PEO vs Leased PEO – handles employment of worksite employees Client Organization (CO) – firm that uses the PEO Worksite Employee – worker that a PEO provides to a CO Leased Leasing Company – provides workers Recipient Organization – uses Leased Employees Leased Employee – Not common-law to RO – substantially full time – For at least one year 14

15. Co-Employment Myth 20-Factor test applies Generally – leased – common-law – independent contractor 15

16. PEO/Leasing Organization Can cover workers without violating Exclusive Benefit Rule Must cover/consider their common law employees Code §415 does not consider Covered Organization’s Plans 16

17. Receipient/CO Can only cover common law employees Does not consider PEO/leasing company employees Code §415 applies on a Code §414 Employer basis 17

18. Co-Employment Can only cover common law employees The IRS does not define – leased employees – independent contractors – common law employees 18

19. Advantage Savings in administrative costs Single 5500 Form 19

20. Disadvantage Each Employer must count service performed for other Adopting Employers One bad apple spoils the whole barrel Adopting Employers have less flexibility than it would if it adopted its own Plan No matter how minimal its involvement with the plan, each Adopting Employer has all the liabilities and responsibilities of a Plan Sponsor 20

21. Qualification Requirements Collective Exclusive Benefit Rule Service requirements Vesting Benefits available to all Central trust Code Sec 415 Employer Coverage Non-discrimination Deduction limit Top heavy Compensation – Except for 415 purposes 21

22. Exclusive Benefit Rules Each Employer must count service performed for other Adopting Employers One bad apple spoils the whole barrel Adopting Employers have less flexibility than it would if it adopted its own Plan No matter how minimal its involvement with the plan, each Adopting Employer has all the liabilities and responsibilities of a Plan Sponsor 22

23. Vesting & Service Each Employer must count service performed for other Adopting Employers Break in Service rules apply separately Years of Service for vesting is applied in the aggregate 23

24. Code §415 Applied to benefits & contributions from all of the Employers maintaining the Plan must be taken into account A Participant’s aggregate compensation from all of the Employers maintaining the Plan is taken into account 24

25. Coverage & Non Discrimination Applied to each Employer separately Members of controlled groups and ASG are tested as a single Employer Shared employees are tested in the test of each Adopting Employer in which they perform services Dual employees in a PEO situation – leased employee rules apply 25

26. Deductions If the Plan was adopted before 1989: – A single deduction limit shared by all Adopting Employers unless the employers had elected to determine the limits separately If the plan was adopted after 1988 – Each Employer has its own deduction limit based on the compensation of its Participating Employees, unless it elected otherwise Special rules for PEOs – Depends on the nature of the relationship 26

27. Top Heavy Each Adopting Employer tests separately Minimums apply only to top heavy Adopting Employer 27

28. Compensation Compensation from each Adopting Employer is aggregated to determine compliance with Code §415 Nondiscrimination testing is performed separately, so each Employer looks only to the Compensation it paid in performing that testing Compensation is determined separately in analyzing HCE status Separate Code §401(a)(17) Compensation limit for each Adopting Employer 28

29. Form 5500 Single 5500 Argument for Separate Form 5500 – Must be filed by each employer participating in a plan or program of benefits in which the funds attributable to each employer are available to pay benefits only for that employer's employees, even if the plan is maintained by a controlled group – Some feel that participant directed accounts create this 29

30. Operational Failures If any part of a Multiple Employer Plan is disqualified, the whole plan is disqualified. EPCRS Service Agreement important Exit strategy important 30

31. Plan Types Prototype – Not available – Unintended MEP creates an individually designed plan Volume Submitter – Generally need a customized adoption agreement to give Adopting Employers any type of design options Individually Designed Plan – Provides full flexibility – Subject to 5-yr cycle 31

32. Determination Letter Rely on Advisory Letter Submit as a single ER plan – Letter issued to Sponsoring Employer only – Can use 5307 Submit on behalf of all Adopting Employers – Can still be treated as a volume for cycle purposes – Must use Form 5300 – User fee based on # of Adopting Employers $2,300 to $15,000 32

33. Determination Letter According to the IRS – Employers will be able to rely on the favorable determination letter issued for the plan except with respect to the requirements of 401(a)(4), 401(a)(26), 401(l), 410(b) and 414(s) and, if the employer maintains or has ever maintained another plan, IRC 415 and 416" 33

34. The TPA MEP All the rage Economies of scale Fiduciary protection Offers better funds to smaller Employers 34

35. DOL’s Take DOL says “operation of an MEP requires some sort of non-benefit related commonality” – this rule was geared towards MEBA Contend that – There is not a sufficient connection between the Sponsoring Employer & the Adopting Employers Fiduciary protection requires the TPA to act as the ERISA Administrator 35

36. ERISA §3(5) - Employer The term “Employer” means any person acting directly as an employer, or indirectly in the interest of an Employer, in relation to an Employee Benefit Plan; and includes – a group or – association of Employers acting for an Employer in such capacity 36

37. That Said Considering the overall benefits – it may be an attractive alternative if crafted properly Responsibilities must be appropriately assigned Service Agreement is essential Investments should be limited A way to get rid of “bad apples” is essential 37

38. Worst Case DOL views as single employee benefit plan under ERISA – separate 5500 filings – MEP rules would not apply – separate audits would apply 38

39. The Service Agreement Information Other plans Deadlines/responsibilities/consequences TPA Liability 39

40. The Employers Sponsoring Employer Adopting Employer Affiliated Employer 40

41. Sponsoring Employers Ultimate control Amends the Plan Interacts with Administrator & Trustee Adopting Employer Affiliated Employer 41

42. Adopting Employers Makes contributions Provides census data Generally given limited design options – safe harbor – level of match – eligibility – other things that are controlled at an Adopting Employer level 42

43. Affiliated Employers May or may not adopt Plan Will need to provides census data Need other Plan information 43

44. Fiduciary Relief? Depends Who chooses investments Who hires trustee Who hires service provider Employers choice to join plan -Settlor function 44

45. The Bad Apple Adopting Employer should be removed from the Plan Not a distributable event Partial Termination Spin-off Self-extracting spin-off 45

46. Thank you for attending! Q & A

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48. Product Questions kevin.m.watson@thomsonreuters.com dawn.frappollo@thomsonreuters.com 48

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