86A. Multiple employer plans

Statement of Requirement: Code §§ 413(c); 413(e); Reg. §§ 1.413-2(c); Proposed Reg. §§ 1.413-2, 1.413- 3Code § 413(c); Reg. § 1.413(c)

(Note to reviewer: A Pre-approved Plan may allow for the plan to be adopted as a multiple employer plan, that is, to be adopted as a non-collectively bargained single plan benefitting the employees of two or more employers who are not treated as a single employer under §§ 414(b), (c), (m), or (o). To do this, the plan must include, as an addendum to the adoption agreement, a participation agreement to be signed by any employer that adopts the plan, other than the “lead” employer that signs the adoption agreement. The participation agreement must provide that the participating employer agrees to be bound by the terms of the plan and trust as adopted by the lead employer, including any amendments thereto and any elections made by the lead employer, except to the extent the participation agreement allows for, and the participating employer makes, separate elections with respect to its employees.

299 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

The exclusive benefit requirement is applied to a multiple employer plan by treating all employees of all participating employers as if they were the employees of the same employer. In addition, the minimum participation requirements of § 410(a) and the minimum vesting requirements of § 411 are applied as if all participating employers were a single employer, and service for any employer counts as service for all.

The limitations of § 415 (annual additions), § 402(g) (elective deferrals), and § 414(v) (catch-up contributions) are applied to the plan as a whole, rather than on an employer-by-employer basis. Likewise, if a participant is both a 5% owner and an employee of any participating employer in the year the employee reaches the applicable age under § 401(a)(9)(C) age 70 ½, then the employee’s required beginning date is April 1 of the following year. See LRM #49.

Conversely, the minimum coverage requirements of § 410(b), the nondiscrimination requirements of § 401(a)(4), the determination of top-heavy status and minimum contributions under § 416, and the ADP and ACP tests of §§ 401(k) and 401(m), as well as the determination of highly compensated employees under § 414(q), are applied separately, on an employer-by employer basis.)

(Note to reviewer: For plan years beginning on or before December 31, 2020, a failure in a multiple employer plan with respect to any single employer would result in the entire plan being subject to disqualification. For plan years beginning after December 31, 2020, the SECURE Act of 2019 amended the Code to provide relief from this rule for certain multiple employer plans subject to § 413(e).

The relief is available to a multiple employer defined contribution qualified plan that (1) is maintained by employers which have a common interest other than having adopted the plan, or (2) in the case of a plan not described in (1), has a pooled plan provider (referred to herein as a “pooled provider plan”). To qualify for this relief, § 413(e) of the Code requires that the plan terms must provide that, in the case of any employer in the plan failing to take required actions (referred to as a “noncompliant employer”):

3. Plan assets attributable to employees of the noncompliant employer (and their beneficiaries) will be transferred to a plan maintained only by that employer (or its successor), t o a tax-favored retirement plan for each individual whose account is transferred, or to any other arrangement that the Secretary determines is appropriate, unless the Secretary determines it is in the best interests of the employees of the noncompliant employer (and beneficiaries of such employees) to retain the assets in the plan, and

4. The noncompliant employer (and not the plan with respect to which the failure occurred or any other employer in the plan) is, except to the extent provided by the Secretary, liable for any plan liabilities attributable to

300 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

employees of the noncompliant employer (or beneficiaries of such employees) .

The terms of a pooled provider plan must designate the pooled plan provider as a named fiduciary under ERISA, as the plan administrator, and as the person responsible to perform all administrative duties that are reasonably necessary to ensure that the plan meets the Code requirements for tax-favored treatment and the requirements of ERISA and to ensure that each employer in the plan takes actions necessary for the plan to meet Code and ERISA requirements.

Proposed Regulations under § 413(e) of the Code were issued March 28, 2022. These proposed regulations provide that the terms of a § 413(e) plan document must:

5. Include language describing the procedures that will be followed to address a participating employer failure, including a description of the notices that the § 413(e) plan administrator will send in the case of a “participating employer failure,”

6. State that the § 413(e) plan administrator will send the first notice (or, if applicable, the combined first and second notice) by specified deadlines that depend on the type of failure,

7. Describe the actions that the § 413(e) plan administrator will take if, by the end of the 60-day period following the date the final notice is provided, the unresponsive participating employer does not take appropriate remedial action with respect to the failure or initiate a spinoff of amounts attributable to the employees of the unresponsive participating employer to a separate single-employer plan that is maintained by the employer, and

8. Provide that if an unresponsive participating employer does not either take appropriate remedial action or initiate a spinoff by that deadline, participants who are employees of the unresponsive participating employer have a nonforfeitable right to the amounts credited to their accounts that are attributable to employment with the unresponsive participating employer, determined in the same manner as if the plan had terminated pursuant to § 411(d)(3).

Sample plan language specific to § 413(e) is not provided. The following sample plan language applies to a plan meeting the requirements of § 413(c).)

Sample plan language:

If elected by the employer in the adoption agreement, the plan may also be adopted, by

301 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

other employers that are not aggregated with the employer under sections 414(b),(c), (m), or (o) of the Code. Such employers shall adopt the plan by executing a separate participation agreement. In this case, the adopting employer and each participating employer acknowledge that the plan is a multiple employer plan subject to the specific reporting requirements and rules of section 413(c) and the regulations thereunder, regarding the qualified status of the plan.

For purposes of plan participation and vesting, the adopting employer and all participating employers shall be considered a single employer. An employee’s service includes all service with the adopting employer or any participating employer (or with any employer aggregated with the adopting or participating employer under sections 414(b), (c), (m), or (o)). An employee who discontinues service with a participating employer but then resumes service with another participating employer shall not be considered to have severed employment.

Except to the extent that the participation agreement allows, and the participating employer makes, separate elections with respect to its employees, the participating employer shall be bound by the terms of the plan and trust, including amendments thereto and any elections made by the adopting employer.

The limitation under the plan relating to the requirements of sections 415, 402(g), and 414(v) of the Code shall be applied to the plan as a whole. The requirements of sections 410(b), 401(a)(4), 401(k)(3)(A)(ii), 401(m)(2)(A), 414(q), and 416 shall be applied separately to each participating employer. For purposes of determining a participant’s required beginning date for minimum required distributions, a participant shall be considered a 5 percent owner in a year in which the participant is both a 5 percent owner and an employee of a participating employer.

Sample adoption agreement language:

Does the adopting employer elect to allow the plan to be adopted by other unrelated employers as a multiple employer plan? (check one)

( ) Yes

( ) No

Participation agreement:

(Note to reviewer: Although no sample language is provided, the participation agreement must identify the participating employer and the covered employees and provide for the participating employer’s signature. The participation agreement may, but is not required to, provide separate elections with respect to the employees of the adopting employer. In the case of a Standardized plan, any elections available to a participating employer must be limited to the elections available to the

302 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

adopting employer. Thus, the minimum coverage requirements of § 410(b) and the nondiscrimination requirements of § 401(a)(4) must be satisfied with respect to the employees of the participating employer regardless of what elections are made in the participation agreement.)

(Note to reviewer: An ESOP cannot be a multiple employer plan. In addition, the withdrawal of a participating employer from a multiple employer plan is not a plan termination which allows distributions to be made to participants in the plan. Instead, a plan termination for distribution purposes occurs when the entire plan terminates. See IRC § 413(c)(3) and Reg. § 1.413-2(a)(3)(iii). Plan provisions cannot provide that upon withdrawal of a participating employer, assets will be distributed as if it were a single employer plan termination. Instead, a withdrawing employer would be required to establish a plan as part of a spinoff transaction within the meaning of Reg. § 1.414(l)-1(b)(4) and transfer assets into it; then, if desired, terminate the spinoff plan.)