89A. Multiple employer plans

Statement of Requirement: IRC 413(c); Treas. Reg. 1.413-2

Document Provision: _____

(Note to reviewer: A Pre-approved Plan, including a Standardized 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 IRC 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.

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 IRC 410(a) and the minimum vesting requirements of IRC 411 are applied as if all participating employers were a single employer, and service for any employer counts as service for all. If the adoption agreement indicates that IRC 413(c)(4)(A) applies to the plan, the limitation on accrual and payment of benefits under IRC 436 applies separately to each employer under the plan as if each such employer maintained a separate plan. If IRC 413(c)(4)(A) does not

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apply to the plan, IRC 436 applies as if all participants in the plan were employed by a single employer.

The limitations of IRC 415 (annual benefits) 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 IRC 401(a)(9)(C)(v)), then the employee’s required beginning date is April 1 of the following year.

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

Sample plan language:

If elected by the employer in the adoption agreement, the plan may also be adopted, by other employers that are not aggregated with the employer under IRC 414(b), (c), (m), or (o). 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 IRC 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 IRC 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 limitations under the plan relating to the requirements of IRC 415 shall be applied to the plan as a whole. The requirements of IRC 410(b), 401(a)(4), 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% owner in a year in which the participant is both a 5% owner and an employee of a participating employer. If the adoption agreement indicates that IRC 413(c)(4) (A) applies to the plan, the limitation on accrual and payment of benefits under IRC 436 applies separately to each employer under the plan as if each such employer maintained a separate plan. If IRC 413(c)(4)(A) does not apply to the plan, IRC 436 applies as if all participants in the plan were employed by a single 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

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( ) No

Participation agreement:

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 Adopting Employer. Thus, the minimum coverage requirements of IRC 410(b) and the nondiscrimination requirements of IRC 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: 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 Treas. 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 is required to establish a plan as part of a spinoff transaction within the meaning of Treas. Reg. 1.414(l)- 1(b)(4) and transfer assets into it; then, if desired, terminate the spinoff plan.)