oversight

Private Sector Pensions: Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans

Published by the Government Accountability Office on 2012-09-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to the Chairman, Committee on
                 Health, Education, Labor, and
                 Pensions, U.S. Senate


September 2012
                 PRIVATE SECTOR
                 PENSIONS
                 Federal Agencies
                 Should Collect Data
                 and Coordinate
                 Oversight of Multiple
                 Employer Plans




GAO-12-665
                                               September 2012

                                               PRIVATE SECTOR PENSIONS
                                               Federal Agencies Should Collect Data and
                                               Coordinate Oversight of Multiple Employer Plans
Highlights of GAO-12-665, a report to the
Chairman, Committee on Health, Education,
Labor and Pensions, U.S. Senate




Why GAO Did This Study                         What GAO Found
GAO has reported that millions of U.S.         Little is known about the characteristics of private sector multiple employer plans
workers lack access to employer-               (MEP), especially information regarding the employers that participate in them.
sponsored pension plans and that               Although no participating employer information is currently collected in the Form
some small businesses, which offered           5500, the primary source for pension information reported to the government,
plans at lower rates than large                some plan-level information on MEPs is available. GAO’s analysis of 2009 plan-
businesses, may be deterred by the             level data shows that the bulk of MEP participants and assets resided in the
cost of plan administration. MEPs, a           largest 25 private-sector MEPs. Three major sponsor types emerged among the
type of pension plan maintained by             top 25 plans: large corporations, associations, and professional employer
more than one employer, have been              organizations (PEO), which are firms that provide payroll and other human
supported as an option that could              resources services to clients. These sponsor types differ in various ways, but
expand coverage by lowering                    notably, associations and PEO sponsors GAO interviewed tended to have a
administrative costs. For this report,         large number of employers participating in their plans. Little is also known about
GAO examined (1) the characteristics           a fourth category of sponsor type called “open” MEPs, a type of MEP in which
of private-sector MEPs, (2) the
                                               employers in the plan share no common relationship or affiliation with the other
advantages and disadvantages of
                                               employers in the plan. This sponsor type appears to have come about in
MEPs and how their perceived
advantages are used to market them,
                                               response to 2002 IRS guidance that allowed certain PEOs to avoid tax
and (3) how IRS and Labor regulate             disqualification of their pension plans if they were converted to MEPs. Soon after
MEPs.                                          this guidance was issued, practitioners began offering open MEPs.

GAO interviewed MEP sponsors,                  MEPs are marketed as providing several advantages for employers over single-
pension experts, officials at the              employer plans, but GAO found that these advantages may not always be unique
Department of Labor (Labor), the               to MEPs. MEPs are marketed as providing reduced fiduciary liability,
Internal Revenue Service (IRS), and            administrative responsibility, and cost. However, other types of single-employer
the Pension Benefit Guaranty                   plans may also offer reduced fiduciary responsibility and third-party
Corporation (PBGC), and analyzed the           administrators can reduce administrative responsibilities. Overall, among MEP
primary source of pension data                 representatives and pension experts, there was no consensus on whether or not
reported to the government—the Form            open MEPs or PEO-sponsored MEPs could substantially expand pension
5500.                                          coverage. Given that employers do not directly oversee the plan, there was also
                                               some concern from Labor officials regarding the risk of MEP abuses, such as
What GAO Recommends                            charging excess fees or mishandling the plan’s assets. Additionally, because all
GAO recommends that Labor lead an              of the participating employers are responsible for maintaining the MEP, if one
effort to collect data on the employers        employer becomes noncompliant with the tax requirements the plans of all the
that participate in MEPs. GAO also             employers in the MEP may lose their tax-qualified status.
recommends that Labor and IRS
formalize their coordination with regard       Labor regulates MEPs for participant protections under the Employee Retirement
to statutory interpretation efforts with       Income Security Act of 1974 (ERISA), while the IRS regulates them for
respect to MEPs. Furthermore, Labor            preferential tax treatment under the Internal Revenue Code (IRC). However,
and IRS should jointly develop                 ERISA places requirements on plans that are not required under the IRC, and
guidance on the establishment and              Labor and IRS do not coordinate to reduce the impacts of defining a MEP
operation of MEPs. Agencies generally          differently. For example, although Labor recently opined that open MEPs are a
agreed with GAO’s recommendations.             collection of single plans, each separately sponsored by participating employers
                                               for their employees, open MEPs still qualify for preferential tax treatment under
                                               the IRC. Pension experts told GAO that such differing treatment can create
                                               compliance challenges. For example, an open MEP may be able to file a single
                                               annual report for the IRS but may also have to file annual reports for each of its
                                               component plans for Labor. Pension experts agreed that compliance guidance
View GAO-12-665. For more information,         from either agency would be helpful.
contact Charles Jeszeck at (202) 512-7215 or
jeszeckc@gao.gov.

                                                                                       United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                3
               MEP Advantages Marketed to Employers May Not Be Unique                   19
               IRS and Labor Treat MEPs Differently, Reflecting a Lack of
                 Coordination                                                           24
               Conclusions                                                              29
               Recommendations for Executive Action                                     30
               Agency Comments and Our Evaluation                                       31

Appendix I     GAO Analysis of Multiple Employer Plan Data                              34



Appendix II    Comments from the Department of Labor                                    44



Appendix III   Comments from the Department of the Treasury                             46



Appendix IV    Comments from the Pension Benefit Guaranty Corporation                   48



Appendix V     GAO Contact and Staff Acknowledgments                                    49



Tables
               Table 1: Percentage of Defined Benefit MEPs, by Reported Funding
                        Method, 2009                                                    39
               Table 2: Total Plan Assets of MEPs, by Plan Type and Plan Year           39
               Table 3: Percentage of All Assets Represented by MEPs, by Plan
                        Type and Plan Year                                              39
               Table 4: MEP Participating Employer Estimates, Mean, Median and
                        Maximum Employers, 2001                                         40
               Table 5: Maximum Number of Participants and Percentage of
                        Participants in MEPs by Sponsor Industry and by Plan
                        Type, 2009                                                      41
               Table 6:Maximum Number of MEPs and Percentage of MEPs by
                        Sponsor Industry and by Plan Type, 2009                         42




               Page i                                     GAO-12-665 Multiple Employer Plans
          Table 7: Percentage of Benefit Types Represented within Each
                   Defined Benefit Plan Type, 2009                                  42
          Table 8: Percentage of Pension Feature Types Represented within
                   Each Defined Contribution Plan Type, 2009                        42
          Table 9: Percentage of Defined Contribution Plans by Single,
                   Multiple, and Multiemployer Plan Status by Range of Plan
                   Participants, 2009                                               43
          Table 10: Percentage of Defined Benefit Plans by Single, Multiple
                   and Multiemployer Plan Status by Range of Plan
                   Participants, 2009                                               43


Figures
          Figure 1: Number of Defined Benefit and Defined Contribution
                   MEPs with Percent Change between Periods, 2001 and
                   2009                                                             11
          Figure 2: Number of Defined Benefit and Defined Contribution
                   MEP Participants with Change between Periods, 2001 and
                   2009                                                             13
          Figure 3: Top 25 Plan Sponsors of Defined Benefit MEPs, as
                   Measured by Total Plan Participants, 2009                        37
          Figure 4: Top 25 Plan Sponsors of Defined Contribution MEPs, as
                   Measured by Total Plan Participants, 2009                        38
          Figure 5: Percentage of MEPs by Range of Participating Employers
                   in the Plan, 2001 Estimate                                       41




          Page ii                                     GAO-12-665 Multiple Employer Plans
Abbreviations

EBSA             Employee Benefits Security Administration
EFAST            ERISA Filing Acceptance System
ERISA            The Employee Retirement and Income Security Act of 1974
IRC              Internal Revenue Code
IRS              Internal Revenue Service
Labor            Department of Labor
MEP              Multiple Employer Plan
MEWA             Multiple Employer Welfare Arrangement
NAPEO            The National Association of Professional Employer
                 Organizations
PBGC             Pension Benefit Guaranty Corporation
PEO              Professional Employer Organization
Treasury         Department of the Treasury




This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.




Page iii                                               GAO-12-665 Multiple Employer Plans
United States Government Accountability Office
Washington, DC 20548




                                   September 13, 2012

                                   The Honorable Tom Harkin
                                   Chairman
                                   Committee on Health, Education, Labor and Pensions
                                   United States Senate

                                   Dear Chairman Harkin:

                                   Millions of American workers lack access to employer-sponsored pension
                                   plans. Those who work for small employers are typically less likely to
                                   have a pension than workers in larger firms. GAO recently reported that
                                   small employers face several challenges to establishing and maintaining
                                   pension plans. 1 In particular, small employers may be reluctant to
                                   sponsor a plan because the employer is overwhelmed by the number of
                                   plan options, administrative requirements, and fiduciary responsibilities.
                                   Consequently, some have argued that pension arrangements that pool
                                   costs and administrative responsibilities could lead to increased
                                   coverage.

                                   Multiple employer plans (MEP), 2 a type of pension plan covering
                                   employees of more than one employer, have been suggested as a viable
                                   way to increase coverage by pooling costs. A range of legislative
                                   proposals, going at least as far back as the 1970s, have been put forth to
                                   encourage pooled pension arrangements for employers, but were never
                                   enacted. Further, an emerging trend in private sector MEP sponsorship
                                   seems to suggest a renewed interest in private sector MEPs; however,
                                   little is known about private sector MEPs and the importance or
                                   effectiveness of these plans for small employers. Additionally, little is
                                   known about the challenges, if any, that MEPs may present to the
                                   agencies charged with oversight of pension plans: the Department of
                                   Labor (Labor), the Department of the Treasury’s (Treasury) Internal
                                   Revenue Service (IRS), and the Pension Benefit Guaranty Corporation


                                   1
                                    GAO, Private Pensions: Better Agency Coordination Could Help Small Employers
                                   Address Challenges to Plan Sponsorship, GAO-12-326 (Washington, D.C.: Mar. 5, 2012).
                                   2
                                    Although the term MEP can be used to refer to employee welfare benefit plans as well
                                   as employee pension benefit plans, in this report, we use that term to refer only to
                                   employee pension benefit plans or arrangements that purport to be employee pension
                                   benefit plans.




                                   Page 1                                               GAO-12-665 Multiple Employer Plans
(PBGC). This report provides an overview of the characteristics and
utilization of these plans. To this end we will answer the following
questions:

(1) What are the characteristics of private sector MEPs?

(2) What are the advantages and disadvantages of MEPs and how are
the perceived advantages being used to market MEPs as a pension
design option?

(3) How do IRS and Labor regulate MEPs?

To address our objectives, we assessed and analyzed 2009 Form 5500
data, 3 the primary source of information for both the federal government
and the private sector on employee benefit plans. We also analyzed 2001
Form 5500 data to assess trends over time, as well as information on
participating employers that existed at that time. We interviewed at least
three plan-sponsor representatives from each of the four private sector
MEP sponsor types we identified via research and interviews. The major
sponsor types include: certain large corporations, associations,
professional employer organizations (PEO), and unaffiliated or “open”
MEPs. 4 We identified three sponsor types from a list of MEPs drawn from
Form 5500 data and we selected interviewees from among the largest
sponsors of each type. 5 We identified open MEPs as an emerging
sponsor type, though sponsors of these plans were often new and not



3
  The Employee Retirement Income Security Act of 1974 (ERISA) establishes
requirements for employee benefit plans Pub. L. No. 93-406, 88 Stat. 829 (codified as
amended at 26 U.S.C §§ 219, 401-404, 405-408, 910-915, 1379, 4971, 4973-4975, 6057-
6059, 6103, 6104, 6688, 6690, 6692 and 7802; 29 U.S.C. §§ 1001-1461; and 42 U.S.C. §
1131). Labor, IRS and PBGC jointly developed the Form 5500 so employee benefit plans
could utilize it to satisfy annual reporting requirements under ERISA and the Internal
Revenue Code (IRC). The Form 5500 is part of ERISA’s overall reporting and disclosure
framework, helping to assure that employee benefit plans are operated and managed in
accordance with certain prescribed standards and that participants and beneficiaries, as
well as regulators, are provided or have access to sufficient information to protect the
rights and benefits of plan participants and beneficiaries.
4
  A PEO, very generally, is a firm that provides a means for outsourcing of various human
resource management and administration tasks for client employers.
5
 Where possible, we selected and interviewed sponsors that offered both defined benefit
and defined contribution MEPs. However, some of the sponsor types offered only defined
contribution MEPs.




Page 2                                                GAO-12-665 Multiple Employer Plans
             necessarily identified by Form 5500 filings. We selected these open MEP
             sponsors through Internet searches and interviewed them as well. We
             also conducted a literature review, and interviewed agency officials,
             including officials at Labor, IRS, and PBGC, as well as pension
             professionals and experts. Our selection of pension experts included
             actuarial experts representing their professional association, as well as
             various other pension experts, particularly those with administrative and
             legal expertise. 6 We reviewed relevant federal laws and regulations, as
             well as agency guidance—most notably in the form of advisory opinions
             issued by Labor. Following the issuance of recent advisory opinions, we
             sought reactions from the MEP sponsors and pension experts. We
             conducted our work from March 2011 to September 2012 in accordance
             with generally accepted government auditing standards. Those standards
             require that we plan and perform the audit to obtain sufficient, appropriate
             evidence to provide a reasonable basis for our findings and conclusions
             based on our audit objectives. We believe the information and data
             obtained, and the analysis conducted, provide a reasonable basis for our
             findings and conclusions based on our audit objectives.


             Under Title I of the Employee Retirement Income Security Act of 1974
Background   (ERISA), 7 employers are permitted to sponsor two broad categories of
             pension plans. They are (1) defined benefit plans—in which employers
             generally maintain a fund to provide a fixed level of monthly retirement
             income based on a formula specified in the plan 8—or (2) defined
             contribution plans—in which retirement income is based on employer and
             employee contributions and the performance of investments in individual
             employee accounts. 9 A MEP may be a defined benefit plan or a defined
             contribution plan.




             6
               These experts included a representative of a pension consumer rights organization; a
             representative of a nonprofit, nonpartisan, retirement research organization;
             representatives of a private law firm specializing in employee benefits; representatives of
             a membership organization dedicated to retirement plan professionals; and the author of a
             book and journal article on multiple employer benefit arrangements.
             7
                 Pub. L. No. 93-406, 88 Stat. 829.
             8
               These formulas may take into account factors such as salary, years of service, and age
             at retirement, regardless of the investment portfolio’s performance.
             9
                 29 U.S.C. § 1002(34) and (35).




             Page 3                                                 GAO-12-665 Multiple Employer Plans
There are three types of pension plans that share some features with
MEPs but are not the focus of this report: (1) A single-employer plan is
established and maintained by only one employer and for that employer’s
employees. 10 (2) A multiemployer plan is another form of multiple
employer arrangement where a plan is established and maintained
pursuant to the terms of a collective bargaining agreement between at
least one employee organization and more than one employer. 11
Specifically, management and labor representatives must jointly govern
these plans, in which participants can negotiate the plan benefits through
a union. 12 (3) A master or prototype plan is based on a largely uniform
plan document sponsored by an organization for adoption by employers
who are either its customers or members. 13 An employer who adopts a
master or prototype plan completes an adoption agreement to elect
certain options specified in detail in a separate plan document, but
generally the provider or sponsor centrally administers the plan and, in
the case of a master plan, pools the assets of the adopting employers into
a central investment trust. 14 Banks, trade or professional organizations,
insurance companies, and mutual funds are generally allowed by the IRS
to provide master or prototype plans.




10
     29 U.S.C. § 1002(41) and (42).
11
     29 U.S.C. § 1002(37).
12
   We have recently initiated work on multiemployer plans. The work is expected to
examine efforts to improve multiemployer funded status and policy options that could
facilitate such an aim.
13
   The main parties in the master and prototype plan system are mass submitters,
sponsors, and adopting employers, and each one is involved at a different “level” in the
process with respect to the IRS. Mass submitters, or U.S. businesses that submit opinion
letter applications on behalf of at least 30 unaffiliated sponsors, usually have reduced
procedural requirements and get expedited treatment from the IRS because of the high
volume of sponsors they represent and the number of identical or near-identical plans they
submit to the IRS. This makes it easier and more efficient for IRS to review the large
number of identical plans. The IRS issues opinion letters (on the acceptability of the form
of the plan) to mass submitters and/or sponsors of master and prototype plans that have
been submitted to the IRS for approval. 26 C.F.R. § 601.201(q) (2012). The master and
prototype sponsor, or a U.S. business that has at least 30 employer-clients each of which
is reasonably expected to timely adopt the sponsor’s basic lead plan document, then
makes its plan(s) available for employers to adopt.
14
   A prototype plan differs from a master plan in that it does not centralize, or pool,
investment accounts like a master plan. A separate trust or custodial account is
established for each employer in the case of a prototype plan.




Page 4                                                   GAO-12-665 Multiple Employer Plans
In addition to employee pension benefit plans, ERISA covers employee
welfare benefit plans for health care and other employee benefits as well.
MEPs as pension plans have an analogous welfare arrangement called
multiple employer welfare arrangements (MEWA). These are also
maintained by multiple employers, and depending on the facts and
circumstances, are single employer or multiple employer plans subject to
requirements under ERISA.

Labor, IRS, and PBGC share federal responsibility for regulating pension
plans under ERISA. Labor enforces rules concerning how pension plans
should operate in the best interest of participants and beneficiaries.
Accordingly, Labor has the statutory authority to bring legal action against
all fiduciaries under ERISA. Within Labor, the Employee Benefits Security
Administration (EBSA) is charged with interpreting and enforcing laws
designed to assure the security of the pension, health, and other
employment-based benefits of American workers and their families.
EBSA issues advisory opinions in which it facilitates compliance with
ERISA through interpretative guidance. 15 A plan sponsor may request a
determination from EBSA that its arrangement constitutes an employee
benefit plan under ERISA. Through its advisory opinions, EBSA provides
the position of the department as to the application of one or more
sections of ERISA. An advisory opinion, which is limited to the facts in the
opinion, can be relied upon, as a legal matter, only by the parties in the
opinion. However, these opinions serve as guidance to others on what
arrangements are considered employee benefit plans under ERISA.

IRS, on the other hand, is charged with determining whether a plan
qualifies for preferential tax treatment in accordance with the Internal
Revenue Code (IRC). Qualified pension plans receive favorable tax
treatment, with deferral of taxes on contributions and investment earnings
until benefits are received in retirement, and to be qualified a plan must,
among other things, be maintained for the exclusive benefit of the plan
sponsor’s employees or their beneficiaries. 16 Plans may apply to the IRS
seeking an advance determination as to their qualified status. A favorable
determination letter provides the plan sponsor with IRS’s opinion that the




15
   ERISA Procedure 76-1 for ERISA Advisory Opinions,
http://www.dol.gov/ebsa/regs/aos/ao_requests.html.
16
     26 U.S.C. §§ 401(a) and 501(a).




Page 5                                            GAO-12-665 Multiple Employer Plans
                            terms of the plan as presented to the IRS, conform to the requirements of
                            the IRC.

                            Lastly, PBGC acts as an insurer of private-sector defined benefit pension
                            plans by guaranteeing participant benefits up to certain statutory limits
                            and, in the case of covered single-employer plans, protecting participants
                            when the plan terminates with insufficient assets to pay all benefits, such
                            as the bankruptcy of plan sponsors with underfunded plans.


Little Is Known About Key   Little is known about the characteristics of private sector MEPs,
MEP Characteristics         particularly information about the employers that participate in them. No
                            information with respect to participating employers in MEPs is currently
                            collected in the Form 5500, which is the primary source of pension plan
                            information for government oversight activities. However, basic plan and
                            sponsor-level information on MEPs is available in the Form 5500 data,
                            and we were able to analyze this data. The data show that MEPs are a
                            small portion of the overall pension universe and that the bulk of plan
                            assets and participants reside among the largest 25 defined contribution
                            and defined benefit MEPs. Lastly, we identified a new sponsor type of
                            MEP: the “open” MEP. Unlike the other sponsors we identified, the
                            employers that participate in open MEPs share no common relationship
                            or affiliation with the other employers in the plan.


MEPs Are Characterized      As described previously, a MEP is a type of pension plan maintained by
by the Employers            more than one employer. 17 Typically, employers participating in a MEP
Participating in Them       have a common interest in some business or association, but do not
                            share common ownership control. 18 When employers decide to
                            participate in a MEP, they legally adopt the plan as their own, as do other
                            participating employers. A participating employer may sign an agreement
                            that serves to identify the plan terms that will apply to its employees. 19




                            17
                              The IRC sets out specific requirements applicable to MEPs, imposing, for example,
                            participation, exclusive benefit and vesting requirements. 26 U.S.C. § 413(c).
                            18
                              In this report we refer to the employers that participate in a MEP as participating
                            employers.
                            19
                               This is sometimes referred to as a joinder agreement. It may also outline the delegation
                            of authority necessary under the plan to permit a given MEP to operate.




                            Page 6                                                  GAO-12-665 Multiple Employer Plans
                        Oversight agencies and plan administrators treat individual employers
                        within the MEP as maintaining separate, single-employer plans for some
                        purposes. For example, the IRS tests individual employers in a MEP
                        separately against certain requirements designed to promote equity and
                        inclusiveness of contributions and benefits across employees. 20
                        Additionally, a MEP may allow each participating employer to specify
                        employer and employee contributions and allow participating employers
                        to maintain unique plan benefit formulas.

                        For other purposes, notably certain reporting and auditing requirements,
                        oversight agencies treat the MEP as one plan. 21 Specifically, a MEP
                        under ERISA must only file a single Form 5500. In addition, a defined
                        benefit MEP pays a single-employer insurance premium to PBGC for the
                        plan as a whole.


Key Data That           Currently, the federal government collects little MEP-specific information.
Characterize MEPs Are   Most notably, the Form 5500 is the primary source of pension plan
Not Collected           information for government oversight activities. The Form 5500 used to
                        include an IRS schedule that required information on, among other things,
                        the number of additional (or participating) employers in a MEP. However,
                        it no longer collects this information; consequently, the agencies have no




                        20
                           26 U.S.C. §§ 410(b) and 416. These requirements are often referred to as
                        nondiscrimination rules and “top heavy” rules. Nondiscrimination testing is done to assure
                        that benefits are provided to a cross-section of employees consistent with requirements
                        intended to keep plans from disproportionately benefiting highly compensated employees
                        and company owners or executives.
                        21
                           Generally, ERISA requires pension plans with 100 or more participants to have an audit
                        as part of their obligation to file an annual return/report, known as the Form 5500. 29
                        U.S.C. §§ 1023(9)(3)(A) and 1024(a)(2)(A). When an audit is required, the plan
                        administrator must select an independent qualified public accountant. A plan audit is one
                        way to help protect the assets and financial integrity of the pension plan and ensure that
                        the necessary funds will be available to pay promised retirement benefits. An audit helps
                        the sponsor carry out legal responsibilities to file a complete and accurate annual
                        return/report for the plan each year. In addition, the audit serves as financial disclosure to
                        the participants and beneficiaries.




                        Page 7                                                   GAO-12-665 Multiple Employer Plans
current data with respect to participating employers in a MEP. 22
Participating employer information for a MEP is important because each
employer may be unique in relation to the plan overall, with regard to
discretionary plan options or its portion of the overall participants in the
MEP.

While the federal government no longer collects participating employer
data, both IRS and Labor agreed that such information could be helpful to
their oversight efforts. For example, Labor officials said that basic
information about a MEP’s participating employers, such as the number
of employers or a list of names could be useful oversight information. 23
Pension experts we talked with said that MEPs with especially large
numbers of participating employers may be more challenging to
administer. For example, as a MEP adds participating employers, the
likelihood increases that one or more employers may fail
nondiscrimination testing. This could ultimately jeopardize an entire
MEP’s preferential tax treatment. An IRS official acknowledged the value




22
    Prior to 2005, certain plan sponsors used a Schedule T attachment to the Form 5500 to
satisfy certain tax qualification requirements applied at the employer level. The Schedule
T included fields for individual employer information along with data to use for
nondiscrimination testing of employers participating in a MEP. However, as a result of a
series of events related to electronic collection of data, Labor, IRS, and PBGC no longer
collect this data. IRS officials pointed out that statute limits the collection of information
electronically by the IRS. 26 U.S.C. § 6011(e)(1). In 1999 Labor took over responsibility
for collection of the Form 5500 and, along with IRS and PBGC, implemented a new
computerized system known as the ERISA Filing Acceptance System (EFAST) to improve
the processing of forms. Because there was no electronic filing requirement when EFAST
was implemented, forms were mainly submitted in paper format. Around the late-to-mid
2000s, Labor led an effort to collect Form 5500 information in direct, electronic form, an
initiative known as EFAST2. In anticipation of the changes in EFAST2, the IRS requested
the removal of the Schedule T. The all-electronic system of EFAST2 was instituted as of
January 2010. Labor and IRS officials said that, because the now-defunct Schedule T was
not required annually and included calculations that were not necessarily timely, the
information on participating employers was not particularly direct or timely.
23
   According to the official, the agencies could change the Form 5500 to include
participating employer information after the department complies with the legally required
steps for implementing regulations, including regulatory analysis and notice-and-comment
rulemaking, as well as requirements under the Paperwork Reduction Act of 1995 (Pub. L.
No. 104-13, 109 Stat. 163 (codified as amended at 44 U.S.C §§ 3501-3521)) and the
Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. No. 104-121, tit. II
110 Stat. 847, 857-74. Any added information would require changes to systems
administered by Labor’s contractor, with the cost of such a change depending on the
format of the change.




Page 8                                                  GAO-12-665 Multiple Employer Plans
that having access to participating employer information could have in
targeting plans that may have such plan testing issues.

Besides participating employer information, Labor officials suggested that
information identifying key MEP sponsor types or employer relationships
may also be useful. As a possibility for gathering information about MEPs,
Labor officials suggested requiring an initial Form 5500 filing immediately
upon plan establishment. Another option would be to implement a
registration requirement for newly-formed MEPs, though officials stated
that Labor has no specific statutory authority to initiate collection of such
information.

According to some MEP sponsors, reporting basic information about the
number of participating employers in a MEP would not be burdensome.
However, a few sponsors also told us that, to avoid creating complex and
burdensome reporting requirements, agencies would need to carefully
consider the information to be collected. For example, dynamic
interrelationships among participating employers, such as one employer
being a subsidiary of another, would require carefully defining the term
“participating employer.” 24 Nevertheless, a plan sponsor representative
said participating employer information could be used for measuring a
MEP’s cost-effectiveness.




24
   For example, a MEP may include employers that have changing ownership interests in
one another. If and when ownership interests with respect to two or more employers
reaches certain levels set out in the IRC (26 U.C.S. § 1563), those employers would
generally, in effect, be considered a single employer. 26 U.S.C. § 414(b) and (c). For
MEPs that have a particularly large number of participating employers engaging in
complex transactions, keeping track of the number and identities of participating
employers may be burdensome.




Page 9                                              GAO-12-665 Multiple Employer Plans
MEPs Are a Small Portion   The 2009 plan and sponsor-level Form 5500 data, the most current and
of the Pension Plan        complete year of data at the time of our analysis, show that MEPs
Universe                   comprise a relatively small portion of the universe of pension plans. 25
                           Defined benefit and defined contribution MEPs each represent only 0.7
                           percent of approximately 46,000 private sector defined benefit plans and
                           approximately 654,000 private sector defined contribution plans. The vast
                           majority of pension plans are single-employer plans. More specifically,
                           MEPs account for only 318 defined benefit plans and 4,593 defined
                           contribution plans. MEP sponsorship seems to be following the general
                           trend away from traditional defined benefit plans and towards defined
                           contribution plans. For example, from 2001 to 2009 the number of defined
                           contribution MEPs appears to have grown by 20 percent, while the
                           number of defined benefit MEPs shrank by over a third. 26 (See fig. 1).




                           25
                               While key, current information about participating employers is missing, we were able to
                           identify important sponsor-level plan information from the 2001 and 2009 Form 5500
                           filings. Additionally, we supplemented our data analysis with data from plan interviews.
                           26
                              Though MEPs may follow more general pension trends in plan-type sponsorship, others
                           suggest possible MEP-specific trends as well. Actuarial experts told us that certain
                           requirements may make it particularly difficult to establish a defined benefit MEP today.
                           Defined benefit MEPs established after 1988 must be funded as if each participating
                           employer is funding a separate plan so that plan assets have to be allocated among the
                           participating employers. 26 U.S.C. § 413(c)(4)(A). Plans established before 1989 that did
                           not elect to be treated as plans established after 1988 must be funded as if all
                           participating employers maintain one single-employer plan. 26 U.S.C. § 413(c)(4)(B).
                           According to the experts, allocating assets across employers requires application of
                           onerous, detailed allocation techniques that may result in certain employers receiving
                           asset allocations that are disproportionate to their individual contributions.
                           Disproportionate allocations may give certain participating employers the impression that
                           the plan is inequitable—that is, for example, that certain employers are contributing more
                           to the funding of the plan than they would have were the plan not funded separately, while
                           other participating employers may receive particularly favorable asset allocations. Roughly
                           37 percent of defined benefit MEPs were subject to the post-1988 funding rules as of the
                           2009 plan year. See appendix I, table 1 for additional detail.




                           Page 10                                                GAO-12-665 Multiple Employer Plans
Figure 1: Number of Defined Benefit and Defined Contribution MEPs with Percent
Change between Periods, 2001 and 2009




While MEPs represent a relatively small percentage of pension plans,
based on available data, they appear to represent a somewhat larger
percentage of pension assets. For example, defined benefit MEPs
represented about $110 billion in plan assets as of 2009—about 6
percent of all defined benefit assets. Defined contribution MEPs
represented an estimated $175 billion in assets—also about 6 percent of
all defined contribution assets. 27 The portion of all participants



27
     See appendix I, tables 2 and 3 for additional asset information.




Page 11                                                   GAO-12-665 Multiple Employer Plans
represented by MEPs is generally similar to the proportion of all assets
represented by MEPs. In 2009, defined benefit MEPs included about 2.2
million participants—about 5 percent of all defined benefit plan
participants. At the same time, defined contribution MEP participation
grew—defined contribution MEPs currently cover over 4.5 million
participants (about 5 percent of all defined contribution participants). 28
(See fig. 2.)




28
   Particularly for defined contribution plans in this instance, plan participation implies
eligibility to contribute to the plan. Thus, some participants may not have account
balances if they have not made or received contributions to the plan and, given the
construction of the definition of participant in the Form 5500, our estimates include
participants with zero account balances. For our analysis, we measured participants using
the definition of total participants on the Form 5500 and Form 5500-SF (for small plans)
which includes active; retired; separated vested participants not yet in pay status; and
deceased participants whose beneficiaries are receiving or are entitled to receive benefits.
The number of participants also includes double counting of workers in more than one
plan.




Page 12                                                GAO-12-665 Multiple Employer Plans
                             Figure 2: Number of Defined Benefit and Defined Contribution MEP Participants
                             with Change between Periods, 2001 and 2009




MEP Sponsorship Is Highly    The preponderance of MEP assets and participants reside in a relatively
Concentrated among the       small number of plans. Specifically, the largest 25 defined benefit MEPs
Largest 25 Defined Benefit   ranked by number of participants represent nearly 76 percent of all
                             defined benefit MEP assets and 72 percent of all defined benefit MEP
and Defined Contribution     participants. Similarly, the largest 25 comparably ranked defined
Plans                        contribution MEPs represent about 51 percent of all defined contribution
                             MEP assets and about 41 percent of all defined contribution MEP
                             participants. Three major sponsor types appear among the largest 25
                             MEPs: large corporations, associations, and professional employer
                             organizations (PEO). Additionally, we identified an emerging plan sponsor
                             type that does not appear among the largest plans: the open MEP.




                             Page 13                                          GAO-12-665 Multiple Employer Plans
Large Corporate MEPs   Large, Fortune 500, or Fortune Global 500 corporations make up the
                       majority of plan sponsors among the largest 25 MEPs (see figs. 3 and 4
                       in appendix I). 29 For example, the defined benefit MEP maintained by
                       General Electric is overall the third largest defined benefit plan in terms of
                       total participants—representing 24 percent of all defined benefit MEP
                       participants. The defined contribution MEP maintained by General
                       Electric is the second largest defined contribution MEP and, when
                       compared to all defined contribution plans, is the ninth largest defined
                       contribution plan overall.

                       Each of the sponsors we interviewed among these large corporate MEPs
                       told us their plans became MEPs as a result of their corporate structure or
                       transactions under which some or all employers were no longer in the
                       same controlled group. 30 In other words, the MEP may cover a
                       corporation and its subsidiaries that are not under common control of the
                       parent corporation. 31 The large corporate MEP sponsors we interviewed
                       reported few participating employers in their plans. One sponsor reported
                       only two participating employers. The sponsor with the largest number of
                       participating employers reported eight.




                       29
                         All three of the sponsors we interviewed in this category had both defined benefit and
                       defined contribution MEPs.
                       30
                          For most purposes, all employees of employers in the same controlled group are
                       treated as employed by a single employer. 26 U.S.C. § 414(b). The status of these large,
                       corporate plans as MEPs may be temporary if the transactions that resulted in them
                       becoming MEPs are undone. For example, one plan sponsor representative we
                       interviewed said that the sponsor’s defined benefit and defined contribution plans became
                       MEPs in the early-to-mid 2000s as a result of a merger within a business segment. Not
                       long after, however, that particular segment was spun-off from the company and, by
                       sometime in 2012, both the defined benefit and defined contribution plans will no longer
                       be MEPs, but may be single-employer plans.
                       31
                          The extent to which two or more corporations are considered in the same controlled
                       group has to do chiefly with the percentage of ownership one has in the other. 26 U.S.C. §
                       1563.




                       Page 14                                               GAO-12-665 Multiple Employer Plans
Association MEPs   Association-sponsored plans also appear among the 25 largest defined
                   benefit and defined contribution MEPs. 32 The largest association-related
                   defined benefit MEPs include the National Rural Electric Cooperative
                   Association Retirement Security Plan, the United Benefits Group Co-op
                   Retirement Plan, and the Pentegra Defined Benefit Plan for Financial
                   Institutions. Among the largest defined contribution MEPs are The Young
                   Men’s Christian Association Retirement Fund Retirement Plan and the
                   National Rural Electric Cooperative Association 401(k) Pension Plan.

                   In contrast to our interviews with the large corporations that did not have
                   common control of one or more employers in the plan, the associations
                   had long-standing, continuously operating MEPs that, in most cases,
                   were established prior to the enactment of ERISA. Additionally, these
                   associations included a relatively large number of participating
                   employers—well over 100 in most cases—and tended to be organized
                   around a common trade or industry that served smaller employers. Two
                   of the associations we interviewed reported an average of between 20
                   and 60 employees per participating employer.

                   The association representatives we interviewed also said that they had a
                   number of common operational structures. For example, each association
                   had an appointed board made up of association members that served as
                   the named fiduciary of the plan. Most of these associations required
                   member representatives who sat on the association board to participate
                   in the MEP.

                   Additionally, a number of the association representatives noted the many
                   advantages of the MEP model for associations. For example, especially
                   in the case of defined benefit plans, as long as a participant remains an
                   employee of an employer within the association, they can change jobs
                   and continue earning additional benefits and vesting service credit
                   towards association plan benefits. Moreover, because MEPs can pool
                   resources, the plans can offer a broad enough array of benefit options to
                   satisfy association members and participants. In order to leverage


                   32
                      For the purposes of identifying MEPs sponsored by association for this report, we found
                   indications (e.g., terms like association, cooperative, farm bureau, etc.) in both the names
                   and websites of MEP sponsors which we used to determine which MEPs were sponsored
                   by associations. We did not assess whether these plan sponsors would meet Labor’s
                   definition of “bona fide” association under ERISA. All four of the associations from which
                   we interviewed representatives for our study also sponsored both defined benefit and
                   defined contribution MEPs.




                   Page 15                                                GAO-12-665 Multiple Employer Plans
                        economies-of-scale, the MEP must keep the number of investment and
                        benefit options manageable. However, one expert we spoke with said that
                        certain association plans have been very effective at offering efficient,
                        cost-effective retirement options for their members.

Professional Employer   PEOs are the last sponsor type that appeared among the largest MEPs. 33
Organization MEPs       Specifically, two PEOs existed among the list of the largest 25 defined
                        contribution MEPs in 2009—the ADP Totalsource Retirement Savings
                        Plan and the Gevity 401(k) plan. 34 According to the National Association
                        of PEOs (NAPEO), PEOs provide human resource services to their small
                        business clients by processing and administering wage and tax payments
                        and assuming responsibility and liability for compliance with various state
                        and federal laws and regulations. 35 By NAPEO’s estimate, PEO
                        arrangements include between 2 and 3 million employees.

                        The PEO representatives we interviewed said their PEOs operated under
                        what they referred to as a “coemployer” contract. 36 Though the term
                        coemployer is not well-defined, according to the PEO sponsor
                        representatives we interviewed, generally it means that a client employer
                        signs a contract whereby the PEO assumes certain employer rights and
                        responsibilities through the establishment and maintenance of an
                        employer relationship with the workers assigned to its client. This usually
                        includes administering a suite of human resources functions for the client
                        such as payroll services, a worker’s compensation program, and a health
                        insurance plan. Additional services may also be offered or required, but



                        33
                           We were unable to identify any PEOs that sponsored defined benefit MEPs, but
                        interviewed representatives from three large PEO MEPs that exclusively sponsored
                        defined contribution plans.
                        34
                             TriNet, also a PEO, acquired Gevity in 2009.
                        35
                             The NAPEO, until 1994, was known as the National Staff Leasing Association.
                        36
                           We did not find coemployer defined in federal statute and many states do not
                        specifically regulate PEOs in any way. Because the term PEO is not well-defined either,
                        and the actual services are contractually determined, some refer to certain PEO practices
                        as “employee leasing” or “payrolling,” which involves providing administrative or financial
                        services to employers, rather than serving as an employer in the sense of hiring or
                        supervising workers. According to the Center for a Changing Workforce, in the late 1980s
                        and early 1990s, many employee leasing firms went bankrupt or were forced out of
                        business due to fraud, including payroll fraud and mishandling of employee retirement
                        funds. See Center for a Changing Workforce, PEOs and Payrolling: A History of Problems
                        and a Future without Benefits (Seattle, Washington: December 2001).




                        Page 16                                                GAO-12-665 Multiple Employer Plans
each PEO representative we interviewed said their PEO also offered a
401(k) defined contribution plan. According to one PEO representative,
the PEO-sponsored 401(k) MEP was the fourth-most selected service
option by clients. However, another PEO noted that the client could also
sponsor a separate, non-MEP, single-employer plan—such as a 401(k)-
style defined contribution plan—if it so chose.

The PEOs from which we interviewed representatives offered many plan
benefit features that could be highly customized to the client. For
example, one PEO representative said their plan allows client employers
to specify vesting schedules, choose among various levels of employer
contributions or matches, and add profit-sharing features. 37 The PEO
representatives we interviewed said their PEOs had large numbers of
participating employers in their plans. 38 Each PEO-sponsored defined
contribution plan had at least 400 participating employers, but one had
about 2,700—nearly three times the largest number of participating
employers that we estimated for 2001. 39 The size of the typical client
employer varied significantly and ranged both across and within industry
sectors. For one PEO, the typical client employer had between 20 and 50
employees, but the PEO also had a client with nearly 3,000 employees.
Two PEO representatives reported that their PEOs serve a broad array of
industry sectors, though one representative noted that client employers
are generally in various “white collar” industries, such as health care or
public relations.

According to pension experts familiar with the industry and our analysis,
PEO-sponsored MEPs grew both in size and number after IRS issued
guidance in 2002 that identified defined contribution MEPs as a plan


37
   Profit-sharing plans, or similarly stock bonus plans, are a type of defined contribution
plan that give employees a share of company profits. More specifically, these plans are a
feature of a defined contribution plan under which an employer may determine, annually,
how much will be contributed to the plan out of profits or revenue.
38
   According to our analysis, two industries associated with the PEOs observed marked
growth with respect to both the number of defined contribution plans and participants from
2001 to 2009. Plan sponsors representing the “employment services” and “payroll
services” industries combine to represent about 7 percent of MEPs and 10 percent of
MEP participants. Notably, participation in plans represented by these industries saw a
nearly three-fold increase over the 2001 to 2009 period and represent almost one-half
million MEP participants as of 2009.
39
  See appendix I, table 4 and figure 5 for additional analysis of data we tabulated on
participating employers from the 2001 Form 5500.




Page 17                                                GAO-12-665 Multiple Employer Plans
            design some PEOs could use to avoid plan tax disqualification. 40
            According to one plan sponsor, since the guidance was issued, MEPs
            have been the default plan design for PEOs—but the guidance did not
            address what constituted a PEO.

Open MEPs   Though not found among the largest plans, our review found that another
            MEP sponsor type emerged in recent years. As PEO-sponsored MEPs
            continued to grow, one firm, TAG Resources, LLC, started a new type of
            MEP: a defined contribution plan it called an “open” MEP. 41 The key
            differences between PEO MEPs and open MEPs appear to be that open
            MEPs do not (1) offer payroll management or other administrative
            services PEOs typically offer, or (2) purport to be an employer of plan
            participants. Employers in open MEPs are related solely by their
            participation in the MEP.

            Since its inception in 2003, the TAG Resources open MEP grew to
            include 8,402 plan participants and about $64 million in assets at the end
            of the 2010 plan year. Another open MEP sponsored by 401kSafe, LLC
            was established in 2009 and already had 1,509 plan participants at the
            end of its 2010 plan year. 42 According to its website, that plan had been
            maintained by the largest PEO in the southeastern United States and
            became an open MEP to expand its pension plan to non-PEO clients.

            While we identified only these two and two other open MEPs in Form
            5500 data, 43 we independently identified many more that were apparently
            too new to appear in the data but were actively soliciting clients online.
            Plan sponsor representatives at one open MEP we spoke with said the
            plan already had about 500 participating employers and was adding up to


            40
               Rev. Proc. 2002-21, 2002 -19 I.R.B. 911. The IRS guidance provided relief to PEOs
            sponsoring plans for employees who were working at client worksites but paid by the PEO
            to provide services to the client pursuant to a contract. The IRC provides that an
            employer’s plan may be tax-qualified only if maintained for the exclusive benefit of its
            employees. 26 U.S.C. § 401(a)(2). The revenue procedure specified circumstances under
            which a PEO could cover employees located at client worksites under a pension plan by
            establishing a MEP with those client employers and thereby not violating the exclusive
            benefit requirement.
            41
                 This plan is known as the 401K Advantage, LLC 401K Plan.
            42
                 This plan is known as the 401K Safe, LLC Multiple Employer 401(K) Plan.
            43
              These plans were the Benefitguard Retirement Income Security Plan and the National
            Retirement Security Cash Balance Plan.




            Page 18                                                GAO-12-665 Multiple Employer Plans
                    30 employers per month. Additionally, we identified a consulting group
                    that was designing open MEPs to be sponsored in such a way as to
                    appeal to third-party service providers. 44 The third-party service provider
                    would tailor the design of the plan to appeal to clients who might
                    ultimately adopt the MEP as participating employers.


                    Reflecting some of the content of the marketing material we reviewed
MEP Advantages      from PEO MEPs and open MEPs, MEP representatives told us that MEPs
Marketed to         provide several advantages for employers over single-employer plan
                    sponsorship: reduced fiduciary liability, reduced administrative
Employers May Not   responsibility, and reduced cost. 45 However, we found that these
Be Unique           advantages may not always be unique to MEPs. 46 Based on our
                    interviews with MEP representatives and the fact that, as stated earlier in
                    this report, PEO and open MEPs are new and different compared to the
                    other MEP types, it may be that PEO MEPs and open MEPs are the only
                    MEP types marketing MEPs to employers. Consequently, the following
                    section focuses on the advantages of MEPs overall in the context of how
                    they would be presented to employers.

                    Reduced fiduciary liability—According to all of the PEO and open MEP
                    representatives we interviewed, the firms that offer MEPs take on some
                    fiduciary duties that would otherwise remain solely with the employers if
                    employers managed their own plans; however, exactly how much relief




                    44
                      Third-party service providers are outside professionals that may manage some or all of
                    a plan’s day-to-day operations. These services can include investment management,
                    consulting and providing financial advice, record keeping, custodial or trustee services for
                    plan assets, telephone or web-based customer services for participants and other third-
                    party administrative services.
                    45
                       The advantages and disadvantages identified in this section apply to whenever a
                    sponsor can establish a MEP. Later in this report, we discuss how Labor and IRS
                    regulatory interpretations influence MEP sponsorship, particularly with respect to open
                    MEPs.
                    46
                       In identifying individual alternatives to the possible advantages provided by MEPs, we
                    did not assess whether these individual alternatives would be more appealing to an
                    employer than the combination of advantages provided by MEPs.




                    Page 19                                                 GAO-12-665 Multiple Employer Plans
from liability, if any, the firm can provide to employers is unclear. 47 In
taking some of the fiduciary responsibility, these firms have control over
the management or assets of the plan, which, according to one MEP
representative, includes fund selection, due diligence in tracking the
investment performance, and employee communication. Prior GAO work
identified the burden of fiduciary liability as a possible impediment to
small-employer plan sponsorship. 48 According to one open MEP
representative, reducing fiduciary liability is the primary reason employers
participate in MEPs. Our prior work suggests this may be because some
employers are not familiar with how to manage a plan. However, there
may be other ways for employers to gain the same degree of reduced
fiduciary responsibility as afforded by a MEP. For example, we found a
firm marketing its willingness to establish and manage the investments of
single-employer plans on the behalf of individual employers. 49

In contrast to the claims made by some MEP representatives, several
plan representatives and pension experts we spoke with said firms that
offer MEPs cannot assume all fiduciary liability on behalf of the
participating employer. Although a firm that offers a MEP can generally
control the plan on behalf of the participating employers, as Labor notes
on its website, at a minimum, the employers must still select a MEP to
join, which is considered a fiduciary function, and retain responsibility to
monitor the plan’s investments and fees. However, some MEP marketing
materials we reviewed may give an impression that enrolling in MEPs
eliminates fiduciary liability for employers entirely. Further, two of the
MEP representatives stated that MEPs did eliminate fiduciary liability for
employers.



47
   Under ERISA, a fiduciary is anyone who exercises any discretionary authority or
discretionary control respecting management of a plan or exercises any authority or
control respecting its assets or renders investment advice for a fee or compensation to the
plan or has authority to do so. ERISA provides that a plan’s fiduciaries must carry out their
responsibilities prudently and do so solely in the interest of the plan’s participants and
beneficiaries. 29 U.S.C. §§ 1002(21) and 1104(a).
48
     GAO-12-326.
49
  In a previous report, we noted that, unlike this firm, service providers sometimes do not
acknowledge that they are plan fiduciaries even though plan sponsors assume them to be.
When a service provider is not a plan fiduciary, it is not bound by the fiduciary duty under
ERISA to act prudently and solely in the plan’s best interest. See GAO, Private Pensions:
Fulfilling Fiduciary Obligations Can Present Challenges for 401(k) Plan Sponsors,
GAO-08-774 (Washington, D.C.: July 16, 2008).




Page 20                                                 GAO-12-665 Multiple Employer Plans
Reduced administrative responsibility—All of the PEO and open MEP
representatives we interviewed said firms that offer MEPs assume
administrative responsibilities that employers would retain if they
managed their own plans. Several MEP representatives said MEP
administrators can complete the record keeping and annual testing, and
submit required filings such as a single Form 5500 for the MEP on behalf
of all the participating employers. Additionally, a couple of the
interviewees said that employers not already offering plans might find it
easier and faster to join a MEP than to create their own administrative
structure with a single-employer plan. However, our prior work has shown
that individual sponsoring employers can also use service providers to
perform administrative functions similar to those that MEPs offer. 50
Further, PEOs that offer payroll services may offer similar plan
administrative services for small employers that sponsor a single-
employer plan through the PEO. 51 Consequently, it is unclear how, if at
all, the administrative services offered by a MEP differ significantly from
those offered for a single plan through a PEO. Finally, a couple of MEP
representatives identified the difficulty involved with tracking some of the
administrative tasks needed for a MEP if the participating businesses did
not have a common payroll remitter. One pension expert thought that this
complexity increased the chance that the MEP could fail to meet some of
its administrative responsibilities.

Reduced cost—All of the PEO and open MEP representatives we
interviewed thought that participating in MEPs may offer reduced costs as
compared to single-employer plan sponsorship since participating
employers can pool assets to obtain the lower pricing available to the
larger plans. Additionally, several interviewees described how employers
may not need to pay for additional services from third-party administrators
or financial experts, which may be similar to what our prior work
described as bundled services. 52 Further, while enrolling in MEPs can
save time for employers without a prior plan, as mentioned earlier, a
couple of interviewees said MEPs may also save money since the
employer will not need to spend money to create an initial plan document
for a new single-employer plan. Lastly, in some cases, a firm offering a



50
     See GAO-12-326.
51
     See GAO-12-326.
52
     See GAO-12-326.




Page 21                                       GAO-12-665 Multiple Employer Plans
MEP is only required to conduct a single plan audit, which a few
interviewees told us can be expensive for individual employers
sponsoring their own plans. This may reduce costs for larger participating
employers; however, employers with fewer than 100 participants are not
required to audit their plans.

Overall, no consensus existed among MEP representatives and pension
experts on whether or not MEPs such as PEO MEPs or open MEPs
would substantially expand pension coverage. Several MEP
representatives thought that MEPs had the potential to expand coverage,
especially among small to mid-size employers that could benefit from the
potential administrative and cost advantages. However, a couple of
pension experts were skeptical that open MEPs would have much of an
impact in expanding retirement plan coverage. For example, one pension
expert said employee demand, rather than cost benefits offered by MEPs,
drives whether or not a business sponsors a plan. In our prior work, small
employers reported that employees may prefer to have health care
coverage or may not be interested in participating in a retirement plan. 53
The pension expert also observed that small businesses do not
extensively research retirement plans or actively seek them out. As a
consequence, marketing may be the biggest determinant of MEP growth.
Additionally, while a couple of the MEPs we spoke with had offerings for
employers to start new plans through the MEP, several targeted
businesses with existing plans. For example, an open MEP
representative said their adopting employers usually have over 100
employees or plan assets of $2 million to $5 million.

There is also concern about whether MEPs are any more or less prone to
abuse than other types of pension arrangements. Labor officials said the
potential for inadequate employer oversight of the MEP is greater
because employers have passed along so much responsibility to the
entity controlling the MEP. Labor officials noted that potential abuses
might include layering of fees, misuse of the assets, or falsification of
benefit statements. 54 One pension expert agreed that there was potential


53
     See GAO-12-326.
54
  As an illustration of the potential risk, an individual acting as the trustee and fiduciary of
several MEPs has been indicted for allegedly using plan funds for personal use and
misrepresenting the fund investments to clients. Solis v. Hutcheson, 12-cv-236 (D. Idaho).
The district court has entered a temporary restraining order removing defendant Matthew
Hutcheson from plan administration and appointing an independent fiduciary to take
control of plan assets.




Page 22                                                   GAO-12-665 Multiple Employer Plans
for MEPs to charge excess fees without the enrolled employer being
aware of those fees. 55 While Labor officials acknowledged that single-
employer plans could be subject to similar abuses, they cautioned that
MEPs’ structure and operation could make them particularly susceptible
to such abuses.

Finally, a number of interviewees identified the “bad apple rule” as a
potential problem for MEPs. Specifically, in order to retain its tax-qualified
status and the associated tax advantages for the employer and
employees, IRS requires the firm offering the MEP to annually test each
employer to ensure that the contributions or benefits provided under the
plan do not discriminate against rank-and-file workers in favor of highly
compensated employees. 56 If the tests find that one participating
employer discriminated against its rank-and-file workers, this might cause
the entire MEP to be considered noncompliant. However, many MEP
representatives we had spoken with said that, to date, they had never
needed to expel a participating employer because of noncompliance and
that making voluntary compliance corrections with the IRS was not
difficult. 57




55
   A GAO report found that single employers that sponsored plans may not be aware of
the fees they were charged and likely paid more than they realized. See GAO, 401k
Plans: Increased Education Outreach and Broader Oversight May Help Reduce Plan
Fees, GAO-12-325 (Washington, D.C.: Apr. 24, 2012).
56
   26 U.S.C. § 401(a)(4); 26 C.F.R. §§ 1.401(a)(4)-1, 1.401(a)(4)-4 and 1.413-2(a)(3)(iv)
(2012).
57
   The firm offering the MEP can voluntarily resolve plan compliance problems through the
IRS’s Employee Plans Compliance Resolution System. One MEP representative told us
that IRS is helpful in correcting any compliance issues or mistakes.




Page 23                                                GAO-12-665 Multiple Employer Plans
                       Labor and IRS treat MEPs differently because they are charged with
IRS and Labor Treat    interpreting different titles of ERISA. 58 Labor is primarily responsible for
MEPs Differently,      interpreting and applying Title I of ERISA, which, among other things,
                       defines an employee benefit plan. 59 In contrast to Labor, IRS is
Reflecting a Lack of   responsible for determining whether plans qualify for preferential tax
Coordination           treatment under Title II of ERISA, which amended the IRC. For Labor’s
                       purposes, under ERISA a plan can be maintained only by an employer,
                       an employee organization, or both. 60 For the IRS’s purposes, the IRC
                       does not contain a definition of “employee benefit plan,” nor does it
                       include any explicit requirement that a plan be maintained by an employer
                       or an employee organization.

                       Labor and IRS have not fully coordinated their statutory interpretations
                       related to MEPs with Labor’s advisory opinions. On May 25, 2012, Labor
                       issued two advisory opinions on open MEP arrangements and found an
                       open MEP was not a single employee benefit plan under Title I of
                       ERISA. 61, 62 However, applying tax law, IRS has found at least one open




                       58
                          Title II of ERISA amended the IRC. Although those provisions are, therefore, usually
                       thought of and referred to only as part of the IRC, they were enacted as part of ERISA.
                       ERISA, §§ 1001-2007, 88 Stat. 898-994.
                       59
                            29 U.S.C. § 1002(3).
                       60
                          29 U.S.C. § 1002(1) and (2). Therefore, unless a plan is maintained by an employee
                       organization such as a union, it can only be maintained under ERISA by an employer. The
                       Title I definition of employer is “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.” 29 U.S.C. § 1002(5).
                       Under its advisory opinions, Labor has long looked at certain factors, such as pre-existing
                       relationships among employers, to determine if a group of employers constitutes a bona
                       fide association of employers that may, therefore, sponsor a single employer plan under
                       Title I of ERISA. Pension and Welfare Benefits Admin., U.S. Dept. of Labor, Advisory
                       Opinion 83-15A, 1983 ERISA Lexis 43.
                       61
                         Department of Labor Advisory Op. 2012-04A was issued to an operating open MEP. In
                       addition, on May 25, 2012, Labor released another relevant opinion. Department of Labor
                       Advisory Op. 2012-03A was issued to a firm interested in maintaining a MEP comprised of
                       the abandoned plans of multiple employers.
                       62
                          While we note that Labor and IRS have not coordinated their statutory interpretations
                       more broadly, the agencies did directly collaborate on the advisory opinions themselves.
                       According to agency officials, Labor, IRS, and PBGC extensively discussed Labor’s two
                       recently issued advisory opinions related to MEPs prior to their publication.




                       Page 24                                                 GAO-12-665 Multiple Employer Plans
MEP, operating since 2003, qualified for preferential tax treatment. 63 IRS
officials said IRS does not take into consideration a MEP’s status under
Title I of ERISA when considering whether it qualifies for preferential tax
treatment. IRS focuses solely on compliance with IRC provisions. In the
advisory opinions, Labor, and more specifically EBSA, opined that it
considers the participating employers in an open MEP to be sponsoring
their own plans for their own employees. The advisory opinions mean that
an open MEP is simultaneously considered both a single plan by IRS, for
purposes of certain tax laws, and a series of plans by Labor. 64 This
presumably means that an open MEP will have to file annual reports on
behalf of each individual employer to satisfy Labor and also as one single
plan to satisfy IRS. Filing both ways would create duplications in reporting
and redundancies in Form 5500 data. 65

The May 25th advisory opinions are the latest in a series of advisory
opinions dating back to at least the late 1970s on benefit plans
maintained by multiple employers. 66 On both MEWAs (arrangements
providing welfare benefits such as health coverage) and MEPs, Labor has
held that multiple employers may maintain a single plan through a bona
fide employer group or association of employers. However, Labor has
been careful to define the nature of such an association in advisory


63
   While the opinion clarified that open MEPs are not considered single-employee benefit
plans under ERISA, the opinion does not preclude the possibility of IRS determining that
an open MEP qualifies for preferential tax treatment under the IRC. Indeed, the advisory
opinion specifically states that Labor was not expressing any opinion on the tax-qualified
status of pension plans that cover employees of multiple employers.
64
   EBSA is the entity within Labor that determines what constitutes an employee benefit
plan under Title I of ERISA. However, PBGC, which is also within Labor, defines a MEP
differently for purposes of Title IV of ERISA, and uses a definition based on whether plan
assets are available to pay the benefits of all participants and beneficiaries, according to
PBGC officials.
65
   As an additional example, the IRC requires pension plans subject to ERISA’s vesting
requirements to report annually (using IRS Form 8955-SSA) on information such as the
names and taxpayer identification numbers of plan participants who have separated from
the plan and are entitled to deferred vested benefits but received none during the year. 26
U.S.C. § 6057(a)(1). As part of a qualified MEP it is not clear whether participating
employers must submit this form to IRS or not.
66
   For example, in 1983, Labor opined that over 100 agencies affiliated with a local United
Way lacked the relationship necessary to sponsor a single employee pension benefit plan
under ERISA, even though they coordinated services and made a common appeal for
donations. Pension and Welfare Benefits Admin., U.S. Dept. of Labor, Advisory Opinion
83-21A, 1983 ERISA Lexis 38.




Page 25                                                 GAO-12-665 Multiple Employer Plans
                           opinions. 67 A bona fide association may establish a plan because Labor
                           considers the association to be an “employer” under section 3(5) of
                           ERISA. 68 Labor clarified in the May 25th opinions that it interprets the
                           term “employer” in ERISA as having the same meaning whether applied
                           to MEWAs or MEPs. 69

                           Labor and Treasury are required to coordinate under ERISA. 70 Labor and
                           IRS have discussed these issues, but they have not coordinated to
                           develop rules, policies, or practices to reduce the duplication of reporting
                           and the burden of compliance with ERISA. IRS officials said they
                           recognize the need to work with Labor on these issues, but they have not
                           yet formulated the changes that may need to be implemented. Labor and
                           IRS maintain an agreement relating to coordinating investigations
                           generally, but the agreement does not include any coordination of
                           statutory interpretations reflected in Labor’s advisory opinions related to
                           MEPs.


Labor’s Response to Open   Labor’s May 25th advisory opinions have implications for those
MEPs Leaves Unanswered     administering or planning to administer an open MEP. These opinions
Compliance Questions       clarify that reporting, auditing, and bonding requirements—which MEPs
                           applied across participants in the aggregate—must be applied to each


                           67
                               According to Labor officials, a PEO does not represent a bona fide association but
                           establishes an employer relationship with the employees of its clients through the services
                           it offers them. A bona fide association is established in part when participating employers
                           control the plan.
                           68
                                29 U.S.C. § 1002(5).
                           69
                              Labor’s advisory opinions on MEWAs may have been prompted by abuses by their
                           promoters. Labor officials said not long after Congress enacted ERISA, Labor began
                           enforcement actions against MEWA operators for charging excessive administrative fees
                           and leaving plans unable to pay promised benefits, among other abuses. See GAO,
                           Employee Benefits: States Need Labor’s Help Regulating Multiple Employer Welfare
                           Arrangements, GAO/HRD-92-40 (Washington, D.C.: Mar. 10, 1992). When state
                           insurance regulators found such practices violated their insurance laws, MEWAs claimed
                           to be ERISA-covered plans preempted from state regulation. According to a Labor official,
                           the MEWAs that failed to maintain adequate funds to pay promised benefits were often
                           comprised of otherwise unrelated employers. Labor is still confronting challenges
                           stemming from participant abuses. On December 6, 2011, under new authority Labor was
                           granted by the Patient Protection and Affordable Care Act (Pub. L. No. 111-148 § 6606,
                           124 Stat.119, 781, (codified at 29 U.S.C. § 1021(g) (2010), Labor proposed new reporting
                           requirements to better regulate MEWAs. 76. Fed. Reg. 76,222. (Dec. 6, 2011).
                           70
                                29 U.S.C. § 1204.




                           Page 26                                                GAO-12-665 Multiple Employer Plans
participating employer in an open MEP. Employee benefit plans under
ERISA are subject to ERISA’s fiduciary provisions and are required to file
an annual report with Labor (using a Form 5500). 71 Labor may fine plan
administrators who fail to file an annual report up to $30,000 per year until
the report is filed.

The advisory opinions will likely prompt a range of responses according to
those we interviewed. Two open MEP representatives reported they will
take steps to bring their arrangements into compliance. An open MEP’s
fiduciaries can conduct new plan audits, assure employer compliance
with ERISA fidelity bond requirements, and file Form 5500s for each
employer, according to an open MEP representative and a pension
expert. Others will likely exit the market, according to one pension expert.
Some representatives of MEPs sponsored by PEOs and associations
reported that the opinions had no impact on their plans.

The advisory opinions may also affect federal oversight of open MEPs. A
pension expert said open MEPs would be more likely to be selected for
an IRS audit as a result of the increased reporting. The pension expert
also suggested that disaggregating open MEPs into their underlying
ERISA plans may reveal prohibited transactions that were not obvious
before. 72

The advisory opinions could also lead to higher costs for open MEPs.
Treating participating employers as plan sponsors will be expensive,
according to some MEP representatives and pension experts. Some open
MEP representatives said firms would pass costs associated with
compliance on to plan participants. One representative estimated
administrative fees covering plan maintenance costs could increase by up
to 50 percent and that increased costs will create a disincentive to plan
formation and contract pension coverage.

MEP sponsors have already raised questions about the broader
applicability of the advisory opinions. Specifically, they have made
informal inquiries to Labor as to whether their pension benefit



71
     29 U.S.C. §§ 1002(21) and 1104, and 1023(a)(1), respectively.
72
   Certain transactions between plans and parties-in-interest or fiduciaries are statutorily
prohibited. Such transactions generally include activities that could be characterized as
forms of self-dealing and other conflicts of interest. 29 U.S.C § 1106.




Page 27                                                  GAO-12-665 Multiple Employer Plans
arrangements are in fact open MEPs. Labor officials encouraged those
sponsors to submit a formal request for an advisory opinion. Labor
officials said each advisory opinion is based on the facts presented and,
as established under its procedure for advisory opinions, only the parties
described in the request for the opinion may rely on the opinion. However,
advisory opinions provide a legal interpretation of ERISA and a
discussion of factual situations that may be useful to persons not subject
to it. Labor officials said that they issued opinions on two different plan
structures to show that the agency’s reasoning would hold under various
circumstances.

Compliance assistance from Labor or IRS would help open MEP
sponsors navigate the compliance requirements, according to two
pension experts. One pension expert said that prompt guidance would be
vital since certain plan sponsors submit requests for IRS determinations
of their plans’ tax-qualified status on a 5-year cycle, and MEPs are in
such a cycle now. 73 However, IRS officials reported that as of June 21,
2012, they were still in the process of analyzing Labor’s advisory
opinions, and did not yet know if they would need to change their
determination procedures accordingly. IRS officials told us it was
premature to consider changes to their determination procedures until
they analyze the full impact of the opinions and more fully discuss them
with Labor. IRS officials noted any such change would necessitate an
outreach program to employers and practitioners. Labor officials said they
are responding to inquiries by open MEPs on a case-by-case basis as
part of their normal compliance and enforcement activities. 74

Policy questions may still need to be addressed. One pension expert
explained that while Advisory Opinion 2012-04A clarified Labor’s position
on open MEPs, it did not explain Labor’s underlying policy concerns in
detail. The opinion also did not provide Labor’s view on the potential of
open MEPs to lower plan costs or expand coverage. One pension expert
suggested Labor officials may have felt bound to the agency’s prior
position by decades of existing precedent. However, another pension



73
   The cycle for multiple employer plans is “cycle B” and the current determination letter
submission period opens on February 1, 2012, and ends on January 31, 2013.
74
   For example, Labor officials told us they intend to address open MEP compliance
issues such as prohibited transactions through the established processes of EBSA
regional offices.




Page 28                                                 GAO-12-665 Multiple Employer Plans
              expert suggested Labor could have deemed open MEPs to be plans
              under ERISA but gave greater weight to its objective of ensuring benefit
              security. Both open MEP representatives and these pension experts said
              open MEP-like designs will continue to receive the attention of
              policymakers, given interest in expanding pension coverage. 75 Pension
              experts also cautioned that any legislative change allowing certain open
              MEPs should ensure that there are appropriate safeguards to protect plan
              participants. 76


              MEPs are touted by some as a way for small employers to centralize
Conclusions   administration and reduce pension plan costs. However, given that no
              data are collected on participating employers in MEPs, pension experts
              and agency officials cannot determine how employers utilize MEPs, let
              alone how beneficial the MEP design may be to employers and plan
              participants. While MEPs have long been affiliated with associations or
              complicated employer relationships, new sponsor types have emerged
              that call into question the current understanding of these relationships,
              which are a key aspect of ERISA’s requirements on employee benefit
              plans. Furthermore, it appears that actions taken by IRS, while providing
              some relief to certain PEOs has fostered the adoption of these new
              sponsor types of MEPs, including the most recent: “open” MEPs. Yet, at
              this time, no one knows for certain how many open MEPs there are, who
              is in them, or how they may affect future pension coverage. To identify
              ways to assess, mitigate, and monitor risks of MEPs in the future, Labor




              75
                 For example, one California proposal would provide for a retirement savings trust
              administered by the state and generally require employers with five or more employees to
              offer a payroll deposit arrangement so employees could contribute part of their pay to an
              account in that retirement savings trust. Calif. SB 1234 (2012). Effective June 20, 2012,
              Massachusetts permits the state treasurer to administer a plan for small, nonprofit
              employers after getting “approval” from the IRS and assurances that the plan is consistent
              with ERISA. Mass. Gen. Laws ch. 29, § 64E (2012). We did not assess whether such
              arrangements would operate as private sector or governmental plans, any preemption
              issues, or whether they could be structured as bona fide MEPs consistent with Labor’s
              recent advisory opinions. State and local government plans are excepted from coverage
              under Title I of ERISA.
              76
                 Specifically, one expert suggested a safe harbor design may be an ideal model for an
              open, defined contribution MEP. A safe harbor 401(k) must provide for mandatory
              employer contributions that are fully vested when made. The safe harbor 401(k) plan is
              not subject to the annual nondiscrimination tests that apply to traditional 401(k) plans. 26
              C.F.R. § 1.401(k)-3 (2012).




              Page 29                                                 GAO-12-665 Multiple Employer Plans
                      needs comprehensive and more current information about MEPs and
                      their designs.

                      There also appears to be a lack of coordination between IRS and Labor
                      on the application of different statutory requirements to MEPs. Newer
                      MEP designs appear to be a result of practitioners interpreting IRS
                      guidance on their tax-qualified status as a broader endorsement of their
                      plan designs. However, following the IRC, IRS does not take into account
                      ERISA Title I standards for employee benefit plans when determining tax-
                      qualified status. The IRS may continue to find that an open MEP qualifies
                      for preferential tax treatment and promoters may use such qualification as
                      a tool for marketing their arrangements to employers—even though Labor
                      does not consider an open MEP to be a single employer benefit plan
                      under ERISA. Inadequate coordination, rather than setting the
                      groundwork for sound, sensible, and cost-efficient oversight, is likely to
                      lead to future compliance uncertainty and may ultimately risk participants’
                      retirement security.

                      Labor’s recently issued advisory opinions, consistent with previous
                      opinions on employee benefit plans, establish that a common
                      employment nexus or other genuine organizational relationship unrelated
                      to the provision of benefits is required to maintain a pension plan among
                      multiple employers. Labor’s expectation is that the recently issued
                      opinions on open MEPs will serve as guidance to the pension industry at
                      large. However, the application of such specific opinions is not always
                      clear, and may be shaped by future requests for additional advisory
                      opinions.



Recommendations for
Executive Action

Labor                 The Secretary of Labor should direct the EBSA to take the lead in
                      gathering useful oversight information about the employers that
                      participate in MEPs. A likely source for collection of this data would be the
                      Form 5500, as it is the primary source of private pension data for
                      government oversight activities.


Labor and Treasury    The Secretary of Labor should instruct the Assistant Secretary of EBSA
                      and the Secretary of the Treasury should instruct the Commissioner of


                      Page 30                                       GAO-12-665 Multiple Employer Plans
                     Internal Revenue to formalize their coordination with regard to the
                     statutory interpretations reflected in Labor’s advisory opinions related to
                     MEPs. Furthermore, the agencies should coordinate to develop
                     compliance-related guidance on the establishment and operation of
                     MEPs under ERISA and the IRC.

                     We provided a draft of this report to Labor, Treasury (specifically including
Agency Comments      IRS), and PBGC for their review and comment. Labor, Treasury and
and Our Evaluation   PBGC provided written comments, which are reproduced in Appendix II,
                     III, and IV respectively. PBGC and Labor provided technical comments,
                     which we incorporated where appropriate.

                     The agencies generally agreed with the findings and conclusions of the
                     report. Additionally, they expressed a commitment to expanding
                     retirement plan coverage while also protecting the retirement benefits of
                     workers, retirees and their families. GAO shares this commitment to
                     expanding and promoting pension coverage in a manner that bolsters the
                     retirement security of American workers. However, largely due to a lack of
                     data, we could not fully examine how MEPs are utilized by employers or
                     how they affect pension coverage overall. With better information to
                     permit appropriate oversight, new MEP designs may prove to be viable
                     options for sponsors and participants.

                     The agencies generally agreed with the recommendation on data and
                     suggested that, as part of their regular evaluations of changes to the
                     Form 5500, they would consider the merits of alternative methods of
                     collecting additional data about employers that participate in MEPs,
                     among other possible changes to the Form 5500. We believe that such
                     an evaluation is an important first step in determining how to collect useful
                     information on employers that participate in MEPs.

                     The agencies also agreed with our recommendation to provide for
                     coordination of the statutory interpretations of Title I of ERISA and Title II
                     of ERISA (as reflected in the IRC) in connection with MEPs. We are
                     encouraged that that the agencies coordinated on the advisory opinions
                     to some extent during their development and issuance—consulting on the
                     text of the opinions, making revisions, and discussing issues arising from
                     their issuance. We added language in our report to reflect this
                     coordination. Additionally, we modified the recommendation to
                     acknowledge that there are a variety of mechanisms they could use to
                     improve and formalize their coordination. Labor and IRS said they would
                     amend their coordination agreement when compliance issues become



                     Page 31                                        GAO-12-665 Multiple Employer Plans
more apparent or if the impact of the advisory opinions suggests such
coordination would be helpful.

While our recommendation did not specify how or when the agencies
should modify or formalize coordination agreements on statutory
interpretations, we believe that it would be prudent to do so sooner rather
than later. With respect to mechanisms for formalizing future coordination
of statutory interpretations on MEPs in a more deliberative way, the
agencies could modify their existing agreement on investigations or, if
more appropriate, the agencies could initiate a new agreement, for
example, via a memorandum of understanding or similar document.
Further, our report contains evidence that the conditions the agencies
believe would warrant modifying or formalizing agreements are already
evident, namely concerns about compliance and the possible impacts of
the opinions. Additionally, our report notes that the advisory opinions do
not preclude the IRS from determining that open MEPs qualify for
preferential tax treatment in the future. Currently, each of the three
primary agencies regulating MEPs uses different criteria to define these
plans for plan sponsors and administrators. Absent coordinated federal
decisions, the potential exists for uncertainty within the regulated
community and confusion for employers. By coordinating their statutory
interpretations and subsequent guidance, these agencies could start to
help create a clear, unified regulatory environment to optimize the
potential for MEPs as an effective vehicle of pension coverage.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 21 days from the
report date. We are sending copies of this report to the Secretary of
Labor, the Secretary of the Treasury, the Director of PBGC, and other
interested parties. This report is also available at no charge on the GAO
website at http://www.gao.gov.

If you or your staff have any questions regarding this report, please
contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for




Page 32                                      GAO-12-665 Multiple Employer Plans
our Offices of Congressional Relations and Public Affairs can be found on
the last page of this report. Key contributors are listed in appendix V.

Sincerely yours,




Charles Jeszeck
Director, Education, Workforce,
  and Income Security Issues




Page 33                                     GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
              Appendix I: GAO Analysis of Multiple
              Employer Plan Data



Employer Plan Data

              To determine the largest multiple employer plan (MEP) sponsors and
              other key MEP characteristics, we analyzed electronic Form 5500
              information, the primary source of private pension data. 1 We analyzed
              2009 Form 5500 information, the most current and complete year, and
              also used 2001 information to compare trends over time. We chose 2001
              Form 5500 data as the comparison year because 2001 information is
              known to have fewer errors than certain prior years. The 2001 data also
              includes the Schedule T, which allowed us to estimate employers
              participating in MEPs for that year.

              Problems with the electronic data of the Form 5500 have been previously
              documented. 2 However, we took steps to assess the reliability of the data
              and determined the data to be sufficiently reliable for our purposes. For
              example, we performed computer analyses of the data and identified
              inconsistencies and other indications of error and took steps to correct
              inconsistencies or errors. A second analyst checked all computer
              analyses.

              We chose to use “raw” 5500 data rather than Labor’s research files
              because the research data do not specifically focus on MEPs. According
              to Employee Benefits Security Administration (EBSA) officials, the
              research data are cleaned for common mistakes and the main focus of
              the effort is to assure that the historical relationship between single and
              multiemployer plans is accurate. Thus, the research data are not
              specifically cleaned with respect to MEP identification. Thus, MEPs may
              be recoded in the research data to single or multiemployer plans and
              there is no specific effort to better identify MEPs in the data.

              We found the Department of Labor’s (Labor) characterization of MEPs in
              the research files not to be well-suited for our analysis. Labor’s research
              data appear to recode a sponsor’s indication of MEP status using an
              inconsistent method. This inconsistency is noted in certain Labor




              1
               Relatedly, Labor notes that the data collected for the Form 5500 is not easily used to
              determine the number or characteristics of MEPs because the research data files and the
              methodology underlying the analysis is designed to support Labor’s statistical
              categorization and not designed to separately identify MEPs.
              2
               See GAO, Retirement Income Data: Improvements Could Better Support Analysis of
              Future Retirees’ Prospects, GAO-03-337 (Washington, D.C.: Mar. 21, 2003).




              Page 34                                              GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




publications. 3 For example, Labor does not publish basic pension plan
information about MEP sponsorship in its Private Pension Bulletins. The
bulletins include only information about single-employer and
multiemployer plans and include MEPs as either a single- or
multiemployer plan type. In the footnotes, which disclose how MEPs are
allocated across the single- and multiemployer categories, indication of
collectively bargained participants in the MEP is the key determinant. For
example, one of the footnotes indicates that if the MEP includes
collectively bargained participants it would be characterized as a
multiemployer plan in the bulletin. This is inaccurate—and at odds with
the Form 5500 instructions—as MEPs may or may not include
participants that are subject to collective bargaining; however, the
collective bargaining agreement does not define the conditions and
maintenance of the plan as it does for a multiemployer plan. Further, MEP
administrators pay single-employer premiums for the MEP as a whole for
purposes of Pension Benefit Guaranty Corporation (PBGC) insurance.

We also found that that Labor does not consistently recode MEPs in the
Form 5500 research file according to collective bargaining status—which
violates the stated allocation rules in the footnotes of the pension bulletin.
Certain MEPs that include participants that are subject to collective
bargaining may be recoded as single-employer plans.

For our analysis we made no attempt to recode plan types, notably for
those plans identified as MEPs. Labor officials told us that certain plans
may be mistakenly identified as MEPs on the Form 5500, but may
actually be another plan type. However, to identify such mistakes would
require detailed and time-consuming review of plan and sponsor
documentation that is not publically available and may not be definitive.
Thus, our analysis of MEP and other plan types is limited to the self-
reported plan status as indicated by the Form 5500 filer.

Given that little information about MEPs is known or publically available,
we have included additional tables and figures from our analysis that
were not included in the body of this report. These figures and tables



3
 See U.S. Department of Labor Employee Benefits Security Administration, Private
Pension Plan Bulletin Historical Tables and Graphs, 2009 Data Release Version 1.2
(Washington, D.C.: March 2012) and U.S. Department of Labor Employee Benefits
Security Administration, Private Pension Plan Bulletin: Abstract of 2009 Form 5500 Annual
Reports, Version 1.0 (Washington, D.C.: December 2011).




Page 35                                              GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




include information about the largest MEPs, plan funding methods, key
sponsor industries, and participating employer information culled from
Schedule T attachments.




Page 36                                     GAO-12-665 Multiple Employer Plans
                                        Appendix I: GAO Analysis of Multiple
                                        Employer Plan Data




Figure 3: Top 25 Plan Sponsors of Defined Benefit MEPs, as Measured by Total Plan Participants, 2009




                                        Page 37                                           GAO-12-665 Multiple Employer Plans
                                        Appendix I: GAO Analysis of Multiple
                                        Employer Plan Data




Figure 4: Top 25 Plan Sponsors of Defined Contribution MEPs, as Measured by Total Plan Participants, 2009




                                        Page 38                                           GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




Table 1: Percentage of Defined Benefit MEPs, by Reported Funding Method, 2009

                                                                 Percent of defined benefit MEPs
 Post-1988 funding method                                                                       37.2
 Pre-1989 funding method                                                                        59.1
Source: GAO analysis of 2009 Form 5500 data.

Note: If the “post-1988 funding method” is filed for a defined benefit MEP, the plan is funded as if
each employer maintains a separate plan. This funding method is required for plans established after
December 31, 1988, or, if the plan was established earlier, those plans which made a one-time
election (some time after November 10, 1988, but before November 11, 1990) to fund as if each
employer maintains a separate plan. If “pre-1989 funding method” is filed for a MEP, the plan is
funded as if all participants were employed by a single employer. Values may not add to 100 percent
as some plans do not specify the above funding method.



Table 2: Total Plan Assets of MEPs, by Plan Type and Plan Year

 Dollars in billions
                                                        2001       2009      2001 - 2009 change
 Defined benefit plans                                  113.8      110.5                        -3%
 Defined contribution plans                             150.2      175.4                       17%
Source: GAO analysis of 2009 and 2001 Form 5500 data.

Note: Defined benefit plan assets are the actuarial value of assets. The measurement of this reported
value of assets changed as a result of the Pension Protection Act of 2006. Pub. L. No.109-280, §
102, 120 Stat. 780, 789-809. As a result these measures may be different over time. Defined
contribution plan assets are the end-of-year total assets reported on either the Form 5500 schedule H
(for large plans), schedule I (for small plans), or the Form 5500-SF (for certain small plans).



Table 3: Percentage of All Assets Represented by MEPs, by Plan Type and Plan
Year

                                                        2001       2009      2001 - 2009 change
 Defined benefit plans                                   6.5         5.6                      -14%
 Defined contribution plans                              9.1         5.6                      -39%
Source: GAO analysis of 2001 Form 5500 data.




Page 39                                                         GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




Table 4: MEP Participating Employer Estimates, Mean, Median and Maximum
Employers, 2001

                                           Mean number of     Median number Maximum number
                                              participating   of participating of participating
                                                employers          employers        employers
                                           associated with    associated with  associated with
                                            MEPs, by plan      MEPs, by plan    MEPs, by plan
                                                type, 2001         type, 2001       type, 2001
 Defined benefit plans                                  16                   2                    862
 Defined contribution plans                              9                   2                    999
Source: GAO analysis of 2001 Form 5500 data.

Note: Under a MEP, some qualification requirements are applied as if all employees of each
employer are employed by a single employer (e.g., 26 U.S.C. §§ 401(a) (exclusive benefit), 410(a)
(participation), and 411 (vesting)). 26 U.S.C. 413(c)(1)-(3). Prior to 2004, certain plans would file a
Schedule T to substantiate compliance with minimum coverage requirements. For purposes of
Schedule T, each controlled group and each other employer that have employees benefiting under a
plan that benefits the employees of more than one employer are referred to as “participating
employers.” Up until 2004, the schedule T was only required every third year for certain employers,
while other employers were to file it annually. Thus, these figures are estimates of a sample of MEPs
for 2001. There were 3,307 (or 87 percent of the total of 3,796 identified) MEP defined contribution
plans and 388 (or 81 percent of the total 478 identified) MEP defined benefit plans that filed a
Schedule T in 2001. Additionally, employers reporting only one participating employer are assumed to
not have a reporting requirement for 2001.




Page 40                                                        GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




Figure 5: Percentage of MEPs by Range of Participating Employers in the Plan,
2001 Estimate




Note: Data reflects only those that reported two or more participating employers. Those MEP
sponsors that did not file participating employer reports, also known as the Schedule T attachment to
the Form 5500, are not shown. Additionally, employers reporting only one participating employer are
assumed to not have a reporting requirement for 2001.



Table 5: Maximum Number of Participants and Percentage of Participants in MEPs
by Sponsor Industry and by Plan Type, 2009

                                                                                   Participants as
                                                                                    percentage of
                                                                                           all MEP
                                       Sponsor industry             Participants      participants
 Defined benefit plans                 Other Electrical Equipment       547,129               25.0%
                                       & Component
                                       Manufacturing
 Defined contribution                  Hospitals                        290,855                6.4%
 plans
Source: GAO analysis of 2009 Form 5500 data.




Page 41                                                         GAO-12-665 Multiple Employer Plans
Appendix I: GAO Analysis of Multiple
Employer Plan Data




Table 6:Maximum Number of MEPs and Percentage of MEPs by Sponsor Industry
and by Plan Type, 2009

                                                                                             Plans as a
                                                                                            percentage
                                           Sponsor industry                     Plans       of all MEPs
 Defined benefit plans                     Religious, Grantmaking, Civic,          44             13.8%
                                           Professional, & Similar
                                           Organizations
 Defined contribution plans                Offices of Physicians (except         282                6.1%
                                           mental health specialists)
Source: GAO analysis of 2009 Form 5500 data.




Table 7: Percentage of Benefit Types Represented within Each Defined Benefit Plan
Type, 2009

                                                           Multiple           Single
                                                          employer          employer    Multiemployer
 Hybrid/cash balance                                           16.0             14.7                   1.6
 Other/undefined defined benefit plan                              1.9           2.6                 10.3
 Primarily flat dollar benefits                                    6.9           8.1                 66.1
 Primarily pay related benefits                                75.2             74.6                 22.0
Source: GAO analysis of 2009 Form 5500 data.




Table 8: Percentage of Pension Feature Types Represented within Each Defined
Contribution Plan Type, 2009

                                               Multiple employer    Single employer     Multiemployer
 401k plan                                                  87.0                 76.6                28.8
 Profit sharing plan                                         9.1                 17.3                25.6
 Stock bonus plan                                            0.2                  0.7                  0.5
 Target benefit plan                                         0.2                  0.1                  0.5
 Money purchase plans                                        2.0                  2.4                38.2
 Annuity-403(b)(7)                                           1.1                  2.6                  2.5
 Custodial account-403(b)(7)                                 0.1                  0.1                  0.0
 Other defined contribution                                  0.3                  0.2                  3.8
Source: GAO analysis of 2009 Form 5500 data.

Note: Defined contribution plan features generally follow the order of the feature categories assigned
in Labor’s Private Pension Plan Bulletins Abstract of Form 5500 Annual Reports. Although a plan may
list multiple defined contribution pension plan features, we assign such plans to only one pension
feature code from the above list—giving primacy to the codes in order of the above listing. For
example, a plan could list both a 401(k) plan feature along with a stock bonus plan feature; however
we list it as a 401(k) plan because the 401(k) plan feature is the primary listing above. Alternatively,
“other defined contribution” is assigned last in the list and thus “other defined contribution” includes no
plan features that are listed above it.




Page 42                                                             GAO-12-665 Multiple Employer Plans
                                         Appendix I: GAO Analysis of Multiple
                                         Employer Plan Data




Table 9: Percentage of Defined Contribution Plans by Single, Multiple, and Multiemployer Plan Status by Range of Plan
Participants, 2009

                           10,000 or more               5,000-9,999                      1,000-4,999       100-999         less than 100
                              participants             participants                     participants   participants          participants
MEP                                    1.5                           1.5                         8.9           34.6                 53.4
Single-employer plan                   0.1                           0.1                         0.9            9.1                 89.7
Multiemployer plan                     4.8                           6.5                        32.1           39.2                 17.3
                                         Source: GAO analysis of 2009 Form 5500 data.



Table 10: Percentage of Defined Benefit Plans by Single, Multiple and Multiemployer Plan Status by Range of Plan
Participants, 2009

                           10,000 or more               5,000-9,999                      1,000-4,999       100-999         less than 100
                              participants             participants                     participants   participants          participants
MEP                                  10.5                           7.5                        19.9            35.6                 26.6
Single-employer plan                   0.8                          0.8                          4.4           13.8                 80.1
Multiemployer plan                   12.4                           8.0                        39.6            37.7                   2.2
                                         Source: GAO analysis of 2009 Form 5500 data.




                                         Page 43                                                       GAO-12-665 Multiple Employer Plans
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Labor



of Labor




             Page 44                                     GAO-12-665 Multiple Employer Plans
Appendix II: Comments from the Department
of Labor




Page 45                                     GAO-12-665 Multiple Employer Plans
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of the Treasury



Department of the Treasury




              Page 46                                      GAO-12-665 Multiple Employer Plans
Appendix III: Comments from the Department
of the Treasury




Page 47                                      GAO-12-665 Multiple Employer Plans
Appendix IV: Comments from the Pension
             Appendix IV: Comments from the Pension
             Benefit Guaranty Corporation



Benefit Guaranty Corporation




             Page 48                                  GAO-12-665 Multiple Employer Plans
Appendix V: GAO Contact and Staff
                  Appendix V: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Charles Jeszeck, (202) 512-7215 or jeszeckc@gao.gov
GAO Contact
                  In addition to the contact named above, Patrick DiBattista, Assistant
Staff             Director; Chuck Ford; Ted Leslie; David Reed; Craig Winslow; and Frank
Acknowledgments   Todisco made key contributions to this report. Also contributing to this
                  report were Amy Anderson, David Chrisinger, Mimi Nguyen, Jodi
                  Munson-Rodriguez, Roger Thomas, and Paul Wright.




(131075)
                  Page 49                                     GAO-12-665 Multiple Employer Plans
GAO’s Mission         The Government Accountability Office, the audit, evaluation, and
                      investigative arm of Congress, exists to support Congress in meeting its
                      constitutional responsibilities and to help improve the performance and
                      accountability of the federal government for the American people. GAO
                      examines the use of public funds; evaluates federal programs and
                      policies; and provides analyses, recommendations, and other assistance
                      to help Congress make informed oversight, policy, and funding decisions.
                      GAO’s commitment to good government is reflected in its core values of
                      accountability, integrity, and reliability.

                      The fastest and easiest way to obtain copies of GAO documents at no
Obtaining Copies of   cost is through GAO’s website (www.gao.gov). Each weekday afternoon,
GAO Reports and       GAO posts on its website newly released reports, testimony, and
                      correspondence. To have GAO e-mail you a list of newly posted products,
Testimony             go to www.gao.gov and select “E-mail Updates.”

Order by Phone        The price of each GAO publication reflects GAO’s actual cost of
                      production and distribution and depends on the number of pages in the
                      publication and whether the publication is printed in color or black and
                      white. Pricing and ordering information is posted on GAO’s website,
                      http://www.gao.gov/ordering.htm.
                      Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                      TDD (202) 512-2537.
                      Orders may be paid for using American Express, Discover Card,
                      MasterCard, Visa, check, or money order. Call for additional information.
                      Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO      Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                      Visit GAO on the web at www.gao.gov.
                      Contact:
To Report Fraud,
Waste, and Abuse in   Website: www.gao.gov/fraudnet/fraudnet.htm
                      E-mail: fraudnet@gao.gov
Federal Programs      Automated answering system: (800) 424-5454 or (202) 512-7470

                      Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-
Congressional         4400, U.S. Government Accountability Office, 441 G Street NW, Room
Relations             7125, Washington, DC 20548

                      Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs        U.S. Government Accountability Office, 441 G Street NW, Room 7149
                      Washington, DC 20548




                        Please Print on Recycled Paper.