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PEOs and Retirement Regulation

PEOs and Retirement Regulation

Department of Labor Proposes Regulation to Allow Associations and PEOs to Sponsor Retirement Plans 

Proposed rule defines a PEO as an employer under ERISA and clarifies rules for PEOs to offer retirement benefits
 
On October 22, 2018, the Department of Labor (the “Department”) issued a notice of proposed rulemaking (“NPRM”) to facilitate and expand the availability of multiple employer defined contribution plans (“MEPs”). The NPRM provides clarity regarding the types of “bona fide” groups or associations of employers as well as professional employer organizations (“PEOs”) that are permitted to sponsor retirement plans.

NAPEO strongly supports the Proposed Rule, and commends Secretary Acosta and the leadership of the Department of Labor for issuing this important rulemaking. The issuance of this proposed rule is a positive step in formalizing the legal framework for PEOs to provide retirement benefits for their client’s shared employees. This action, along with the passage of the Small Business Efficiency Act  contained in the Tax Increase Prevention Act (H.R. 5771, Public Law 113‐295) which created the voluntary IRS PEO Certification Program, demonstrates the federal government’s recognition of the PEO industry and the important role it plays in supporting our nation’s small businesses.

The NPRM is similar in many material respects to the Department’s recently finalized Association Health Plan regulation, and it retains many of the criteria set forth in that regulation as the basis for establishing whether an association is “bona fide” (e.g., commonality and substantial business purpose requirements).

 With respect to PEOs, the NPRM:

  • Provides a comprehensive federal law definition of a “bona fide” PEO. Defines a “bona fide” PEO as an “employer” for purposes of ERISA section 3(5).
  • Characterizes 401(k) plans sponsored by a “bona fide” PEO as a type of multiple employer plan or MEP.

  • Provides a regulatory safe harbor to be a “bona fide” PEO for Certified PEOs (“CPEOs”) within the meaning of federal tax law, and;

  • Non-CPEOs that meet certain criteria discussed.

The preamble language states that nothing contained in the Proposed Regulation affects whether an entity assumes joint- employer status over the participating employees.  

Comments on the NPRM were due on December 24, 2018. A copy of NAPEO’s comments on the proposed rule can be found here.

A copy of the NPRM can be found here.

A detailed summary of the NPRM prepared by Seth Perretta and Malcolm Slee of the Groom Law Group can be found here.

THERE ARE BETWEEN 780 AND 980 PEOs CURRENTLY OPERATING IN THE UNITED STATES, PROVIDING SERVICES TO BETWEEN 156,000 AND 180,000 SMALL AND MID-SIZE BUSINESSES.