7.11.7  Multiple Employer Plans

Manual Transmittal

September 18, 2015

Purpose

(1) This transmits revised IRM 7.11.7, Employee Plans Determination Letter Program, Multiple Employer Plans.

Material Changes

(1) This IRM is updated to reflect current versions of annual revenue procedures.

(2) This IRM is updated to meet the requirements of P.L. 111-274 (H.R. 946), the Plain Writing Act of 2010. The Act provides that writing must be clear, concise, well-organized, and follow other best practices appropriate to the subject or field and intended audience.

(3) IRM 7.11.7.3, Qualification Requirements for a Multiple Employer Plan, is amended to add more examples of qualification requirements that apply to each Participating Employer as if that employer maintained a separate plan.

(4) IRM 7.11.7.5, Submission Procedures, is updated to clarify the case closing and Tax Exempt Quality Measurement System (TEQMS) procedures.

(5) Exhibit 7.11.7-1, Specific Law Provisions And How They Apply To A Multiple Employer Plan, is added.

Effect on Other Documents

This supersedes IRM 7.11.7 dated July 15, 2013.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(09-18-2015)

Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

7.11.7.1  (06-05-2012)
Introduction to Multiple Employer Plans

  1. These procedures apply to Employee Plans (EP) Determinations specialists and EP Determinations Quality Assurance (QA) staff who review applications for Determination Letters (DL) for multiple employer plans.

  2. A multiple employer plan is a plan maintained by two or more employers who are not related under IRC 414(b) (controlled groups), IRC 414(c) (trades or businesses under common control), or IRC 414(m) (affiliated service groups). If a group of employers were related under these code sections they would be treated as a single employer.

    Caution:

    Multiple employer plans are not the same as multiemployer plans. For multiemployer plans, see IRC 414(f) and IRM 7.11.6, Employee Plans Determination Letter Program, Multiemployer Plans.

  3. Multiple employer plans must comply with the qualification rules under IRC 413(c).

7.11.7.2  (09-18-2015)
Important Definitions

  1. The following terms are used when working with multiple employer plans:

    Term Definition
    Participating Employer Any employer that participates in the multiple employer plan.
    Controlling Member (Plan Sponsor or Lead Employer) The Participating Employer who sponsors the multiple employer plan.
    Controlling Plan (Lead Plan) The plan submitted by the Controlling Member.
    Single Plan A plan under which all of the assets, on an ongoing basis, are available to pay the benefits to employees who are covered by the plan and their beneficiaries. 26 CFR 1.414(l)-1(b)(1). A multiple employer plan is a single plan (not to be confused with single employer plan). See 26 CFR 1.413-2(a)(2) and then 26 CFR 1.413-1(a)(2).
    Single Employer Plan A plan maintained by one employer. All employers related under IRC 414(b), IRC 414(c), or IRC 414(m) are treated as a single employer. A single employer plan is not a multiple employer plan.

7.11.7.3  (09-18-2015)
Qualification Requirements for a Multiple Employer Plan

  1. Multiple employer plans must comply with the qualification rules under IRC 401(a), such as eligibility, vesting, distribution rules, etc. However, some rules are applied differently:

    1. Certain qualification requirements are applied as if all employees of each Participating Employer are employed by a single employer. These include: IRC 401(a), exclusive benefit requirement; IRC 410(a), eligibility to participate; IRC 411, vesting; and IRC 415, limits on benefits/contributions. See Exhibit 7.11.7-1, Specific Law Provisions And How They Apply To A Multiple Employer Plan.

      Example:

      An employee's service with one employer is treated as service with the other employers to determine if the employee is eligible to participate. See 26 CFR 1.413-2(b).

      Example:

      A participant's benefits/contributions and compensation received from all of the employers maintaining the plan must be counted when applying the IRC 415 limits. See 26 CFR 1.415(a)-1(e).

    2. Other qualification requirements are applied to each Participating Employer as if that employer maintained a separate plan. These include: IRC 401(a)(4), nondiscrimination; IRC 410(b), coverage; and IRC 416, top-heavy. See Exhibit 7.11.7-1, Specific Law Provisions And How They Apply To A Multiple Employer Plan.

      Example:

      The coverage requirements under IRC 410(b) are applied to a multiple employer plan on an employer-by-employer basis. Therefore, each unrelated employer performs separate coverage testing for its part of the plan and they do not have to use the same testing rules. See 26 CFR 1.413-2(a)(3)(ii) and 26 CFR 1.410(b)-7(c)(4)(i)(A) & 26 CFR 1.410(b)-7 (c)(4)(ii).

      Example:

      The Actual Deferral Percentage (ADP) test under IRC 401(k)(3) and the Actual Contribution Percentage (ACP) test under IRC 401(m)(2) are also applied on an employer-by-employer basis. See 26 CFR 1.401(k)-1(g)(11). Participating Employers do not have to meet the same ADP/ACP testing rules. Review the plan document for testing and correction provisions.

      Example:

      Top-heavy status under IRC 416 is applied on an employer-by-employer basis. Each Participating Employer whose portion of the plan is top-heavy must apply the correct vesting schedule under IRC 416(b) and provide the appropriate minimum benefit/contribution. See 26 CFR 1.416-1, Q&A G-2 and T-8.

    3. Pay careful attention to IRC 415, limits on benefits/contributions and IRC 416, top-heavy requirements, when an employer participates in a multiple employer plan and also sponsors other plans. You must consider all plans in which an employer participates when applying section 415 limits and section 416 top-heavy requirements. The multiple employer plan should state that when a Participating Employer sponsors another plan, the 415 and 416 requirements include all plans of the Participating Employer.

  2. If one Participating Employer fails a qualification requirement or if the plan itself fails to satisfy a qualification requirement, then the plan will be disqualified for all Participating Employers. See 26 CFR 1.413-2(a)(3)(iv).

    Example:

    If one Participating Employer fails to satisfy the top-heavy rules then the multiple employer plan is disqualified for all of the employers in the plan. See 26 CFR 1.416-1, Q&A G-2.

7.11.7.4  (09-18-2015)
Remedial Amendment Cycle (RAC)

  1. Rev. Proc. 2007-44, 2007-28 IRB 54 section 9 gives a five-year Remedial Amendment Cycle (RAC) and section 10.03 lists exceptions to that five-year RAC. Under the exceptions, all multiple employer plans (except governmental multiple employer plans) will fall in "Cycle B" of the five-year RAC for individually designed plans.

  2. Governmental multiemployer plans meet the exception under Rev. Proc. 2007-44 section 10.04 and may be submitted under "Cycle C" or "Cycle E" per Rev. Proc. 2012-50, 2012-50 IRB 708.

  3. Rev. Proc. 2007-44 section 11.01(6) states that if a plan changes its status by becoming or ceasing to be a multiple employer plan, the plan's five-year RAC is then determined under section 9 or 10, as applicable, based on the changed status of the plan.

7.11.7.5  (09-18-2015)
Submission Procedures

  1. A Controlling Member may request a DL letter for the Controlling Plan in only the Controlling Member’s name. Or if the Controlling Member requests a DL, some or all Participating Employers may also submit requests for their own DLs. See Rev. Proc. 2015-6, section 10.

  2. If a Participating Employer (who is not the Controlling Member) submits an application without the Controlling Plan, return the application using the procedures in Rev. Proc. 2015-6, section 6.13. If any employer adopts a multiple employer plan after the IRS issues the favorable DL, the employer may still rely on the letter issued to the Controlling Plan for all requirements except IRC 415 and 416, if the employer maintains or has ever maintained another plan.

  3. An applicant requesting a letter in the name of only the Controlling Member will submit one Form 5300, Application for Determination for Employee Benefit Plan, either including or omitting the design-based safe harbor questions. The user fee for a single employer plan will apply. Any other Participating Employer maintaining the multiple employer plan can rely on the favorable DL without having to request its own except for the IRC 415 and IRC 416 requirements, if the employer maintains or has ever maintained another plan.

  4. An applicant requesting a letter in the name of the Controlling Member and one or more Participating Employers maintaining the plan will submit the filing required in (2) above as well as a separate Form 5300 application, completed through line 8, and, if applicable, a completed adoption agreement, for each Participating Employer requesting a separate letter. Each employer may elect to respond to the Form 5300 questions either including or omitting the design-based safe harbor questions. The user fee for this type of application is the one for multiple employer plans in Rev. Proc. 2015-8, section 6.05, 2015-1 IRB 235 (revised annually).

7.11.7.5.1  (09-18-2015)
Additional Application Procedures

  1. Power of Attorney (POA) -- Form 2848. Each separate Participating Employer who wishes to appoint a POA should submit its own Form 2848, Power of Attorney and Declaration of Representation. By definition, the separate employers are not related by ownership or a substantial service relationship so they do not have the authority to execute a Form 2848 for each other.

    Exception:

    If the qualification requirements are applied as if all employees of each employer are employed by a single employer, only the Controlling Member would need to submit a Form 2848. See IRM 7.11.7.3, Qualification Requirements of a Multiple Employer Plan. For example, if a multiple employer plan (e.g., 50 adopters) received a favorable DL, but subsequently amends its minimum age requirement from "21" to "18" , and submits a Form 5300 application to the IRS for a DL, only the Controlling Member would be required to submit a Form 2848.

  2. Who Signs the Application? The Instructions to Form 5300 note that "The application must be signed by the employer, plan administrator or authorized representative." If one representative signs the Forms 5300 for multiple employers, each separate employer is required to execute its own Form 2848 as to that one representative. If a plan administrator signs the Form 5300 for multiple employers, the specialist should obtain a copy of the authorizing document, i.e., the written instrument specifically empowering the plan administrator to sign the DL application forms for the respective employers. See IRC 414(g) for definition of plan administrator.

  3. Employee Plans-Exempt Organizations Determination System (EDS) Establishment. Since October 2000, the IRS has established each separate employer for multiple employer plans on EDS as a separate employer with its own case number and file folder number. The current EDS entity screen data on each employer lists "M" for multiple employer plans under "Entity Type" (Form 5300, Line 6(i)). While the Controlling Member for a multiple employer plan was previously assigned a plan number of 333, this is no longer necessarily true. Controlling Member plan numbers will only be 333 if the Controlling Member lists 333 on Form 5300.

  4. Case Closure Procedures/Tax Exempt Quality Measurement System (TEQMS) Selection. If one or more of the Participating Employers’ applications is subject to mandatory review, see paragraph five below. Otherwise, close all related multiple employer plan applications at the same time. Assemble them into one batch and close to your group secretary with the Controlling Plan clearly identified. Create a cover memo stating the name and EIN of the Controlling Member and the names of all of the Participating Employers included in the batch and submit to your secretary. Group secretaries must close the Controlling Plan first to determine if it is selected for TEQMS review. If the Controlling Plan is selected for TEQMS review, each Participating Employer’s plan must also be sent to the QA. However, if the Controlling Plan is not selected for TEQMS review, but one or more of the adopting employer plans are selected for TEQMS review, contact the TEQMS analyst to remove the case from the TEQMS selection because only the Controlling Plan is subject to TEQMS per IRM 7.11.3, Tax Exempt Quality Measurement System (TEQMS).

  5. Mandatory Review. If the Controlling Member or any of the Participating Employers are subject to Mandatory Review (i.e., they have interested party comments or for any other reason), all of the related multiple employer cases must be updated for Mandatory Review and forwarded to QA. Complete a Form 3198, TE/GE Special Handling Notice, for each case and close all of them to your group secretary with the Controlling Plan clearly identified. The group secretary will forward all of the cases to QA.

  6. Determination Letter Generation. Each separate employer who submits a Form 5300 will receive its own employer-specific DL. This allows the IRS to retain a record of the DL for each employer for future retrieval, if necessary. The caveats used for each employer may differ depending on various circumstances, e.g., receiving additional information to change the scope of reliance or differing execution dates. Include caveat 55 on Letter 2002 issued to all multiple employer plans.

    EDS Paragraph 55
    "Based on the information you have supplied, you are a participating employer in a multiple employer plan under section 413(c) of the Code."
  7. Determination Letter Generation for Terminating Plans. Terminating multiple employer plans will be treated similarly to ongoing plans. Each application submitted will still receive its own DL. The caveats used for each employer may still vary depending upon the request and individual circumstances. One difference from an ongoing plan is that we don't use a special caveat on a Letter 1132 indicating that a plan is participating in a multiple employer. Also, for all defined benefit and under-funded defined contribution plans, each separate employer must still submit a Form 6088, Distributable Benefits from Employee Pension Benefits Plans. See IRM 7.12.1, Plan Terminations for more information.

  8. Separate Case Files. Maintain a separate case file for each employer to clearly document each Form 5300, each Form 2848, the various levels of reliance that each employer has, and the different DLs.

7.11.7.6  (06-05-2012)
Quality Assurance Staff Review of Multiple Employer Plans

  1. Multiple employer plans present a logistical challenge for QA. For example, the specialist must submit all related applications to QA when the Controlling Plan is selected for TEQMS review or when a Participating Employer is subject to mandatory review, e.g., because of interested party comments.

  2. To streamline the review and avoid some of these logistical challenges, specialists who are assigned multiple employer plans may, but are not required to, contact the Manager, EP Determinations Quality Assurance for help setting up an individualized review strategy.

  3. The review strategy may involve a/an:

    • In-depth pre-review of the case files by a QA reviewer.

    • Discussion as to which items and amendments the specialist should request in the Letter 1196.

    • Plan for continued monitoring of the case's progress.

    • Approach to handling the end-stage TEQMS or mandatory review evaluations.

  4. This approach partially unifies working the case and its review. The purpose is to minimize the number of contacts with the group of employers and POA(s) and to streamline the review process through front-end participation by QA.

Exhibit 7.11.7-1 
Specific Law Provisions And How They Apply To A Multiple Employer Plan

This chart indicates how specific law provisions are applied to a Multiple Employer Plan

Code Section Multiple Employer Plan as a Whole Must be Met by Multiple Employer Plan Must be Met by Each Participating Employer Authority
IRC 401(a) - Qualification requirements   Yes   26 CFR 1.413-2(a)(3)(iv).
IRC 401(a) -Exclusive benefit rule   Yes   IRC 413(c)(2) and Professional Employer Organization Rules in Rev. Proc. 2002-21.
IRC 401(a)(4) - Nondiscrimination     Yes 26 CFR 1.413-2(a)(3)(ii) and 26 CFR 1.401(a)(4)-1(c)(4)
IRC 401(a)(26) - Minimum Participation (DB Plans)     Yes 26 CFR 1.401(a)(26)-2
IRC 401(k) /IRC 401(m) - ADP/ACP     Yes 26 CFR 1.401(k)-2(a)3(ii)(A) and 26 CFR 1.401(k)-1(b)(4)
IRC 404 - Deduction   Adopted before 1989 Adopted after 1988 IRC 413(c)(6)
IRC 410(a) - Eligibility   Yes   IRC 413(c)(1)
IRC 410(b) - Coverage     Yes 26 CFR 1.410(b)-7(c)(4)(i)(A) and 26 CFR 1.410(b)-7(c)(4)(ii)
IRC 411 - Vesting   Yes   IRC 413(c)(3) and 26 CFR 1.413-2(d)
IRC 412/IRC 430 - Funding   Adopted before 1989 Adopted after 1988 IRC 413(c)(4)
26 CFR 1.414(l)-1 - Mergers or Transfer of Assets Yes - all assets available to pay benefits of employees covered under the plan     26 CFR 1.414(l)-1(b)(1)
IRC 414(q) - Definition of Highly Compensated Employee     Determination is made separately by each adopting employer 26 CFR 1.414(q)-1(T), Q&A 1
IRC 414(v) - Catch-up Contributions   Yes   26 CFR 1.414(v)-1(f)
IRC 415 - Limitations on Benefits   All compensation is included   26 CFR 1.415(a)-1(e)
IRC 416 - Top-Heavy     Yes 26 CFR 1.416-1, Q&A G-2 and T-8

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