Compliance July 30, 2019

DOL Offers Relief to MEPs That Did Not File Correct Form 5500s

The Department of Labor (DOL) found more than 100 multiple employer plans (MEPs) in violation of a requirement to include on the Form 5500 a list of participating employers and a good faith estimate of the percentage of total contributions made by such participating employers during the plan year.

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The Department of Labor (DOL) issued Field Assistance Bulletin 2019-01, which provides guidance and temporary penalty relief related to certain Form 5500 Annual Return/Report requirements for multiple employer plans (MEPs).

In 2014, as part of the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act), Congress added Section 103(g) to the Employee Retirement Income Security Act (ERISA). The new section required MEPs to “include a list of participating employers and a good faith estimate of the percentage of total contributions made by such participating employers during the plan year.”

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During a review of Form 5500 data in 2018, the DOL identified 185 MEP filings for the 2016 plan year as being compliant and 101 MEP filings as non-compliant. Examples of non-compliant filings included forms in which: (1) the filer replaced employer names with either abbreviated names or initials, client numbers, or other labels such as “Client 1;” (2) the filing reported only the last 4 digits of employer identification numbers; (3) the filing included an attachment with no information and a note “Details available upon request;” and (4) the filing incorrectly listed a professional employer organization (PEO) as the only participating employer.

In discussions with the National Association of Professional Employer Organizations (NAPEO), the PEOs and their representatives raised a number of objections to the ERISA Section 103(g) filing requirement.  They contended that filing the participating employer list imposes material costs and burdens on PEO-sponsored plans, and they argued that making the employer list public was not in the best interest of plan participants and beneficiaries. The DOL received and considered similar objections in connection with the Paperwork Reduction Act (PRA) notice associated with the publication of the interim final rule implementing the CSEC Act requirement.

The DOL says it continues to believe that the reporting requirements made effective for MEPs by the 2014 interim final rule implementing ERISA Section 103(g) are a reasonable and appropriate way to implement Congress’ directive in the CSEC Act. It does not believe it has the authority under ERISA Section 110 or ERISA Section 104, when read together with ERISA Section 106, to treat information otherwise required to be filed with or as part of a plan’s annual report as confidential or nonpublic information.

So, in light of the possibility that some plan fiduciaries may have misunderstood the annual reporting requirement, the DOL now says it will not reject a Form 5500 or Form 5500-SF filed on behalf of a MEP for the 2017 plan year, or any prior plan year, or seek to assess civil penalties against the plan administrator under ERISA Section 502(c)(2) with respect to such filings, solely on the basis that the plan administrator failed to include complete and accurate participating employer information in accordance with ERISA Section 103(g). The DOL is granting this relief provided that the annual reports filed for the plan for the 2018 and following plan years comply with the requirement in ERISA Section 103(g).

Also, in light of the July 31, 2019, due date for calendar year plans to file their 2018 Form 5500 or Form 5500-SF, the Department is granting MEPs a special filing extension of up to 2½ months to file their 2018 annual report in compliance with ERISA Section 103(g). MEPs should check the “special extension” box under Part I, Line D on the 2018 Form 5500/5500-SF and enter “FAB 2019-01” as the description to use this extension. MEPs using this special extension do not need to file a Form 5558 with the IRS.
Compliance July 30, 2019

Court Decides Medical Center Plan is a Church Plan Under ERISA

Citing the Supreme Court decision regarding church plan cases and using a three-part test, a federal judge found the St. Elizabeth Medical Center Employees’ Pension Plan falls under the ERISA exemption for church plans.

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In a lawsuit challenging the church plan status of the St. Elizabeth Medical Center Employees’ Pension Plan, a federal court judge has granted summary judgement to the medical center defendants.

The court previously ruled that the plaintiffs in the case had standing to sue on behalf of the plan since they had shown a substantial risk of harm by the plan’s underfunding. U.S. District Judge David L. Bunning of the U.S. District Court for the Eastern District of Kentucky also dismissed claims against plan committee members regarding required reporting under the Employee Retirement Income Security Act (ERISA).

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In his latest opinion, Bunning cites the U.S. Supreme Court decision regarding various church-plan cases in which it said ERISA Section 3(33) means that a church plan falls into the ERISA exemption if the plan is established and maintained by a church or association of churches or maintained by an organization with the principal purpose of administering or funding the plan. The defendants argue that the at-issue plan committee is such a principal-purpose organization.

According to Bunning, this principal-purpose organization statutory language has been distilled into a three-part test, which other courts have used to determine whether a plan maintained by a principal-purpose organization falls within the church-plan exemption:

  • Is the entity a tax-exempt nonprofit organization associated with a church?
  • If so, is the entity’s retirement plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees?
  • If so, is that principal-purpose organization itself associated with a church?

Bunning found the first portion of the three-part inquiry is satisfied. Among other things, he cited that St. Elizabeth is a tax-exempt nonprofit entity; St. Elizabeth was founded in 1861 by the Franciscan Sisters of the Poor and the property was acquired “in the name of this Catholic religious order;” sponsorship of St. Elizabeth was transferred to the Diocese of Covington in 1973, and continues to this day; the Bishop of Covington is the only person with “the authority to dispose of . . . hospital properties upon dissolution of St. Elizabeth;” and the governing documents of St. Elizabeth give the Bishop of Covington control over aspects of St. Elizabeth’s operations and indicate clear association with the Catholic Church.

The plaintiffs suggest that the plan committee cannot be a principal-purpose organization because it is not, by definition, an “organization,” according to the court opinion. However, Bunning looked to dictionary definitions of “organization” and found definitions merely require a group of people with a specific purpose. Bunning found that the plan committee meets the two requirements necessary for an entity to be an “organization” within the scope of the ERISA exemption. Bunning also used dictionary definitions of “maintain” and language of the plan documents to determine that the committee maintained the plan.

To determine whether the committee is a principal-purpose organization, Bunning looked at the language of the exemption which indicates that a principal-purpose organization is an “organization” with the “principal purpose” or “function” of “administering” or “funding” a retirement-benefits plan. While the defendants admit that the committee does not fund the plan, Bunning found that that the committee’s principal purpose is “administration” of the plan. Looking to the plan documents, as he did in determining whether the committee “maintains” the plan, Bunning concluded that the committee’s principal purpose is “administration.” The plan document itself indicates that the objective and goal of the committee is to “manage and administer the plan.” The resolution creating the committee indicates the same—that the objective of the committee is to “administer” the plan.

“As the Court previously found that St. Elizabeth is associated with the Catholic Church, and the Committee is an ‘internal subset’ of St. Elizabeth, the Court also finds that the Committee is associated with the Catholic Church and, therefore, satisfies the third prong of the test,” Bunning wrote in his opinion. He found this conclusion is also supported by plan documents governing the committee, which say: “[t]he Committee shall consist of not fewer than three (3) members who believe in and follow the tenets of the Catholic Church,” and indicate its role is to “administer the St. Elizabeth Medical Center Employees’ Pension Plan in a manner consistent with the tenets of the Catholic Church.”

Bunning dismissed other claims because it found ERISA does not apply to the plan.

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