IRS Proposes Unified Plan Rule Exception for Multiple-Employer Plans
The IRS recently released proposed regulations regarding multiple-employer plans. Among other things, the proposed regulations provide an exception from the unified plan rule for multiple-employer plans when one or more participating employers fail to take required actions.
In addition, the IRS withdrew proposed regulations it issued in 2019 that had provided a unified plan rule exception, because those proposed regulations were affected by the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
Some of the requirements of Sec. 413(c), which governs multiple-employer plans, treat all participating employers as a single employer. One of those rules is Regs. Sec. 1.413-2(a)(3)(iv), known as the “unified plan rule." This rule states that a single participating employer's failure to fulfill an applicable qualification requirement disqualifies the plan for all participating employers.
The SECURE Act created a statutory exception to the unified plan rule. Sec. 413(e)(1) provides that, generally, the exception applies to a multiple-employer plan (1) that is a Sec. 413(c) defined contribution plan (as described in Sec. 401(a)) or consists of individual retirement accounts (described in Sec. 408); (2) that is maintained by employers with a "common interest other than having adopted the plan" or that have a "pooled plan provider"; and (3) where one or more employers of employees covered by the plan fail to take all the required actions to meet the requirements of the Code.
The proposed regulations provide conditions for application of the exception under Sec. 413(e), including certain plan language; notice requirements; actions by an unresponsive participating employer; actions by the plan administrator relating to remedial action or employer-initiated spinoff; required actions following an employer's failure to meet the deadline; and the duties of a pooled plan provider.
The proposed regulations would apply when published as final in the Federal Register. In the interim, an employer or pooled plan provider may rely on a good-faith, reasonable interpretation of the provisions of Sec. 413(e).