Proposed Regulations Issued to Allow Multiple Employer Plans to Avoid Consequences of Action of Uncooperative Employer

The IRS has issued proposed regulations that would apply to defined contribution multiple employer plans (MEPs) in REG-121508-18[1] in response to an executive order[2] issued by the President in August 2018.  The EO directed the IRS and related agencies to take actions to encourage the use of MEPs, specifically to limit the consequences should one of the employers participating in the MEP fail to take actions required to allow the plan to remain qualified.

Concerns had been expressed that the above rule (often referred to as the “one bad apple rule” and officially referred to as part of the overall unified plan rule) discouraged employers from joining an MEP plan, since the actions of an unrelated employer over which they would have no control could jeopardize the qualified status of the plan, putting the innocent employer and its employees at risk for the tax consequences of plan disqualification.[3]

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