Proposed regulations for MEPs would protect compliant employers

Tax Hot Topics newsletterThe IRS recently issued proposed regulations (REG-121508-18) that would protect employers participating in a multiple employer plan (MEP) from a noncompliant employer by requiring a spinoff.

Under the current unified plan rule (also known as the “one-bad-apple rule”), the failure by one MEP employer to comply with the qualification requirements will result in the disqualification of the MEP for all employers participating in the plan. In order to encourage employers to participate in MEPs and to alleviate the harsh consequences of the unified plan rule, the proposed regulations provide an exception that would allow the plan administrator of a MEP to spin off the plan assets and account balances of a noncompliant employer unless remedial action is taken by the noncompliant employer. Additional requirements, including notice requirements, must also be met in order for the exception to the unified plan rule to apply.

The proposed regulations were issued in response to Executive Order 13847 issued by President Donald Trump on Aug. 31, 2018. Among other provisions, the executive order directed the IRS to consider proposing amendments to regulations regarding the circumstances under which a MEP can satisfy the tax qualification requirements, including the consequences if one or more participating employers fail to take the actions necessary to meet those requirements.

Comments may be submitted by Oct. 1, 2019. Taxpayers may not rely on these proposed regulations until final regulations are issued.
Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107
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