IRS reproposes unified plan rule exception for multiple-employer plans

By Paul Bonner

The IRS released proposed regulations Friday (REG-121508-18) providing an exception from the "unified plan rule" for multiple-employer plans when one or more participating employers in the plan fail to take required actions.

The regulations also would update a number of other provisions to reflect changes since the IRS last issued final regulations for Sec. 413(c), which governs multiple-employer plans, in 1979.

Also Friday, the IRS withdrew proposed regulations it issued in July 2019 (REG-121508-18) that also had provided a unified plan rule exception. Those proposed regulations were affected by the enactment in December 2019 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (Division O of the Further Consolidated Appropriations Act of 2020, P.L. 116-94), the IRS said in the new proposed regulations' preamble.

Generally, Sec. 413(c) provides that employee retirement plans may be maintained by more than one employer. For the purposes of some requirements, all participating employers in a multiple-employer plan are treated as a single employer; other requirements apply separately to each participating employer.

One rule that applies with respect to all participating employers as if they were a single employer is existing Regs. Sec. 1.413-2(a)(3)(iv), known as the "unified plan rule." Because qualification of a multiple-employer plan is determined with respect to all employers maintaining the plan, any single participating employer's failure to satisfy an applicable qualification requirement disqualifies the plan for all employers maintaining it, the regulation provides.

The 2019 proposed regulations would have created an exception from the unified plan rule for certain defined contribution multiple-employer plans and under certain conditions where a participating employer was solely responsible for a qualification failure that the employer was unable or unwilling to correct, or if a participating employer failed to comply with the plan administrator's request for information about a possible qualification failure.

After the issuance of the 2019 proposed regulations, 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 new proposed regulations provide guidance generally on how to implement the exception to the unified plan rule for Sec. 413(e) plans and define what is a Sec. 413(e) plan. They provide conditions for application of the unified plan rule exception under Sec. 413(e), including certain plan language; notice requirements; actions by an unresponsive participating employer, including appropriate remedial action; actions by the plan administrator relating to the remedial action or employer-initiated spinoff; required actions following an employer's failure to meet the deadline; the duties of a pooled plan provider; and other matters.

The proposed regulations do not attempt, however, to define participating employers' "common interest other than having adopted the plan" in Sec. 413(e)(1)(A). On that provision, the preamble states, the IRS and Treasury request comments, including how any such guidance should be coordinated with guidance issued by the Department of Labor.

The proposed regulations would apply on their publication in the Federal Register as final and, in the interim, an employer or pooled plan provider may rely on a good-faith, reasonable interpretation of the provisions of Sec. 413(e) to which the final regulations relate. Compliance with these proposed regulations is considered such reliance.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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