On May 29, 2012, the U.S. Department of Labor issued Advisory Opinion 2012-04A.
This document explained the Department of Labor’s position, at that time, on the use of multiple employer plans as they relate to companies who did not have any specific commonality or nexus that would otherwise tie them together.
It did not change the Internal Revenue Code Section 413(c) one bit, nor did it appear to change the position of the Internal Revenue Service on these types of programs. It did require multiple employer plan adopters to file individual Form 5500’s, incur the cost for an individual annual plan audit as required under current regulations, and to possess an ERISA bond for their portion of the plan.
Perhaps a walk down memory lane might offer some perspective as to why the Advisory Opinion was issued in the manner in which it was.
In April 2012, noted “fiduciary expert” and multiple employer plan proponent Matthew Hutcheson was indicted on charges of stealing millions of dollars from a multiple employer plan that he oversaw (Hutcheson was eventually found guilty and sentenced to 17 years in federal prison for his crimes in 2013). The DOL issued a press release on June 14, 2012 (two weeks after the Advisory Opinion 2012-04A was released) announcing that they had obtained an injunction against Hutcheson relating to ERISA violations surrounding that case. They were right to do so.
Why is this timeline important? Clearly, during the time that the DOL was considering attorney Robert Toth’s request for a favorable opinion from them, the entire Hutcheson mess came to light…..and had the kneejerk effect of creating an “all multiple employer plans are bad” reaction from the DOL.
While on the surface, this could appear to be a rational reaction to the theft of millions and millions of dollars from plan participants.
A deeper dive into the Department of Labor’s own records of enforcement from their website, however, show much greater problems with operational compliance and theft occurring from single employer defined contribution and defined benefit plans when compared to multiple employer plan by an enormous margin.
It’s not even close. It’s not the plan structure that led to the theft, it was the criminal who was running the plan. Read More...