A recent Department of Labor ruling on multiple employer retirement plans prohibits RIAs from creating and administering plans for a group of unrelated employers.

The ruling was issued by the Employee Benefits Security Administration of the DOL in response to a case involving a Knoxville, Tenn., RIA that created a multiple employer retirement plan for its clients.

The registered investment advisory firm, TAG Resources LLC, created a limited purpose corporation, Advantage LLC to operate a 401(k) plan for a group of unrelated employers.

At its peak in 2010, Advantage had 500 unrelated employers with 9,800 participants and $63 million in assets in the retirement plan. Unions and the members of the unions could become part of the plan, as well as employers who agreed to join. Advantage was the plan sponsor and administration of the plan was handled by TAG.

Robert J. Toth Jr., attorney for TAG, asked the DOL whether the Advantage plan qualified as a multiple employer plan under the Employee Retirement Income Security Act (Erisa). Susan Elizabeth Rees, chief division of coverage, reporting and disclosure in the DOL Office of Regulations and Interpretations, said it did not.

Toth acknowledges that the DOL ruling makes it more difficult to form multiple employer plans. However, he also says the ruling clarifies the issue, which makes it easier to conform to the rules.

TAG is in the process of reformulating the retirement plan under a different structure other than the multiple employer plan in order to invest employee assets. The details are still being worked out, Toth says.

"The letter from the Department of Labor cleared up how they are going to approach multiple employer plans (MEP), which have become popular since 2001 when the IRS changed the rules to encourage them," Toth says. "It makes a multiple employer plan more difficult to set up and maintain because the DOL made it clear an MEP has to have a commonality between the employers who sponsor the plan."

Now, unrelated employers being advised by an RIA have to have multiple retirement plans and multiple audits, he says. But under the clarified rules it will also be easier to remove one employer from the system if it becomes necessary by shutting down that one plan.

An RIA that wants to create retirement plans for employers who do not have anything in common will have to have multiple plans.

Advantage is not an employer as defined by Erisa and none of the employers under the plan have control over the program, as required by Erisa, says the DOL ruling. Advantage and TAG are acting as service providers to the plan, not as an employer that would be allowed to sponsor the plan as a single MEP, DOL says.

There must be a commonality to tie the employers together in order for them to form an MEP for employees, says Rees. In addition, unions and professional employer organizations that provide other common benefits are not employers that could enter retirement agreements, as had been allowed under the Advantage plan.

-Karen DeMasters