Differences Between Multiple Employer Plans and Single Employer Plans

Deduction Limits

Single employer welfare plans, such as those provided using the National Benefit Trust, are subject to the deduction limits of §§ 419 and 419A.  Deductions are limited to the qualified costs of the benefits provided for the year.

Multiple employer welfare plans (§419A(f)(6)) are not limited to the qualified costs of the benefits, but deductions are only permissible if the costs are the same for all participants of all employers, if the cost does not reflect more than the current year expense for the benefits provided, and most importantly, if the costs do not reflect the benefits experience or the overall experience of the employer group separately from the plan as a whole.

Benefits Available

Single employer plans can provide virtually any welfare benefit, including post retirement medical benefits, long term care benefits, other health benefits, death benefits, severance benefits and disability income benefits.

Multiple employer plans, because of restrictions against any separate accounting of assets or benefits by employer or employee, cannot provide post retirement medical benefits, which must be separately accounted for for highly compensated employees.  Also, insured benefits that have levelized cost structures, such as whole life or level term products, are not practical in a multiple employer plan.

Plan Accounting

Assets held in single employer welfare plans are not co-mingled with other employer contributions or assets.  Investment gains (or losses), forfeitures, expenses, and other plan experience are accounted for separately from any other employer groups.  Benefits are limited to the available assets of the individual plan.  Employers can select the policy type or investment options.

Assets held in a multiple employer plan must be co-mingled, with no separate accounting of assets or contributions by employer.  Investment gains (or losses), forfeitures, expenses and other plan experience must be shared amongst all employers and not allocated or accounted for by employer.  Benefits are payable from the pooled account and not limited by the assets of the employer.  Co-mingled assets require a like investment pool, so employers do not direct the Trustee on investment options.

Reporting Requirements

Single employer plans each file their own Form 5500 with the Department of Labor.

Multiple employer plans file one Form 5500 for the plan as a whole, and not for individual participant employers.

Listed Transaction Reporting may be required for multiple employer plans, unless the plan has received a ruling from the Internal Revenue Service that the plan is not substantially similar to plans described in the IRS Notice 95-34.  Notice 95-34 describes plans purporting to be multiple employer plans, where the plan is providing welfare benefits, investing in life insurance policies and other provisions common to all multiple employer plans.  (The Notice also describes features indicating the plan fails as a multiple employer plan, such as overcharging for the benefits and separate accounting of assets, contributions and experience.)  Notice 95-34 and plans substantially similar are subject to Listed Transaction reporting requirements and penalties ($200,000 for corporations) for failure to report the transaction if the IRS determines it is substantially similar to the multiple employer plans described in the Notice.  Material Advisors, including insurance agents and tax and legal advisors, are subject to separate reporting requirements and similar penalties for failure to report.

Single employer plans are, by definition, not substantially similar to those described in Notice 95-34, have a different tax treatment because they are not eligible for the exemption afforded multiple employer plans, and are therefore not subject to any Listed Transaction or Material Advisor reporting requirements or penalties.

Both single employer plans and multiple employer plans must report the economic value of any insured death benefits provided to employees.  Both plans must report the taxable value of any distributions for other than medical care costs or life insurance proceeds paid directly from the insurance company to the named beneficiary.