![IRS Clarifies Exception To The “One Bad Apple” Rule For MEPs](https://www.taxconnections.com/taxblog/wp-content/uploads/WILLIAM-BYRNES-51.jpg?resize=90%2C90&ssl=1)
The IRS proposed a new rule implementing the SECURE Act exception to the one bad apple rule—also known as the unified plan rule. Under the proposed rule, the MEP must describe the procedures the plan will follow if one participant fails to satisfy the qualification rules.
Those procedures must outline the notices that will be sent and when those notices will be sent. The MEP must also disclose the actions that it will take if the non-qualifying participant fails to take action or initiate a spinoff to separate the MEP within 60 days after the date the final notice is sent.
The proposed rules provide that the plan may be required to provide up to three notices to a participating employer that does not respond to the initial notice.
The final notice must be provided to the DOL and all impacted participants. The non-qualifying employer has two options upon receipt of a notice: (1) take remedial action or (2) initiate a spinoff within 60 days of the final notice.
If the employer does neither, the MEP administrator must stop accepting contributions from the non-compliant employer and participants. The MEP must also provide notice to the impacted participants and give them an election with respect to the treatment of their accounts.
Participants could elect to remain in the plan or transfer their funds to another retirement plan. The IRS notes that it intends to publish guidance that contains model language for MEP plan administrators.
Have a question? Contact William Byrnes.
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