"One Plan" vs. "Multiple Plans": Understanding Retirement Plan Structures

When it comes to employer-sponsored retirement plans, the standard approach is for a company to offer a single retirement plan that covers all eligible employees. This makes sense for several reasons: it simplifies administration, ensures uniformity in benefits, and helps streamline regulatory compliance. However, while a single plan is the norm, there are circumstances where an employer might maintain more than one retirement plan. Understanding why this happens and what it means for both the employer and the employees is crucial for effective fiduciary management.

Why a Single Plan Is Standard Practice

For most employers, offering a single retirement plan is the default choice because it is straightforward and efficient. A single plan reduces administrative burden, as the employer only has to manage one set of rules, one annual filing, and one investment lineup. It also ensures that all employees are treated equally regarding retirement benefits, which helps in maintaining fairness and transparency. From a fiduciary perspective, managing one plan allows for easier oversight and reduces the complexity involved in monitoring investments, fees, and plan performance.

When Multiple Plans Come Into Play

However, not all employers stick to just one plan. There are several situations where a company might end up with multiple retirement plans:

1. Mergers and Acquisitions (M&A): When a company acquires or merges with another, it often inherits the existing retirement plans of the acquired company. In some cases, it might be simpler or legally required to maintain these plans separately for a period before eventually merging them into a single plan. The structure of the M&A deal, whether it is a stock sale or an asset sale, significantly impacts how retirement plans are handled [1] [2]. Careful due diligence is necessary to assess potential liabilities and ensure compliance with ERISA and the Internal Revenue Code [3] [4].
2. Unionized Workforces: Companies with unionized employees may have separate retirement plans specifically negotiated as part of the collective bargaining agreement. These plans often have different contribution structures, benefits, or eligibility criteria, reflecting the unique terms of employment for unionized workers. Maintaining these separate plans ensures that the company honors its agreements while also meeting the needs of different employee groups.
3. Legacy Plans: In some cases, companies might maintain multiple plans due to legacy reasons. For example, a plan could be grandfathered in from a previous benefit structure or designed for a specific segment of the workforce that requires distinct retirement benefits. Over time, employers might decide to consolidate these plans, but doing so requires careful consideration of the legal and fiduciary implications [5].

Fiduciary Considerations for Multiple Plans

Managing multiple retirement plans requires additional fiduciary oversight. Each plan must be independently monitored to ensure it is operating in the best interests of the participants. This includes reviewing investment options, fees, and overall plan performance. Employers must also ensure that each plan complies with ERISA requirements and that they have a documented process for decision-making and plan management.

Moreover, having multiple plans can complicate participant communication, as different groups may receive different benefits or be subject to different rules. Clear, transparent communication is essential to help employees understand their retirement options and how they align with their overall financial goals [4].

Conclusion

While offering a single retirement plan is standard for most employers, multiple plans can exist due to specific business needs or historical reasons. Employers who manage more than one plan must be diligent in their fiduciary responsibilities, ensuring each plan is well-managed, compliant, and serving the best interests of its participants. By understanding the reasons behind multiple plans and addressing the unique challenges they present, employers can effectively manage their retirement plan offerings and fulfill their fiduciary duties.

For support in managing your fiduciary responsibilities, visit Fiduciary In A Box.  

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References

 [1] Bardunias, K. D., & Knapp, C. D. (2021, June). Acquiring a New 401(k) Plan in an M&A Transaction… Now What? Retrieved from https://www.foley.com/insights/publications/2021/06/acquiring-new-401k-plan-m-a-transaction-now-what/  

 [2] Gaudreau, S., & Wilkes, S. (2024, February). Merger and Acquisition Considerations for Employee Benefit Plans. Retrieved from https://www.wagnerlawgroup.com/blog/2024/02/merger-and-acquisition-considerations-for-employee-benefit-plans/ 

 [3] Employee Benefits Law Group. (n.d.). Mergers and Acquisition Guidance. Retrieved from https://www.employeebenefitslawgroup.com/mergers-and-acquisition-guidance/ 

 [4] CLA. (2023). How a Merger or Acquisition Can Affect Employee Benefit Plans. Retrieved from https://www.claconnect.com/en/resources/articles/2023/how-a-merger-or-acquisition-can-affect-employee-benefit-plans 

 [5] Ogletree Deakins. (2023, July 14). Qualified Retirement Plan Considerations in Corporate Transactions. Retrieved from https://ogletree.com/insights-resources/blog-posts/qualified-retirement-plan-considerations-in-corporate-transactions/ 

 Definiti. (2021, December 9). What Happens to the Retirement Plan During an M&A? Retrieved from https://definiti.com/what-happens-to-the-retirement-plan-during-an-ma/