Starting in January, unaffiliated employers can band together and participate in a new type of collective retirement plan, called a “pooled employer plan” or PEP. PEPs are expected be attractive to plan sponsors because of the ability to lower plan fees and expenses by leveraging assets, simplifying administration, and shifting fiduciary risk to the PEP provider. We first posted about PEPs back in January. Nearly 11 months and a pandemic later, many questions remain, but PEPs are slowly starting to take shape.
A variety of industry players have already announced an intention to offer PEPs. Ironically, and in true PEP spirit, many unaffiliated service providers have partnered to offer PEPs, with third-party administrators/recordkeepers often partnering with investment advisors/consultants. PEPs will come in many flavors and sizes. Expect to see both national PEPs offered by well-known providers as well as smaller regional PEPs. While the strategy of pooling assets may have been aimed at smaller plans – since those plans seem to have the most to gain from a cost cutting perspective – it appears that PEPs will be marketed to larger plans ($100M+ plans) as well.
Providers of PEPs (called PPPs) must register with the Department of Labor (DOL) and Treasury – no doubt due to some historical abuses from promoters of multiple employer plans years ago. On November 13, the DOL issued a final rule setting forth the process to register to become a PPP. Some notable takeaways from the final rule:
- The PPP is generally required to register with the DOL at least 30 days before the first employer signs on to participate in the PEP (or when the PEP trustee first holds plan assets, if earlier). However, the 30-day waiting period does not apply to registrations made before February 1, 2021 (such that registrations before that date simply need to be made before first employer signs on or the PEP trustee for holds plan assets.
- The final rule requires the PPP to periodically file with the DOL whenever certain reportable events occur (such as a change in corporate structure for the PPP or bankruptcy).
- Filings with the DOL are handled electronically.
- Filing with the DOL also satisfies the requirement to file with Treasury.
- The rules provide relief for certain registration/filing mistakes if fixed/corrected within a reasonable time.
Plan sponsors will soon be considering PEPs and evaluating PPPs. Selecting plan service providers is generally a fiduciary responsibility, so plan sponsors interested in hiring a PPP must understand what they are getting into. Both plan sponsors and PPPs will want to evaluate service contracts closely for appropriate allocations of responsibility/risk and to ensure some of the novel requirements of PEPs are covered. Some PEPs will be structured to transfer most of the fiduciary responsibility under the plan to the PPP; with these arrangements the sponsor still must properly evaluate the PEP/PPP at the onset of the arrangement and the sponsors retains an ongoing duty to monitor the PPP’s performance.