PEP Up: DOL Wants to Hear Employers' Views on 401(k) Pooled Employer Plans

Upcoming regulations could address prohibited transactions by plan providers

Stephen Miller, CEBS By Stephen Miller, CEBS June 26, 2020
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PEP Up: DOL Wants to Hear Employers Views on 401(k) Pooled Employer Plans

On June 18, the U.S. Department of Labor (DOL) published a request for information for input on upcoming regulations involving pooled employer plans, which are newly permitted starting in 2021 under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and other multiple employer plans. Comments are being accepted through July 20, 2020.

PEPs and MEPs

Pooled employer plans (PEPs) allow unrelated employers that don't share a common industry or location to participate in a single, shared 401(k) plan so they can take advantage of their collective purchasing power to negotiate lower fees and better services. A pooled plan provider, such as a financial or professional services firm, acts as the plan administrator and is a named plan fiduciary. Decisions about PEP investment options may be made by the pooled plan provider, participating employers or another designated third party, such as an investment advisory firm.

Multiple employer plans (MEPs), which existed before the SECURE Act was passed, allow related businesses, such as those in the same industry, to band together in a manner similar to PEPs but with somewhat different rules. MEPs can be sponsored by employer groups or associations—which the DOL refers to as association retirement plans (ARPs)—or by professional employer organizations (PEO MEPs).

Prior to the SECURE Act, the idea for a PEP of unrelated employers was referred to an "open MEP" and "closed MEP" described a plan limited to employers in the same industry or location.

Being part of a shared plan can reduce compliance costs, advocates contend. Nevertheless, there is rigorous debate over the level of savings employers participating in shared plans will achieve.

Aon Launches a New PEP

On June 24, professional services firm Aon announced the launch of a PEP for which it will serve as plan provider and named fiduciary, effective January 2021. Aon will handle compliance and investment-selection and monitoring activities. Following a competitive bid process, it is partnering with Voya Financial to handle record-keeping for participant transactions across all employers.

"We believe PEPs will transform the retirement landscape, similar to how 401(k) plans transformed the pension landscape 40 years ago" by giving employers a way to provide retirement plans with fewer compliance and administrative burdens, said Paul Rangecroft, North America retirement practice leader for Aon.

Self-Dealing Transactions

As a PEP fiduciary, the pooled plan provider is subject to standards and restrictions under the Employee Retirement Income Security Act (ERISA) and the tax code, including prohibited transaction provisions restricting fiduciaries from engaging in transactions that might involve a conflict of interest.

The DOL's request asks for information on "the possible parties, business models and conflicts of interest that respondents anticipate will be involved in the formation and ongoing operation" of PEPs and MEPs.

One issue facing regulators is whether ERISA's ban on so-called self-dealing transactions, which might benefit the pooled plan provider and thus could be seen as a prohibited conflict of interest, prevents effective management of a plan. The request notes that the DOL is considering proposing a class exemption for prohibited transactions involving PEPs and MEPs.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Answers Sought

Questions for which the DOL's Employee Benefits Security Administration (EBSA) is requesting employer input include:

  • What types of entities are likely to act as pooled plan providers?
  • What business models will pooled plan providers adopt in making a PEP available to employers?
  • What conflicts of interest, if any, would a pooled plan provider likely have with respect to the PEP and its participants?
  • To what extent will a pooled plan provider be able to unilaterally affect its own compensation or the compensation of its affiliates or related parties through its actions establishing a PEP or acting as a fiduciary or service provider to the PEP?
  • Do respondents anticipate that the DOL's existing prohibited transaction exemptions will be relied on by pooled plan providers, and if so, which exemptions are most relevant?
  • Do employer groups, associations and PEOs described in the DOL's MEP final rule face similar prohibited transactions to those of pooled plan providers, and do they have a similar need for additional prohibited transaction relief?
  • What role will pooled plan providers or MEP sponsors serve with respect to the investment options offered in PEPs and MEPs?

"We encourage all interested parties to submit comments in response to this request," said acting Assistant Secretary of Labor for EBSA Jeanne Klinefelter Wilson. "The responses will help [EBSA] evaluate the need for a proposal on a new exemption."

According to attorneys at law firm Morgan Lewis, "For aspiring pooled plan providers and industry groups representing financial services companies or potential adopting employers, this RFI [request for information] may provide a valuable opportunity to help shape future DOL guidance on fiduciary and potential prohibited transaction issues confronting PEPs. Those interested in PEPs can now add this RFI to the relatively long list of anticipated guidance on PEPs–including, most pressingly, anticipated guidance on the registration process for pooled plan providers."

Related SHRM Articles:

PEPs, MEPs and GoPs in the SECURE Act, SHRM Online, March 2020

SECURE Act Alters 401(k) Compliance Landscape, SHRM Online, January 2020

DOL Final Rule Opens Up Association-Run Multiple-Employer 401(k)s, SHRM Online, July 2019


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