The pooled employer plan (PEP) and multiple employer plan (MEP) provisions are some of the most-hyped elements of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. These plan structures allow employees of more than one, typically smaller employer to participate in a single retirement plan, with the goal of expanding retirement plan access for all individuals.
But small businesses shouldn't overlook the act's group of plans (GoPs) option, which lets employers file a single Form 5500 for multiple 401(k) plans that share the same design and administrator.
What Are PEPs?
Introduced under the SECURE Act, PEPs allow unrelated employers that meet certain requirements (such as having the same "pooled plan provider," typically a bundled recordkeeper or third-party administrator) to band together to participate in a single retirement plan, in order to take advantage of their collective purchasing power to obtain lower fees and better services. Note that PEPs are limited to 401(k) plans. Defined benefit plans, 403(b) plans, governmental 457(b) plans and multi-employer plans for collectively bargained employees are excluded from the new PEP provisions.
What Are MEPs?
MEPs allow related businesses (e.g., plumbing companies) to band together in a manner similar to PEPs to participate in a single retirement plan. While MEPs existed prior to the SECURE Act, they are now easier to establish. The "one bad apple" rule, where the compliance failures of one employer could disqualify the entire plan, was eliminated by the SECURE Act. Additionally, smaller MEPs (and PEPs), with fewer than 1,000 participants, are exempt from a potentially expensive audit requirement, as long as no one employer exceeds 100 participants.
What Are GoPs?
A GoP is another new type of plan established by the SECURE Act, in which employers (whether unrelated, related or part of the same controlled group) can file a single Form 5500 for multiple defined contribution plans. The plans must have the same trustee, administrator, fiduciaries, investments and plan year in order to be considered a GoP. However, unliked PEPs or MEPs, GoPs are not single plans, but rather a single Form 5500 filing.
Unfortunately, for plan sponsors looking to adopt a GoP, it appears that the audit exception for smaller MEPs described above will not apply, unless the U.S. Department of Labor issues guidance to the contrary. Therefore, a small plan that is consolidated into a larger Form 5500 filing may potentially subject itself to an expensive audit requirement when none existed before.
Where Do We Go from Here?
The expansion and creation of these arrangements is a benefit for plan sponsors of smaller retirement plans. For existing MEPs, the SECURE Act created an opportunity to band together with each other to create a "super" PEP, and this arrangement may have the power to dramatically lower fees and enhance services for those participating employers. However, MEPs have been around for some time without widespread adoption, due the fact that they are primarily used by small employers with limited options. This makes it difficult for the plans to accumulate assets and obtain the type of purchasing power to deliver on the promise of lower fees and enhanced services.
Despite the efforts of the SECURE Act to broaden these arrangements, it did nothing to address the fundamental issue, which will likely prevent MEPs (and PEPs) from becoming a retirement plan industry game-changer.
Although less hyped, in practice, GoPs may actually be the most successful arrangement. However, retirement plan sponsors will need to wait until regulations are issued to determine how these consolidated Form 5500s will work.
While PEPs, and the new MEP rules are effective in 2021, the GoP provision is not effective until the 2022 plan year Form 5500 filings.
While the SECURE Act's expansion of MEPs and creation of PEPs and GoPs may not be the panacea for smaller retirement plan sponsors, these changes are a positive step in providing individuals with greater access to retirement plan benefits.
Michael A. Webb is vice president at retirement plan advisory firm Cammack Retirement Group. © 2020 Cammack Retirement Group Inc. This article was originally posted on the firm's website on Feb. 25, 2020. All Rights Reserved. Republished with permission.
Related SHRM Articles:
SECURE Act Alters 401(k) Compliance Landscape, SHRM Online, January 2020
401(k) Savings Rates Are Up, and SECURE Act May Push Them Higher, SHRM Online, January 2020
DOL Final Rule Opens Up Association-Run Multiple-Employer 401(k)s, SHRM Online, June 2019