Bill Could Add ‘PEP’ to 401(k) Multiple Employer Plans

Pooled employer plans would avoid ‘commonality’ compliance hurdle

By Stephen Miller, CEBS Nov 4, 2016
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Regulatory roadblocks that have stymied employers from partnering in a single multiple employer 401(k) plan could be lifted under a bill that just might have enough bipartisan support to become law.

On Sept. 21, the U.S. Senate's finance committee gave unanimous approval to the Retirement Enhancement and Savings Act (RESA), and sponsors are hopeful of the measure's eventual passage—perhaps even by year-end, in the most optimistic scenario.

While the proposed RESA addresses a variety of defined contribution plan issues, one of the key provisions would allow unrelated employers to enter into so-called pooled employer plans (PEPs), replacing today's far more limited shared 401(k) multiple employer plans (MEPs).

Currently, there must be "commonality" among employers for them to be able to join in a single plan, meaning that the employers must be in the same line of business, as with MEPs formed among auto dealerships.

Earlier this year, in discussing the president's 2017 budget proposals with the media, U.S. Secretary of Labor Tom Perez said the administration supported making it easier for different employers to pool together in an open plan that would "allow them to share administrative costs and to reduce some of their compliance burdens."

Pooled 401(k) plans would do just that, with the potential to be a low-cost, high-quality option for small businesses, its advocates say.

Defined contribution MEPs or the nascent PEPs, however, should not be confused with defined benefit multiemployer pension plans, which provide benefits to unionized employees.

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

Into the Pool

Brian Graff, executive director and CEO of the American Society of Pension Professionals and Actuaries (ASPPA) in Arlington, Va., gave a "PEP talk" in which he discussed the advantages of the proposed shared plans, speaking in October at ASPPA's 2016 annual conference in National Harbor, Md.

The RESA bill moving through Congress, Graff emphasized, would allow for open multiple employer plans with no commonality requirement. The new pooled plans could operate with:

  • A single plan document.
  • A single Form 5500 filing.
  • A single plan audit.

The DOL also may extend small plan audit rules to PEPs with fewer than 1,000 participants if no employer has more than 100 participants.

"PEPs would, however, have their own compliance requirements," Graff noted. For instance:

  • The PEP plan document must designate a pooled plan provider (PPP)—a person or entity such as a third-party administration firm that would be the named fiduciary and act as the plan administrator.

  • The PPP would make required disclosures to participating employees, and employers must provide the PPP with information necessary to administer the plan.

  • Employers' decisions to join a PEP and select the PPP would be subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act. Employers would retain fiduciary responsibility for selecting and monitoring the PPP and other named fiduciaries.

In addition, one or more named trustees would be responsible for collecting contributions and holding plan assets. A trustee must be a bank or other institution that satisfied tax code requirements for acting as an individual retirement account custodian.

"Congress could vote on RESA during the post-election lame-duck session," Graff said, perhaps as part of a larger omnibus tax and spending measure.

If that doesn't happen, the bill's sponsors are hopeful that it will be reintroduced and move forward when Congress reconvenes next year.

"It's a definite maybe," Graff said.

What Else Would RESA Do?

In addition to creating pooled employer plans, the Retirement Enhancement and Savings Act would makes numerous modifications to the rules governing defined contribution retirement plans—some of which would give plan sponsors additional flexibility and long-sought compliance relief, while others would impose new requirements. For instance, RESA would:

  • Eliminate the annual notice requirement for safe harbor 401(k) plans with nonelective employer contributions.
  • Allow employers to adopt a 4 percent nonelective safe harbor contribution after the end of the year for the plan in the prior year.
  • Direct the Treasury department to revise the hardship regulations to eliminate the requirement that an employee be prohibited from making elective deferrals and employee contributions for six months after receipt of a hardship distribution.
  • Allow earnings on elective deferrals, qualified nonelective contributions and qualified matching contributions under a 401(k) plan to be distributed on account of hardship.
  • Create a new fiduciary safe harbor for employers who opt to include a lifetime income investment option in their defined contribution plan.
  • Permit participants to make direct trustee-to-trustee transfers (or transfer annuity contracts) of "lifetime income investments" that are no longer authorized to be held as investment options under a qualified defined contribution plan.
  • Require employers to provide defined contribution plan participants with an estimate of the amount of monthly annuity income that their accounts, if annuitized, would generate during retirement. The estimate would be included on participants' annual plan statements.

Related Resources:

Senate Finance Committee Approves Bipartisan Pension Bills, Groom Law Group, October 2016

Senate Committee Gives Retirement Savings Bill Unanimous Backing, Willis Towers Watson, October 2016


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