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In recent years, one of the retirement industry's white whales has been multiple employer plans (MEPs). Countries like Australia have long allowed employers to participate in retirement savings vehicles that are not sponsored by each individual employer but that are instead sponsored by a third-party entity. Many academics, service providers, and employers have viewed MEPs as a way to increase access and reform the retirement savings market by reducing the administrative burden on small employers that want to offer retirement plans and potentially offering reduced costs to employees of small companies by allowing them to take advantage of economies of scale in professionally managed plans.
With the passage of the SECURE Act, you may be considering sponsoring this new type of MEP, the pooled employer plan (PEP). If you are, there are five things to know now.
1. Who can participate in a PEP?
Any private employer can participate. One of the major changes from prior multiple employer plan rules was the elimination of a "commonality" requirement. This major change could allow PEPs to be designed that cover employers in various industries who are based in different parts of the country.
2. What do I have to do to become a pooled plan provider?
A pooled plan has to designate the pooled plan provider (PPP), and the pooled plan provider has to acknowledge that it is a named fiduciary. In addition, the PPP has to obtain an ERISA bond and register with the Department of Labor. Realistically though, a PPP also needs to draft and prepare a pooled plan document and find employers who want to participate in the PEP.
3. What is a pooled plan provider responsible for?
A PPP is a named fiduciary for a PEP and is responsible for plan administration. Decisions about PEP investment options may sit with the PPP, participating employers, or an entity who has investment authority for the PPP. In addition to plan administration, PPPs are responsible for ensuring that ERISA's bonding requirements are met, filing an annual report to the DOL (which includes a list of participating employers), and responding to any DOL audit or investigation.
Participating employers are still responsible for monitoring the PPP. This could create a line of service for consultants and others – helping employers select and monitor PEPs and PPPs.
4. What has to go into a PEP document?
It has to explain the different roles for entities – this means designating the pooled plan provider, designating one or more trustees who are responsible for collecting contributions and holding assets (a significant requirement), and making clear that participating employers retain fiduciary responsibility for monitoring the pooled plan provider (and for decisions about investment funds unless that responsibility is delegated ).
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