Pooled employer plan is the name commonly given to a specific subtype of multiple employer plan (MEP). An MEP is a retirement benefit plan offered at the group level among a set of employers who share a commonality. In short, several related employers work together to create one 401(k) offer package and then share the benefits of this approach.
The advantages of offering PEPs
Offering a PEP provides numerous advantages such as:
- Transfers fiduciary responsibility by transferring the role of the named fiduciary and the administrative fiduciary from the plan sponsor to the PPP.
- Allows the PPP to assume responsibility for investment management or outsource these responsibilities to another plan partner.
- Simplifies retirement plan management and administration for the plan sponsor.
- Streamlines plan administration
Compliance Issues to Consider
While pooled employer plans compliance risks will become more evident over time, there are specific compliance issues for PPPs (providers) and prospective participating employers to consider at the outset.
One of the primary objectives of PEPs is to close the retirement savings “gap” and make retirement plans more available to small employers. Ideally, PEPs can ease the burdens and costs of sponsoring a retirement plan. Under the PEP rules, administrative and fiduciary responsibilities can mostly be transferred to the PPP. However, the rules also clarify that participating employers will retain specific residual fiduciary duties, including for the PPP’s selection and oversight and the plan has designated named fiduciaries. Implementing the PEP rules and the terms of any interpretive guidance will be critical in defining the scope of the fiduciary responsibility retained by a participating employer.
Form 5500 Filings
Pooled employer plans, like traditional MEPs, are required to disclose with their Form 5500 filings a list of participating employers and a reasonable faith estimate of the percentage of total contributions and aggregate account balances attributable to each such participating employer. In practice, traditional MEPs, particularly those sponsored by professional employer organizations (PEOs), appear to have had difficulty complying with this requirement, which has resulted in a corresponding DOL enforcement initiative. Specifically, as explained in FAB 2019-01, the DOL targeted compliance with this requirement and, for the 2016 plan year, identified 101 MEPs with noncompliant Forms 5500 (representing approximately 480,000 participants). PEPs should be careful to avoid similar problems.
The timing of the remittance of elective deferrals from the participating employers to the plan must comply with ERISA. Timely remittance of elective deferrals is a long-standing DOL enforcement initiative for all types of programs, and there could be particular logistical challenges for PEPs. The DOL interprets ERISA to require that an employer deposit elective deferrals into the plan’s trust as soon as following possible segregation of the sums of money from the employer’s general assets, but in no event later than the 15th business day of the following month.
While the SECURE Act permits reasonable faith interpretations of the PEP rules pending issuance of Treasury and DOL regulations, the requirements that ultimately apply to PPPs and PEPs will depend on these regulations’ exact content and other guidance. As such, providers considering offering PEPs may want to take a measured approach to implement these regulations’ pending issuance and further guidance.