- The U.S. Department of Labor issued Nov. 16 a final rule setting requirements for registering "pooled" retirement plans with the Secretary of Labor before beginning operations.
- The rule implements the Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act. The law amended the Employee Retirement Income Security Act to permit pooled plan providers to begin offering pooled employer plans, or PEPs, beginning Jan. 1, 2021.
- Also established in the rule is a new form — the EBSA Form PR — that entities seeking to register a PEP must file. Form PR will also satisfy registration requirements with the U.S. Department of the Treasury, DOL said.
Last year's passage of the SECURE Act marked a key Congressional achievement on retirement-plan expansion. By some accounts, PEPs enjoyed bipartisan support in the years preceding 2019, according to a 2018 report from The Pew Charitable Trusts, but related bills failed to make it to a full vote.
PEPs differ from traditional defined contribution retirements plans, such as 401(k) plans. For example, an employer that joins a PEP does not sponsor its own plan, Liana Magner, partner and U.S. defined contribution and financial wellness leader at HR consulting firm Mercer, said in a Sept. 29 webinar. Additionally, the PEP plan provider assumes responsibility for administration, management and fiduciary responsibility for the plan, while the employers in the pool retain responsibility for selecting and monitoring the PEP as well as the PEP provider.
Employers can still offer to match employee contributions in a PEP, Magner said, and such plans may also benefit employers by reducing administrative workload, mitigating fiduciary risks and reducing fees.
"Pooled employer plans will give employers, especially small unrelated employers, a way of offering their employees a workplace retirement savings option with reduced burdens and costs," Jeanne Klinefelter Wilson, acting assistant secretary of labor of the Employee Benefits Security Administration, said in a statement. "This final rule lays the groundwork for a sensible registration process so that providers can get pooled plans up and running."
Aside from establishing a process for registering PEPs, the rule also addresses the "one bad apple rule," which refers to the legal question of whether an entire PEP plan is considered out of compliance if one of the employers in the pool is found to be noncompliant, said Matt Petersen, executive director of the National Association of Government Defined Contribution Administrators.
According to the rule's text, the SECURE Act directs DOL to issue guidance that "provides, in appropriate cases involving a noncompliant employer, for transfer of plan assets attributable to employees of the noncompliant employer (or beneficiaries of such employees) to (a) a plan maintained only by that employer (or its successor), (b) a tax-favored retirement plan for each individual whose account is transferred, or (c) any other arrangement that the Department determines is appropriate."
Since passage of the SECURE Act, some benefits industry observers have raised concerns about certain risks posed by PEP plans, including fiduciary responsibility under such plans, according to a report earlier this month by PlanSponsor. The final rule addresses concerns about fiduciary responsibility, noting that "there may be greater potential for inadequate employer oversight of the activities of a pooled employer plan, its fiduciaries, and service providers than is true of more traditional employer-sponsored plans because participating employers pass along more responsibility to the pooled plan provider than they do in other plan arrangements."
In addition to the initial registration process for PEPs, DOL will also require supplemental filings to report changes to the information included in the initial registration, per the rule. The agency said these filing requirements, combined with Form 5500 annual reporting requirements, would give it "timely access to pooled plan provider information needed to fulfill the monitoring and oversight tasks the SECURE Act placed on the agencies and will be less burdensome and less costly" for PEPs and their providers than alternatives.