The Set Up All Communities for Retirement Enhancement Act (SECURE) of 2019 amended the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to create the pension plan of the pooled employer. The PEP is a new type of multiple employer plan (MEP) that will allow employers to offer a 401 (k) pension plan by joining with other employers. Corporate partners will benefit from the pooling of pension assets and economies of scale.
Each combination employer plan must be administered by a “combination plan provider.” This PPP will generally assume the fiduciary and administrative obligations associated with the employer’s joint plan. Approved providers can begin offering combined employer plans on January 1, 2021. The approval process is administered by the Department of Labor.
The final rules for PEP plans were published in the Federal Register on November 16, 2020 by the Employee Benefits Security Administration, a division of the Department of Labor. The regulation went into effect immediately. Final regulations apply to:
• Individuals who wish to serve as bundled plan providers,
• Defined contribution pension benefit plans that operate as pooled employer plans,
• Employers participating in such plans, and
• Participants and beneficiaries covered by said plans.
By the end of January 2021, 47 applicants had filed a PR form with the Department of Labor. The form is used to report information for a person or entity that intends to serve as a combination plan provider for employer combination plans. The fewer than expected number of investment advisers applying for APP status indicates that some are adopting a “wait and see” attitude.
Some investment advisers also hope to learn more about potential conflicts of interest raised by Congressman Richard E. Neal, chairman of the House Ways and Means Committee, in a June 2020 letter to the Department of Labor. Chairman Neal expressed concern about “(1) potential conflicts of interest that financial institutions may have in the operation of PEP and other multi-employer plans, and (2) the possible need to provide exemptions from prohibited transactions to allow that these conflicts of interest exist “.
Fiduciary responsibility of the common employer pension plan
While much of the fiduciary responsibility will reside with the pooled plan provider, the employer’s pooled plan will retain some of the responsibility. The PEP maintains the burden of selecting the PPP and other named trustees, for example. If the PEP has any discretion about investment options, it should make prudent evaluations. The PEP must also monitor to some extent the performance of the PPP and the funds that are managed.
Reporting Requirements for Clustered Employer Plans
A Form 5500 covering the entire PEP and all participating employers can be submitted to the Department of Labor annually. Certain PEPs may qualify for simplified reporting if no employer in the plan has more than 100 participants and if the total plan includes fewer than 1,000 participants.
A PEP audit may not be required until the plan has 1,000 participants or if an employer in the plan has more than 100 participants.
Each PEP will also have a single plan document applicable to all employers and participants. Known as the Summary Plan Description, this is a detailed document that informs plan participants how the plan works and is managed.
Difference between pooled employer plans, multiple employer plans, and multiple employer plans
The employer group pension plan should not be confused with “multi-employer” pension plans, which are defined benefit plans that are created through one or more collective bargaining agreements (CBA) between employers and one or more employee organizations or unions. . Up to 10 million American workers participate in 1,400 multi-employer defined benefit pension plans.
Multi-employer plans are more common in unionized, labor-intensive industries, where workers move from one employer to another throughout their careers. Construction, transportation, hospitality, manufacturing, and entertainment are leading industries where multi-employer plans are often present.
Also separate from the common employer plan and the multiple employer plan is the “multiple employer pension plan” (MEPP). A “multiple employer” plan is a 401 (k) defined contribution plan maintained by more than one employer but without a collective bargaining agreement.
People not covered by an employer’s pension plan have been able to set up their own individual retirement savings account using a packaged plan from investment managers like Vanguard or Fidelity.
The common employer plan option can potentially extend retirement protections to the millions of American workers who do not have their own plan and are employees of small businesses with limited benefits.
Aon, a professional services firm offering risk, retirement and healthcare solutions, predicts that “PEPs will transform the retirement landscape, similar to how 401 (k) plans transformed the pension landscape 40 years ago.” .
Like all ERISA pension plans, joint employer plans require the expert advice of qualified pension attorneys and plan administrators.