SECURE Act Increases Access to Retirement Plans with “Pooled Employer Plans”

This Morgan Lewis article does a good job of outlining the provisions of the SECURE Act and the new PEP provisions.  As stated in the article, Pooled Employer Plans, or PEPs, will provide an opportunity for a business owner to provide retirement benefits for employees and reduce the amount of fiduciary responsibility associated with sponsoring a stand alone plan.  This concept has been around for many years in various forms, formerly known as open MEP’s.

The SECURE Act eliminates regulatory issues and coordinates the IRS and DOL regulations, which have been an obstacle to this type of plan from being utilized in the past.  PEPs cannot be adopted until after January 1, 2021, and the DOL still has to finalize the regulations.  It will be interesting to see how the DOL interprets the law in writing the proposed and ultimately final regulations.

Based on my experience in this area, there will be many flavors of PEPs in the market place.  As a result, it will be very important for retirement plan professionals to be able to discern the difference in the various plans in order to properly advise their business clients on which plan to join, or whether a PEP is even the right choice.

There will be several factors to consider such as:

• pricing: The lowest cost PEP may not be the best PEP
• service providers: how experienced is the Pooled Plan Provider (PPP) and is the firm qualified to be a PPP? How experienced are the Third Party Administrator and Recordkeeper? Without experienced service providers, operational and compliance defects can occur very quickly
• contributions and census: how will contributions and census information be provided to the Recordkeeper and Third Party Administrator
• plan design: what benefits and features will be available to meet the business owners goals and objectives
• employee education:  what resources are available to effectively communicate the benefits of the plan to the participants initially and on an ongoing basis
• responsibility: what responsibility and liability the business owner retains.

In the case of an existing plan, it will necessary to preserve the same rights, benefits, and features the current plan at the time the plan was merged into the PEP plan.  This is necessary to avoid the anti-cutback rules.

In summary, PEPs will provide a very efficient way for a business owner to provide retirement benefits for employees; however, the plan must always remain in the best interest of the participants and beneficiaries covered by the plan.

By Jeff Atwell, AIF, C(k)P, CPFA , Principal, TRG Fiduciary Services, LLC