If you’re not familiar with pooled employer plans (PEPs), it’s probably because they’re not yet available. But they’re part of existing proposed legislation, so it would be useful for employers to be familiar with the concept.
PEP is the name commonly given to a specific subtype of multiple employer plan (MEP). An MEP is a retirement benefit plan that is 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.
Let’s take a look at MEPs first.
What are Multiple Employer Plans (MEPs)?
MEPs are retirement plans formed by a group of employers. Currently, these can only be used by employers who share some specific thing in common, which is required to allow them to group together in this manner. This commonality typically means the employers must be in the same type of business or even under the same organization in some capacity.
Theoretically, MEPs could significantly ease the administrative burden for smaller employers wishing to band together to offer better retirement plan options for employees. But under existing DOL interpretation of ERISA and other legislation, the administrative burdens are not actually waived, thus significantly reducing the attractiveness of this type of arrangement. In other words, each employer in the group still has to handle much of the same administration they would if they were managing their own plan.
Additionally, there may be an increased risk by introducing and tying together multiple groups each with their own fiduciary responsibility—creating a situation in which the bad actions of one could affect the others.
Legislation Changes Could Pave the Way for Improved MEPs and/or PEPs
Unsurprisingly, given the above, only a small number of MEPs exist today, though employers and legislators see the potential for benefit in changing the legislation to allow this to work better.
In theory, MEP regulations could be changed to address the issues above. If done well, this could be great for employers and employees alike—especially if the administrative burdens were lifted in a way that would allow unrelated employers to join together and have plans that are treated as single plans under ERISA.
MEPs that are more open could mean more employers could form these groups. Groups could get better rate structures and thus have much lower management fees for the funds themselves, which is a benefit for employees. This could be possible because typical fee structures offer lower percentage rates for fees once a fund reaches a certain size—which much easier to accomplish with more participants.
There is a bill proposed in congress, the Retirement Enhancement and Savings Act of 2018 (RESA) (S.2526 and H.R. 5282), that would amend the MEP rules and make PEPs among unrelated organizations a reality, but it has not yet advanced. The MEP requirement revisions are just one section of RESA, and should it become law in the future it would just be one change that employers would be adjusting to. That said, this bill was originally introduced in 2016, and this 2018 version is a re-introduction. It has only been referred to committee as of March 2018, so this may or may not advance in the future.
If this bill eventually passes, it would likely mean a proliferation of PEPs because it could, depending on the final language used, remove most of the administrative barriers and create a much simpler option for employers to utilize. It could mean that open MEPs would be administered by a single party and treated as a single plan under ERISA. This clearly means far less administrative burden. One shared plan could mean one set of compliance documents that can be used for everyone involved. With a PEP under the new proposed regulations, the plan would be handled by a “pooled plan provider”—PPP—who would be responsible for the administration.
If this bill eventually passes, it could mean smaller employers have a better ability to provide 401(k) options that are more in alignment with large employer offerings, which may change the benefit landscape for these employers and their employees.