The Setting Every Community Up for Retirement Enhancement (SECURE) Act that was passed at the end of 2019 contained some of the most exciting retirement plan related regulations since the Pension Protection Act of 2006. Although the SECURE Act produced some extremely useful provisions, one such provision has seemed to have stolen the spotlight: Pooled Employer Plans (PEPs). Not much different than Multiple Employer Plans (MEPs), PEPs are being touted as a superior alternative because there does not have to be commonality between each employer within the PEP. It’s wide open! The PEP acts as a single plan with a single plan document, a single 5500 filing and a single plan audit that multiple, unrelated employers, can adopt for their employees.
Promoters of PEPs believe that PEPs will expand the number of employees covered by an employer sponsored retirement plan by eliminating obstacles, such as plan fees and fiduciary risks, that have kept small employers from offering a plan to their employees. PEPs can potentially reduce plan expenses by pooling assets to achieve economies of scale for investments and eliminating redundant expenses through a single plan document, 5500 filing and plan audit. PEPs would also minimize the fiduciary burden on the plan sponsor because the law requires each PEP to be sponsored by a Pooled Plan Provider (PPP). The PPP will serve as the named fiduciary for the plan as well as the ERISA 3(16) fiduciary. It is also assumed that the PPP will retain an investment advisor to serve the plan as a discretionary investment manager under ERISA 3(38), thereby, also reducing the fiduciary liability to the plan sponsor.
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