ARA Presses DOL to Provide Level Playing Field in Upcoming PEP Guidance

The American Retirement Association is urging the Department of Labor to provide a level playing field, as it considers potential new prohibited transaction exemptions (PTEs) in relation to Pooled Employer Plans (PEPs) under the SECURE Act. 

 

In response to the DOL’s Request for Information (RFI) on possible parties, business models and conflicts of interest that stakeholders anticipate will be involved in the formation and ongoing operation of PEPs, the ARA argues that the DOL should address PTE relief or other guidance for Pooled Plan Providers (PPPs), bona fide groups or associations, and bona fide PEOs in a balanced way that protects participants and beneficiaries while allowing providers to offer a diverse range of products and solutions, and to be compensated for doing so.

 

The SECURE Act, enacted in December 2019, authorized the establishment of PEPs, which are plans sponsored by PPPs that may be joined by multiple, unrelated adopting employers. These provisions take effect on Jan. 1, 2021. 

 

 

The ARA’s 19-page comment letter provides an extensive look at the potential landscape of PEPs, describing the assorted elements of different structures, and which types of businesses would be interested in running these plans and how. For example, the ARA notes that, in addition to the entities described in the background section of its letter, the types of possible PPPs include: 

“Especially in the near term, the most likely PPPs are financial services firms that are already operating in the retirement investing and administration space, including asset managers, insurance companies, recordkeepers, third party administrators, broker-dealers, and RIAs,” the letter observes. Additionally, the letter explains that organizations that are not accustomed to ERISA fiduciary responsibility may be reluctant to assume such responsibility and may be cautious about assuming the role. 

 

As for whether a single entity will establish multiple PEPs with different features, the ARA notes that some service providers will establish multiple PEPs for different audiences and/or with different features. “There will be a diversity of business models and a proliferation of independent PPPs and PEPs, within logical limits,” the letter states.

 

 

Regarding what business models PPPs will adopt in making a PEP available to employers, the ARA suggests that service providers will seek to showcase the best of their capabilities in their PEPs: 

 

None of this is possible without the ability of a PPP to leverage the capabilities of its affiliates, the letter observes, adding that another way to view the role of affiliates is to see the marketplace as it exists today: most service providers offer multiple capabilities. “It is not reasonable to expect a provider to hire others to do what the provider itself already does, professionally, as part of its offering,” the letter notes.   

 

The ARA further emphasizes, however, that a purely independent model in which a PPP chooses others to perform all services has considerable merit, but other business models also have merit, when appropriate protections are in place. “Permitting firms to find efficiencies through bundling services, including the use of affiliates, is a logical alternative to a purely independent model and will help ensure competition and marketplace diversity,” the ARA states. 

 

 

Addressing whether additional relief is necessary and whether the DOL should consider developing distinct exemptions for different categories of PPPs, the ARA suggests that, in connection with amendments to certain existing exemptions, a single exemption or regulation covering compensation of MEP sponsors and service providers could include all relevant guidance. 

 

Separate exemptions for different categories of sponsors or providers could make sense as well, the letter observes. “What is important is that stakeholders have an unambiguous roadmap. The form of the guidance is less important than the content,” the letter states, adding that the proposed exemption for fiduciary advice should be amended to take into account the role of fiduciaries in PEPs and other MEPs. 

 

The ARA’s letter notes that while MEP practitioners have generally been comfortable with their methods and have not felt that additional guidance was needed, PEPs create an entirely new category of MEP, with a new type of sponsor, and guidance is needed now—whether in the form of new rules or clarifications of existing rules. 

 

“But any such guidance should be crafted based on a comprehensive view of the entire MEP marketplace, not just PEPs, and should ensure uniformity of regulation and enforcement and a level playing field for market participants,” the letter emphasizes. “A ‘no new exemptions’ approach to PEPs might therefore be appropriate, but there is clearly need for guidance in some form.”