The U.S. Department of Labor has just announced its Request for Information (RFI) on Prohibited Transactions involving Pooled Employer Plans (PEPs) under the Setting Every Community Up for Retirement Enhancement (SECURE) Act and other multiple employer plans.
According to a press release, the RFI is “an opportunity for the public to provide data and information that may be used to evaluate whether the Department’s Employee Benefits Security Administration (EBSA) should propose a new prohibited transaction class exemption.” The proposal was dropped off for review at the Office of Management and Budget (OMB) early last month.
The RFI requests information on the possible parties, business models, and conflicts of interest that respondents anticipate will be involved in the formation and ongoing operation of PEPs. It also asks for information on similar issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.
By pooling the assets of multiple plans, MEPs have long been touted as being able to provide economies of scale that result in lower administrative and asset management costs. But because under ERISA a defined contribution plan must be established and maintained by an “employer,” and since ERISA doesn’t define what it means to act “directly as an employer” or “indirectly in the interest of an employer, in relation to an employee benefit plan,” nor does it explain what is meant by “group or association of employers,” there has been a great deal of uncertainty as to the broad applicability of this design. Enter the SECURE Act, which provided the long-anticipated clarity around the design, now labeled a Pooled Employer Plan.
The RFI requests information on the possible parties, business models, and conflicts of interest that respondents anticipate will be involved in the formation and ongoing operation of PEPs. It also asks for information on similar issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.
By pooling the assets of multiple plans, MEPs have long been touted as being able to provide economies of scale that result in lower administrative and asset management costs. But because under ERISA a defined contribution plan must be established and maintained by an “employer,” and since ERISA doesn’t define what it means to act “directly as an employer” or “indirectly in the interest of an employer, in relation to an employee benefit plan,” nor does it explain what is meant by “group or association of employers,” there has been a great deal of uncertainty as to the broad applicability of this design. Enter the SECURE Act, which provided the long-anticipated clarity around the design, now labeled a Pooled Employer Plan.
Questions Posed
Among the questions posed in the RFI:
- What types of entities are likely to act as pooled plan providers?
- What business models will pooled plan providers adopt in making a PEP available to employers?
- What conflicts of interest, if any, would a pooled plan provider (along with its affiliates and related parties) likely have with respect to the PEP and its participants? Are there conflicts that some entities might have that others will not?
- To what extent will a pooled plan provider be able to unilaterally affect its own compensation or the compensation of its affiliates or related parties through its actions establishing a PEP or acting as a fiduciary or service provider to the PEP?
- What categories of fees and compensation, direct or indirect, will pooled plan providers and their affiliates and related parties be likely to receive as a result of operating a PEP, including through the offering of proprietary investment products?
- Are there likely to be any differences in types of fees and compensation associated with operation of a PEP as compared to a single employer plan?
- Do respondents anticipate that the Department’s existing prohibited transaction exemptions will be relied on by pooled plan providers, and if so, which exemptions are most relevant?
- What plan investment options do respondents anticipate will be offered in PEPs and MEPs?
- What role will the entities serving as pooled plan providers or MEP sponsors, or their affiliates or related entities, serve with respect to the investment options offered in PEPs and MEPs?
- How many employers are likely to join a PEP or MEP?
- Will joining a PEP or MEP be more appealing to employers of a particular size? Are there any estimates of the total number of employers and participants likely to be covered by newly formed PEPs and MEPs? Are there any estimates of the number of employers and participants that will migrate from a single employer plan to a newly formed PEP or MEP?
- Will the existence of multiple employers in a PEP or MEP cause greater exposure to prohibited transactions in connection with investments in employer securities or employer real property?
Comments Requested
There is a 30-day comment period that begins upon publication of the RFI in the Federal Register.
Complete instructions for submitting comments are found in the RFI.
Complete instructions for submitting comments are found in the RFI.
“We encourage all interested parties to submit comments in response to this request,” said Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson. “The responses will help the Employee Benefits Security Administration evaluate the need for a proposal on a new exemption.”
Earlier this month the American Retirement Association provided the Department of Labor with some comments on dealing with potential issues regarding Pooled Employer Plans and Pooled Plan Providers.
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