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Pooled Employer Plans Expand Pension Benefits for Small Businesses

The "Pooled Employer Plan" (PEP) is a new entrant in the pension and retirement industry. Unrelated small employers can now join with other businesses to offer defined contribution pension plans to employees who may not otherwise benefit from an employer-sponsored plan.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 amended the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to create the pooled employer plan. The PEP is a new type of multiple employer plan (MEP) that will allow employers to offer a 401(k) type pension plan by joining with other employers. Corporate partners will benefit from the pooling of pension assets and economies of scale.

Every pooled employer plan must be administered by a "pooled plan provider." This PPP will generally assume the fiduciary and administration obligations associated with the pooled employer plan. Approved providers can begin offering pooled employer plans as of January 1, 2021. The approval process is managed by the Department of Labor.

Final rules for pooled employer plans were published in the Federal Register on November 16, 2020 by the Employee Benefits Security Administration, a division of the Department of Labor. The regulation took effect immediately. The final regulations apply to:

• Persons wishing to serve as pooled plan providers,

• Defined contribution pension benefit plans that are operated as pooled employer plans,

• Employers participating in such plans, and

• Participants and beneficiaries covered by such plans.

As of late January 2021, 47 applicants had filed a Form PR with the Department of Labor. The form is used to report information for a person or entity that intends to serve as a pooled plan provider to pooled employer plans. The smaller than expected number of investment advisors filing for PPP status indicates that some are taking a "wait and see" attitude.

Some investment advisers are also waiting to learn more about potential conflict-of-interest issues raised by Congressman Richard E. Neal, Chairman of the House Ways and Means Committee, in a June 2020 letter to the Department of Labor. Chairman Neal expressed concern about "about (1) possible conflicts of interest that financial institutions may have in operating PEPs and other multiple employer plans, and (2) the possible need to provide prohibited transaction exemptions to permit these conflicts of interest to exist."

Fiduciary Liability for the Pooled Employer Plan

While much of the fiduciary liability will reside with the pooled plan provider, the pooled employer plan will retain some responsibility. The PEP maintains the burden of selecting the PPP and other named fiduciaries, for example. If the PEP has some discretion over investment options, they must exercise prudent evaluations. The PEP must also monitor to some extent the performance of the PPP and the funds being managed.

Reporting Requirements for Pooled Employer Plans

One Form 5500 covering the entire PEP and all participating employers can be filed with the Department of Labor annually. Certain PEPs may qualify for simplified reporting if no single employer in the plan has more than 100 participants and if the total plan includes fewer than 1,000 participants.

An audit of the PEP may not be required until the plan achieves 1,000 participants or if an employer in the plan has more than 100 participants.

Each PEP will also have a single plan document applicable to all employers and participants. Known as a Summary Plan Description, this is a detailed document that informs plan participants how the plan operates and is managed.

Difference Between Pooled Employer Plans, Multiemployer Plans, and Multiple Employer Plans

The pooled employer plan is not to be confused with "multiemployer" pension plans, which are defined benefit plans that are created through one or more collective bargaining agreements (CBA) between employers and one or more employee organizations or unions. Up to 10 million American workers participate in 1,400 multiemployer defined benefit pension plans.

Multiemployer plans are most common in labor-intensive, unionized industries where workers move from one employer to another over the course of their working career. Construction, transportation, hospitality, manufacturing, and entertainment are leading industries where multiemployer plans are often present.

Also separate from the pooled employer plan and the multiemployer plan is the "multiple employer pension plan" (MEPP). A "multiple employer" plan is a 401(k)-type defined contribution plan maintained by more than one employer but no collective bargaining agreement.


Individuals not covered by an employer's pension plan have been able to set up their own individual retirement savings account using a packaged plan from investment managers like Vanguard or Fidelity.

The pooled employer plan option can potentially extend retirement protections to the millions of American workers who do not have their own plan and are employed by small companies with limited benefits.

Aon, a professional services firm offering risk, retirement, and health solutions, predicts that "PEPs will transform the retirement landscape, similar to how 401(k) plans transformed the pension landscape 40 years ago."

Like all pension plans subject to ERISA, pooled employer plans require the expert advice of qualified pension attorneys and plan administrators.

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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