DOL to Inquire If Regulatory Guidance Could Boost PEPs

The Department of Labor is planning to consult the retirement industry and employers for feedback on pooled employer plans, with the goal of increasing uptake, according to an item on its regulatory agenda posted on January 4.

The DOL’s Employee Benefits Security Administration said it plans to “explore the need for regulatory or other guidance” regarding the implementation of PEPs first made available in the original Setting Every Community Up for Retirement Act of 2019 and expanded to 403(b) plans in SECURE 2.0. The EBSA said it intends to consult with “employers and employees and their representatives and retirement plan service investment providers, to explore areas where regulatory or other guidance would facilitate establishment and operation of pooled employer plans.” According to the web site posting, EBSA intends to have stakeholder meetings in March.

David Kaleda, a principal with the Groom Law Group specializing in the Employee Retirement Income Security Act, said the agenda item for the DOL signaled that policymakers and possibly the administration of President Joe Biden “believe that not as many PEPs have been formed as may have been expected.”

PEPs came to market with as a way for employers of any type—but particularly unrelated smaller businesses—to leverage their combined scale to provide a workplace retirement plan that would be more cost-effective and less administratively burdensome than running it on their own. The model got more discussion at the end of last year, when the passage of SECURE 2.0 gave 403(b) nonprofit retirement plans access to PEPs, along with 401(k)s.

There certainly has been some uptake of PEP offerings from what are known as pooled plan providers. The multinational financial services firm Aon reported more than $1 billion in assets and commitments last year to their PEP, and surveys and reports show increased interest.

As of late 2022, there were about 100 pooled plan providers registered with the Department of Labor and about 300 PEPs offered by these plan providers, according to research done last year by Robb Smith, president of RS Fiduciary Solutions and one of the founders of PEP-Hub. 

But despite growth in the market, there are still lingering questions about management and fiduciary obligations that need to be addressed as the industry evolves, says Terry Power, president of The Platinum 401k, a third-party administrator specializing in PEPs.

One area where Power identifies lack of direction is the annual auditing requirement for retirement plans within a PEP. At the moment, he says, there is still uncertainty as to whether small employers within a PEP are covered to the same extent as a large employer. Secure 2.0 offered some clarification on defined contribution groups, but there still is a need for clarification in the PEP world.

“We’re trying to do the right thing and not trying to make this overly complicated,” Power says. “But it’s a case where you would have large, pooled employer plans with small companies that would be subject to audit.”

The DOL did not respond to a request for comment about the audit issue or the agenda item in general. According to registration requirements for a PEP published by EBSA, a “pooled employer plan arrangement allows most of the administrative and fiduciary responsibilities of sponsoring a retirement plan to be transferred to a pooled plan provider.”