In the article “The PEP Opportunity,” PlanSponsor reports that pooled employer plans (PEPs) are set to come to market on January 1, 2021. PEPs were created by provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed late last year.
The publication reports that several entities have announced that they’re working to create PEPs, and the Department of Labor (DOL) has issued a Notice of Proposed Rulemaking to implement the registration requirements for pooled plan providers (PPPs), as well as a request for information on prohibited transactions involving PEPs.
While some industry sources argue that PEPs can broaden retirement plan coverage and make it simpler and more cost effective for small employers to sponsor plans, Ashton noted to the publication that he is skeptical about the extent to which the scale of PEPs will reduce costs. “It certainly will on the investment side, and plan investments are the most expensive items in plan,” Ashton said. “Costs may be somewhat more for smaller employers that would not have to have an audit of a single plan. Once in a PEP, the PEP will be audited. The cost may be trivial but, nonetheless, it’s an added cost.”
Ashton added, “I’ve been talking with recordkeepers and they say recordkeeping for PEPs isn’t going to be any less expensive. It’s like recordkeeping a bunch of individual plans.”
According to Ashton, a simple plan design can eliminate some costs. “I can see some offering a simple plan design, a simple definition of compensation, even a safe harbor plan design, although that creates employer contribution expenses,” he continued. “But I can also see PEPs offered at more than one level and price point for basics on up.”
As far as responsibilities go, plan sponsors that join a PEP retain two primary responsibilities, Ashton said. They are responsible for selecting and monitoring the PPP and any other named fiduciary of the plan. He added that the SECURE Act says plan sponsors are also responsible for the investments offered in the plan, but the act goes on to say that’s not the case if the PPP delegates investment responsibility to a 3(38) investment manager.
“Probably, in most PEPs, the only retained responsibility will be to select and monitor the PPP,” Ashton noted. “But, this means finding a PEP based on the services offered, how much responsibility is assumed by the PPP and service providers and what it costs, and whether the service providers appear to be competent.”
He added that plan sponsors are not responsible for monitoring recordkeepers. That is the responsibility of the PPP. “The PPP is the responsible fiduciary for administration of the plan and for selecting and monitoring service providers,” Ashton said.