Overload of the platform for employer pension plans: MPs, PEPs and plans for particular person employers
The SECURE Act established a new platform for retirement plans – Pooled Employer Plans (PEPs) – that allows a group of unaffiliated employers to participate in a single defined contribution plan from January 1, 2021 There is a new retirement option that employers can consider including:
Plans for individual employers
A single employer plan is created and managed by one company or a number of closely related companies (e.g. subsidiaries). In a single employer plan, the plan sponsor controls the design of the plan and the investment options that will provide the best benefit to plan participants. The plan sponsor also has a free hand in choosing the service providers to manage the plan that are best suited for the company.
Multi-employer plans (MEPs)
MEPs allow independent employers who would otherwise be too small to access competitive benefit packages to band together to provide various benefits to workers. Employers can team up to achieve the economies of scale needed to negotiate better tariffs and reduce the administrative costs of organizing the plans. Before that, there had to be a “connection” between the employers in the group. Now they can simply be in the same industry or work in a similar geographic area.
Members of the Professional Employer Organization (PEO) and the Association
In 2019, DOL enacted new regulations that allow professional employers’ organizations (PEOs) and federations to sponsor MPs. In order to participate in a PEO MEP, a company must be a customer of the PEO and the PEO must assign the company important employment roles beyond the role of a plan sponsor. To participate in an Association MEP, a company must be a member of the Association and the Association must serve at least one significant business purpose other than sponsoring the plan. The PEO or the association drafts and controls the plan and selects service providers.
Open the MPs
A 2012 DOL opinion found that an open MEP is not a MEP at all. Instead, open MPs are groups of separate individual employer plans that have nothing in common but that they share the same service providers. If there are more than 100 participants, each company must submit its own Form 5500. Since there is only one investment menu for the entire plan, the ability to customize a plan is minimal.
Pooled employer plans (PEPs)
Pooled Employer Plans (PEPs) must be managed by a Pooled Plan Provider (PPP), who acts as the plan sponsor and handles all trust, administration and investment tasks. Because of the highly specialized requirements for managing a PEP, the PPP role is more likely to be filled by Registered Investment Advisers (RIAs), Third Party Administrators (TPAs), minute keepers, and other financial services companies. Each employer participating in a PEP assumes the role of the plan administrator for the plan assets and the participants of that employer, retains responsibility for financing the PEP with employer and employee contributions, and provides the PPP and other service providers with information on the plan participants.
An exchange is a collection of individual companies, each with their own plan, using the same investment menu to achieve economies of scale on investment costs. Each company is responsible for submitting its own Form 5500.
Groups of Plans (GOPs)
Beginning January 1, 2022, certain groups of plans may file a single Form 5500 as long as they use the same trustee, administrator, investment menu, nominated trustee (one or more), and the starting date of the plan year.
Because it is difficult to distinguish between these different types of retirement plans and the requirements that apply to them, it is best for employers and plan participants to seek advice from a legal professional.