Seyfarth Synopsis: A key component of the SECURE Act, passed at the end of 2019, was the expansion of opportunities to combine the 401(k) plan assets of multiple unrelated employers. The SECURE Act relaxed the rules on multiple employer plan’s (“MEP”) and created a new vehicle, the pooled employer plan (“PEP”) to allow employers to come together under a single 401(k) plan. By providing additional pooling opportunities, Congress hoped to allow smaller employers to enjoy economies of scale available only to very large employers, and thereby reduce participant fees and enhance services. The Department of Labor (DOL) is now looking for suggestions on what guidance may help create additional MEP and PEP opportunities.
DOL Request for Comment
The DOL requested comments related to the MEP and PEP market going forward. Specifically, the DOL requested comments on whether any prohibited transaction exemptions might be helpful, given the potential for conflicts of interest between the MEP and PEP providers. For example, the PEP provider must serve as the named fiduciary and plan administrator. Normally, and in the single employer 401(k) market, the named fiduciary wouldn’t be permitted to then select related or proprietary investment funds without a prohibited transaction exemption. Similarly, many PEP providers will partner with a 3(38) investment manager for purposes of PEP investments. Is the 3(38) manager able to market or direct its employer clients into the PEP plan or is that direction a conflict of interest because the manager is a fiduciary to the PEP?
To help answer these questions, the DOL asked a series of questions under the following three categories:
- What types of providers/vendors are likely to enter the MEP/PEP market and what conflicts of interest will be created?
- What types of investment line-ups are likely in the MEP/PEP market and what conflicts of interest will be created? and
- What types of employers (e.g., small or large) will take advantage of MEPs or PEPs and what types of conflicts of interest will be created?
We have provided a link to the specific questions the DOL asked (click here) and would love to hear from you if have a perspective on this new market. Comments are due to the DOL by July 20, 2020, and Seyfarth intends to submit.