Over the past six months, Congress and the Department of Labor have created new ways to structure workplace retirement plans.
The new plan structures are respectively called Pooled Employer Plans (PEPs) and Association Retirement Plans (ARPs). These new plan structures permit, to varying degrees, the employees of more than one employer to participate in a single retirement plan.
Both structures build off years of discussion regarding the potential for multiple employer plans (MEPs) to expand access to and coverage under the retirement system. Below, we untangle the web of acronyms: PEPs, ARPs, and MEPs.
What Is a PEP?
President Donald Trump signed into law Dec. 20, 2019, a series of spending bills (Pub. L. No. 116-94) that contained a number retirement-related provisions (known as the SECURE Act), including provisions creating PEPs.
Wholly-unrelated employers will be permitted to join a PEP, which will be considered one plan for purposes of the Employee Retirement Income Security Act of 1974 (ERISA). For example, each employer in the arrangement would not be required to file their own Form 5500 because a PEP would file a single annual Form 5500 covering the entire arrangement.
PEPs would be administered by a “Pooled Plan Provider,” that would need to register with the DOL and Treasury Department. The law also directs the Treasury Department to issue guidance that would fix the “one bad apple rule” by providing the failure of one participating employer to maintain the PEP’s qualified status would not affect other participating employers, unless the Pooled Plan Provider does not perform its administrative duties with respect to tax qualification.
PEPs shift significant fiduciary and administrative responsibility from the employers sponsoring the plan to the Pooled Plan Provider. However, employers would retain fiduciary responsibility for monitoring the Pooled Plan Provider and the selection of investments, unless that authority is delegated to another investment fiduciary.
The law also requires that a PEP have a trustee with policies to monitor contributions and, presumably, deal with delinquent contributions. Importantly, financial service firms can sponsor a PEP (unlike an ARP, as discussed below).
What Is an ARP?
ARPs were created by a recent DOL regulation to permit a group or association of employers, or a professional employer organization (PEO) to sponsor a single plan if certain requirements are satisfied.
There are two main differences between PEPs and ARPs, which collectively make the availability of ARPs narrower. First, while wholly-unrelated employers may participate together in a PEP, under an ARP, employers must share commonality in that they are in the same trade, industry, line of business or profession, or in that they are located in the same state or a metropolitan area.
Alternatively, the ARP must be sponsored by a PEO that performs “substantial employment functions” on behalf of its client employers that adopt the ARP. The second difference is that while the Pooled Plan Provider of a PEP can be a retirement plan service provider, an ARP must be administered by a PEO or a group or association controlled by the employers that participate in the ARP.
Like PEPs, ARPs sponsored by bona fide groups or associations shift significant fiduciary and administrative responsibility from the employers sponsoring the plan to the group or association maintaining the ARP, but employers retain fiduciary responsibility for monitoring the arrangement.
Another potential challenge to ARPs is that a district court in 2019 blocked provisions in another DOL regulation concerning Association Health Plans that substantially mirror the provisions of the ARP regulation regarding the groups or associations that may maintain an ARP. The DOL ARP regulation is potentially subject to challenge on the same grounds as the Association Health Plan regulation, though there has not yet been a legal challenge to the regulation.
Do MEPs Still Exist?
Until recently, DOL had consistently interpreted ERISA to state that employers may only participate in a MEP if they have commonality—i.e., a connection above and beyond mere participation in the same plan. Therefore, MEPs were generally limited to affiliated employers and associated employers in the same industry or PEOs.
Aside from this limitation, and the need to comply with the same general ERISA requirements applicable to single-employer plans, there are no regulations specifically addressing how these “Closed MEPs” should be governed and structured. Closed MEPs can continue to exist—the creation of PEPs and ARPs does not affect their availability. In effect, the PEP and ARP initiatives are attempts to open the availability of MEPs to employers who share less (or no) commonality, so as to create “Open MEPs.”
Is There Another Option?
In addition to creating PEPs, the SECURE Act includes a provision that creates an alternative to PEPs, ARPs, and MEPs by allowing consolidated Form 5500 reportings for certain single-employer plans. Specifically, the law directs the IRS and DOL to work together to modify Form 5500 so that all members of a group of plans may file a consolidated Form 5500.
In general, a group of plans would be eligible for a consolidated form if all the plans in the group
- are defined contribution plans (or individual accounts);
- have the same trustee, the same named fiduciary(ies), and the same administrator;
- use the same plan year; and
- provide the same investments or investment options to participants and beneficiaries.
This consolidated reporting provision is not effective until plan years beginning in 2022 and requires implementing regulation.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Michael Kreps is a principal at Groom Law Group. He specializes in issues relating to public policy, fiduciary responsibility, and plan funding and restructuring. He routinely represents both private and public sector clients before federal agencies and Congress.
David Levine is a principal at Groom Law Group. He advises plan sponsors, advisers, and other service providers on a wide range of employee benefits matters, from retirement and executive compensation to health and welfare plan matters.
Brigen Winters is a principal at Groom Law Group. He counsels employers, plan administrators, financial institutions, insurers, trade associations, and coalitions on retirement, health and welfare, tax, executive compensation, regulatory, and legislative matters.
David Kaleda is a principal at Groom Law Group. His broad range of experience includes handling fiduciary matters impacting plan sponsors, investment and other fiduciary committees, investment managers/advisers, recordkeepers, broker-dealers, banks, and other financial services firms.
Scott Mayland is an associate at Groom Law Group. He advises employers and financial institutions, and his practice focuses on the fiduciary responsibility and prohibited transaction sections of ERISA.