Happy Holidays! You may have a pep in your step with the news that the FDA has approved the Pfizer vaccine to combat COVID-19. This is certainly a reason for optimism. However, 2021 promises to be quite PEPPY for another reason. Pooled Employer Plans (or PEPs) can begin operating in 2021. PEPs are Multiple Employer Plans (or MEPs) that were authorized as part of the SECURE Act enacted in 2019. See 2020 Appropriations Bill. They are individual account retirement plans adopted and maintained by more than one employer where the employers need not be related by geography or industry.
For years industry experts have believed that open MEPs could encourage more employers to adopt retirement plans by permitting smaller employers to join together to get economies of scale in the administrative costs of operating retirement plans. A major drawback to such plans was that unless the MEP was “closed” such that it could only be adopted by employers in a common industry or geographic area, it wasn’t treated as a single plan for 5500 return purposes. In addition, even in a closed MEP, the qualification failure of a single employer, could disqualify the plan for all employers under the “one bad apple” rule. The one bad apple rule doesn’t apply to PEPs.
A PEP must be sponsored by a Pooled Plan Provider (or PPP) that agrees to be the named fiduciary of the plan responsible for all administration and Tax and Labor law compliance, and registers with the Treasury and Labor Departments as a PPP. On November 12, the Department of Labor finalized regulations on PPP registration.
PPPs are required to register with the Department of Labor at least 30 days before beginning operations by electronically filing new EBSA Form PR. However there is an exception for the period Nov. 25, 2020 to Jan. 31, 2021. During this period, the 30-day requirement is waived and the registration must be made no later than the day operation of the PEP begins. Registering with the Department of Labor also satisfies the requirement to register with the Treasury Department. The final regulations also clarify that operation of the PEP begins when the first employer executes or adopts an agreement specifying that the plan is a PEP, or, if earlier, when the PEP’s trustee first holds any asset in trust.
The Department of Labor estimates that 3,200 PPPs will initially register. PEPs may become popular with smaller employers, particularly in states like California that have state mandated payroll deduction IRA programs for employers that don’t otherwise offer a retirement plan. See CalSavers Not Preempted By ERISA. A PEP may offer a lower cost and better benefit option than the state IRA program. Time will tell whether PEPs are popular and successfully encourage more employers to adopt retirement plans but if the Department of Labor’s estimates are correct there should be plenty of PEPs to choose from in the new year.