What advisors and sponsors need to know about pooled employer plans & plan providers

Q&A with Rich Rausser, SVP Pentegra

(Photo: Shutterstock)

Before the CARES Act was even a blip on the Congressional radar, the SECURE Act was signed at almost the last minute in December 2019. Then, as the pandemic raged and the CARES Act was brought forth, SECURE was left standing in the background, shuffling its feet.

Now, as its provisions and deadlines become more well-known, SECURE is the center of attention – especially its provisions regarding pooled employer plans (PEPs).

We called on Rich Rausser, SVP of Client Services at Pentegra, to help explain PEPS as well as pooled plan providers.

BenefitsPRO: What is a pooled plan provider?

Rich Rausser: Beginning in 2021, Pooled Employer Plans (PEPs) will enable unrelated employers to participate in a single retirement plan program. A Pooled Plan Provider (PPP) is necessary to operate a PEP.

Rich Rausser, SVP Client Services, Pentegra

Under a PEP, the roles of the named fiduciary, ERISA named plan administrator and the party responsible for all plan administrative duties, are transferred from the adopting employers to the PPP.

Alternatively, the PPP can partner with other firms to outsource some of these roles.

The responsibility for investment management remains with the adopting employers unless this role is delegated to another investment fiduciary by the PPP.

The adopting employers are also responsible for the selection and oversight of the PPP and other named service providers. A PPP is also required to have a trustee with responsibility to collect contributions.

What are the advantages of offering PEPs?

A PEP is a type of Open Multiple Employer Plan (MEP) since it does not require commonality or nexus. But unlike a MEP, the start-up time and establishment process for a PEP is much easier. Offering a PEP provides numerous advantages:

PEPs could potentially offer an easy way to expand retirement coverage for millions of small businesses.

What type of company wants to become a PPP and why?

The DOL estimates that roughly 3,200 unique entities will initially register to serve as pooled plan providers. Recordkeepers and plan administrators of existing defined contribution plans are most likely to enter the market, followed by PEOs, direct annuity writers, chambers of commerce, and plan advisors.

How many companies will apply to become PPPs? How difficult will the application process be?

The SECURE Act does not limit who can act as a pooled plan provider.  The DOL expects about 3,200 initial applications to be a Triple P. This will include:

What are the pitfalls PPPs need to be aware of when administering pooled plans?

The proposed detailed registration process reflects the DOL’s concerns about potential inadequate oversight of the PPP (and any other fiduciaries and service providers) due to the significant control the PPP has over the operations of a PEPs.

As with most things, it’s all about  quality over quantity when it comes to being a PPP. We expect as many as 30 of those 3,200 firms to be very large companies; everyone else will likely be small- to medium-sized companies who may be under the impression that they can cobble their registrations together and – voila! – become a PPP with no experience operating these types of plans.

One should be wary of a firm that thinks it’s fairly easy to become a PPP; just because they know about it does not necessarily mean that they understand that there is a lot more to it than meets the eye.

What is critical for advisors and/or sponsors to know when evaluating a potential PPP?

We always suggest that they begin with the basic question—when and where do PEPs make sense? Generally speaking, PEPs are a good solution for associations or groups of businesses. PEPs may also be a good solution for employers setting up their first plans. PEPs can also be used to help aggregate business within an advisor’s retirement practice.

Many advisors will want to serve as 3(38) investment manager for PEPs. Think about the role you see for your firm. Determine if you can perform all of the duties required for this role. Consider partnering with other firms to outsource certain roles. Then, evaluate the overall opportunity.

Most critical – will the PEP create enough scale for it to be an attractive opportunity?

Start by answering these questions:

1. Who will fill the various roles?

2. What is your definition of success and how will you measure it?

3. What is your marketing/product positioning strategy?

What is the pricing structure?

What is the sales and distribution strategy?

What is your sales plan and what are their goals for the program?

What is important to know about the DOL’s proposed PPP provisions?

The DOL recently issued guidance for entities to register as a PPP. The PPP is required to initially register and has an ongoing obligation to update and supplement past filings. I’ll summarize the filing requirements under the DOL proposal:

1. Initial registration. A PPP would have to make an initial registration filing at least 30 days (but not more than 90 days) before “beginning operations” as a PPP. It should be noted that the DOL takes the position that a PPP begins operations when it begins public marketing of a PEP.

However, a PPP is not required to make the initial filing before engaging in preliminary business activities, including entering into contracts with subcontractors/partners, obtaining licenses, and communicating in order to evaluate market demand.

This initial filing would include basic identifying information about the PPP, including information about the PPP’s structure, affiliated service providers, marketing activities, PEP services, and pending legal or regulatory proceedings, and an identification and contact information for the PPP’s chief compliance officer.

The following specific information would be required to be provided in the initial registration filing of the PPP.

The DOL expects a PPP to have a call center to handle inquiries from employers interested in or already participating in a PEP as well as for participants covered by the PEP operated by the PPP

A website URL is required for a PPP to market to the public or to provide public information on a PEP. The DOL believes this will assist employers performing due diligence in selecting and monitoring PPPs.

Name, mailing address, telephone number, and email address for the primary compliance officer of the PPP.

Agent for service of legal process for the PPP and the address along with a statement that service of legal process may be made on the PPP

The approximate date when PEP operations are expected to begin. A description of administrative and investment services that will be offered or provided by the PPP, including identification of any affiliates expected to have a role in the provision of those administrative and investment services, and a description of the roles of such affiliates.

Disclosure of any federal or state criminal convictions and ongoing criminal, civil, or administrative proceedings.

2. Supplemental reports. Before a PPP initiates operations of a PEP, the PPP would be required to submit a supplemental filing for each PEP with the PEP’s name, trustee identification information, and plan EIN. A PPP must also make a supplemental filing within 30 days if there is any of the following:

3. Amended filings. The PPP would be allowed to correct inadvertent or good faith registration errors and omissions by making an amended filing within “a reasonable period of the discovery of the error or omission.”

4. Final filing. A PPP would be required to make a final filing when the PPP has ceased operating all PEPs. PPP registrations would be required to be filed electronically and would be publicly available on the DOL’s website.

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