We’ve probably all had our fill of the innumerable webinars and other productions related to the SECURE Act.  But we are likely to hear more as the statute is “unpacked.” You see, the SECURE Act is really a bit unusual when compared to other major pieces of retirement plan legislations in the past  like PPA, GUST or  EGTRRA, because it introduces a significant number of new technical concepts without a whole lot of detail. Many of the  provisions do not have real immediate affects on the day to day operation of an employer’s plan (though those changes will be impactful down the road). Think, in particular, of terms like the Lifetime Income Portability Rules, and how they might work; or how to pull off the distribution of the 403(b) custodial contract; or just was does that “fiduciary safe harbor” on the purchase of annuity contracts mean, in practice, to my plans?

The one topic which seems to be on the forefront of a significant number of professionals, however, is the attempt to make sense of the new MEP and PEP rules. This is especially so because they follow so closely on the Association Retirement Plan regs finalized by the DOL and the “Unified Plan (“bad apple”) rule proposed by the IRS.  These commentators seem to be taking a common misstep, however:  it seems like (with rare exception) that each of these analyses are missing the assessment of the use of the “Group of Plans,”or “GoP”, in relation to MEPs and PEPs.

What is a “Group of Plans”which I’m referring to as a “GoP” and for which- as Mark Iwry points out- the “o” is NOT capitalized (and I suppose they could be called “Section 202 Arrangements”  after Section 202 of the SECURE Act which introduced the concept), and why does it matter?

The answer is pretty straightforward: technology enabled plan aggregation (ok, ok, I’ll admit, there’s nothing simple about “technology aided aggregation,” but at least the concept is simple). First, you ask why you would want to do a MEP or a PEP in the first place? Well, its because you want all of those things that scale brings: centralized, cost-effective fiduciary expertise; institutionally priced investments down-market; consolidated plan administration; and a few other things.  MEPs and PEPs both clearly bring those things, but they are not the “silver bullet” answer to bringing scale. There is also an alternative that those involved in these things should consider if they bring the same results.

Take a few minutes to read  closely the definition of a GoP at SECURE Section 202:

PLANS DESCRIBED.—A group of plans is described in this subsection if all plans in the group— (1) are individual account plans or defined contribution plans (as defined in section 3(34) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(34)) or in section 414(i) of the Internal Revenue Code of 1986); (2) have— (A) the same trustee (as described in section 403(a) of such Act (29 U.S.C. 1103(a))); (B) the same one or more named fiduciaries (as described in section 402(a) of such Act (29 U.S.C. 1102(a))); (C) the same administrator (as defined in section 3(16)(A) of such Act (29 U.S.C. 1002(16)(A))) and plan administrator (as defined in section 414(g) of the Internal Revenue Code of 1986); and H. R. 1865—630 (D) plan years beginning on the same date; and (3) provide the same investments or investment options to participants and beneficiaries. A plan not subject to title I of the Employee Retirement Income Security Act of 1974 shall be treated as meeting the requirements of paragraph (2) as part of a group of plans if the same person that performs each of the functions described in such paragraph, as applicable, for all other plans in such group performs each of such functions for such plan.

After you read it  you may want to say “good grief!” Technology today permits anyone who wants to make the appropriate investment in data aggregation to effectively mimic a MEP or a PEP, with the sole difference being that you could not get around the notion that each of the “aggregated plans” would have to file a separate Form 5500 because, unlike a PEP or MEP, they are each still individualized plans. Sec 202 takes care of that: as long as you are a defined contribution plan  (note the breadth of the definition picks up 403(b) plans, and permits non-ERISA and ERISA plans to join the same program); have the same trustee/custodian; and have the same investment options, you can file a single consolidated Form 5500 for all plans in that same arrangement. Now, there are a number of key elements that need to be put into play to make this work, including negotiating with the investment vendors, but it really falls into the sweet spot of many TPAs who often oppose the PEP or MEP.

A GoP needs no “bad apple” rule; it does not suffer from the trials of having to disgorge a plan from the central plan; and you need not be concerned about the impact dealing with the ambiguity of the rules surrounding MEPS and PEPs-and we all are well familiar with the way single plans work….

So, before leaping into the MEP/PEP abyss, first ably review whether a GoP suits your needs better.

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-Bob