Pooled Employer Plans (PEPs) are soon coming to a theater near you. A PEP is a new kind of MEP brought to you by the SECURE Act, which will permit unrelated employers to participate in the same plan. These new types of plans will become available January 1, 2021, but a lot of work needs to be done between now and then in order to make the PEP a reality. The DOL especially has a heavy lift here, as there is a multitude of questions which need to be answered for these things to actually work.
Key among all of the unanswered questions is how all of the players in a PEP are going to be able to get paid. There’s the Pooled Plan Provider, the investment manager, the investment platform, the plan administrator (if it’s not the PEP), and, of course, distribution. A PEP will not work unless there is comp.
Compensation related to ERISA plans is governed by what I call the “squat rule”-as in you can’t get paid “diddly-squat” under ERISA unless it is permitted by a prohibited transaction exemption (a “PTE”). PTEs are either found in ERISA itself; issued under published regulations by the DOL; or granted by administrative fiat by the DOL (there are either individual or “class” exemptions). As you can imagine, there is a substantial body of prohibited transactions which has grown over the years to accommodate all sorts of ERISA plan relationships.
Normally, all of the players in any ERISA plan’s life cycle operates under any number of these well-established PTEs. However, in that the PEP is a new sort of arrangement, it is not entirely clear that these existing PTEs will be sufficient to pay all of the PEP players. To address this crucial issue, the DOL has issued a Request for Information on June 18 to gather information on what further, if any, PTE relief will be needed to make the PEP work. There is a 30-day response window, which makes all the sense in the world given that time is getting short before the January 1 PEP effective date.
There are two noteworthy developments related to these efforts. The first is the ARA/ASPPA letter to EBSA requesting PTE relief for PEP operatives. The second, and perhaps more striking development, is the letter Congressman Neal wrote to the EBSA opposing the loosening of the prohibited transaction rules for PEPs. I invite you to read these two opposing views, as how this is resolved will ultimately determine who can offer a PEP and who cannot.
I will be submitting my own comment to the DOL in response to the RFI as well. My initial view, however, is that while exploring whether further PTEs are needed is an important step in the regulatory process, this effort may be premature-or even unnecessary. Whether or not a PTE is needed will largely hinge on other clarification from the DOL on the nature of the roles of the Pooled Plan Provider, the participating employers, and the named fiduciaries to who authority under a PEP will be delegated. How these are answered may well address the concerns raised by both Rep. Neal and the ARA.