Pooled Employer Plans Start to Enter Pension Market
By Mark Johnson, Ph.D., J.D.
Leaders in the pension and retirement industry are starting to offer "pooled employer plans" (PEP) to small and medium-sized businesses that want to offer pension benefits to employees. The PEP is a new type of multiple employer plan (MEP), which must be administered by a "pooled plan provider" (PPP).
A PEP is a new pension offering made possible by The SECURE Act of 2019, also known as Setting Every Community Up for Retirement Enhancement. The Act amended the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to allow the new pension option.
Under a pooled employer plan, unrelated small businesses can now offer defined contribution pension plans to employees by banding together with other employers. PEP benefits to the employer can include lower fees, streamlined administration, as well as easier reporting and compliance. The new plans are also projected to reduce litigation and fiduciary risk.
Major Investment Firms Offer PEP Plans in 2021
Pension and benefits industry leaders are at the forefront in offering new pooled employer plans and services. Early entrants into the market are listed below.
• Fidelity Investments started offering the Fidelity Advantage 401(k) pooled employer plan on January 21, 2021. The program is initially limited to small companies, defined as five to 50 employees, that did not previously offer any pension benefits. The qualifying employer size is expected to broaden over time. Fidelity will serve as the pooled plan provider, record keeper, trustee, 3(16) plan administrator, and 3(38) investment manager.
• Paychex, Inc. is offering to serve as both plan sponsor and formal plan administrator for PEPs targeted to its 680,000 payroll clients. These small to medium sized businesses can now tap Paychex to handle plan set-up, implementation, monitoring, enrollment, and other duties. Mesirow Financial will serve as the 3(38) investment manager of the PEP and Mid Atlantic Trust Company will serve as the trustee.
• Principal Financial Group ® announced in November 2020 that is offering Principal® EASE, a pooled employer plan that combines integrated retirement plan administration, customer service, and investment management capabilities. The service targets employer plans from start-up to $10 million in assets under management. National Benefit Services, LLC will serve as the third-party administrator and Wilshire® as the investment fiduciary.
• Aon plc launched its pooled employer plan in January 2021 with two employers and is scheduled to add three additional clients through April. Voya Financial provides full-service record keeping for all employers. Aon projects that the majority of U.S. employers will merge their traditional 401(k)s into pooled employer plans over the next 10 years.
• NPPG, Inc., a retirement benefits and consulting firm that works with 4,000 plan sponsors, announced in February 2021 that it is expanding its employer retirement plan offerings to include service as a pooled plan provider (PPP). Its initial client is the Lockton Companies, LLC (Northeast Series) Pooled Employer Plan (PEP), EZ Flex 401(k). NPPG will serve as the pooled plan provider (PPP) and 3(16) Administrative Fiduciary.
Small Employers Evaluate Benefits of PEPs
Only 55 percent of workers employed by small businesses (defined as 1-99 workers) have access to retirement benefits, according to the U.S. Bureau of Labor Statistics. The SECURE Act offers small employers the following benefits:
• The pooled plan provider is the plan sponsor and relieves the employer of significant fiduciary liability.
• Responsibility for audits is assumed by the pooled plan provider, potentially saving employers $10,000-$20,000 annually.
• Pension benefits can now be offered to employees who otherwise might not be able to save for retirement, thereby enhancing employee satisfaction and retention.
Some employer groups are actively pursuing new retirement plan options. One is the Small Business Association of Michigan, with over 28,000 small business members. SBAM is searching for pooled plan providers. The organization has issued three requests for proposal (RFPs): one for eligible record keepers, one for third-party administrators, and one for ERISA 3(16) fiduciaries. The group hopes to offer a PEP to member companies later this year or in early 2022.
Pooled Employer Plans versus Multiemployer Pension Plans
The pooled employer pension plan is not to be confused with "multiemployer" pension plans, which are defined benefit plans that are created through one or more collective bargaining agreements (CBA) between employers and one or more employee organizations or unions. Up to 10 million American workers participate in 1,400 multiemployer defined benefit pension plans.
Also separate from the pooled employer plan and the multiemployer plan is the "multiple employer pension plan" (MEPP). A "multiple employer" plan is a 401(k)-type defined contribution plan maintained by more than one employer but no collective bargaining agreement.
About Pension and ERISA Expert Mark Johnson
Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or www.erisa-benefits.com.
ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.
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