PLANADVISER - January/February 2020 - 46

compliance consult
David Kaleda
MEPs and PEPs
Effective means to broaden retirement plan access
PREVIOUSLY, I wrote in this column that excellent opportunities
to establish multiple employer plans (MEPs) were
forthcoming due to pending regulatory and legislative
action. Those opportunities have finally arrived. They are
included in the final regulation promulgated by the Department
of Labor (DOL) expanding the availability of association
MEPs and Congress' enactment of a spending bill that
contains the provisions of the Setting Every Community
Up for Retirement Enhancement (SECURE) Act, which also
provides for pooled employer plans (PEPs).
In response to President Donald Trump's Executive Order
13847 calling for the DOL to increase access to workplace
retirement plans, last July the agency issued a final regulation
expanding its interpretation of a " bona fide association. "
First, the DOL broadened its commonality of interest
requirements found in prior MEP guidance. The final regulation
requires that employers participating in the plan
either: 1) be " ... in the same trade, industry, line of business
or profession ..., " or 2) have " a principal place of business in
the same region that does not exceed the boundaries of a
single state or a metropolitan area (even if the metropolitan
area includes more than one state). "
Additionally, the regulation provides that a bona fide
association exists so long as plan sponsors engage in at
least one common activity other than providing employee
benefits, even if the association's primary purpose was to
provide benefits. Finally, the DOL broadened the definition of
" employee " to include sole proprietors so that plans otherwise
intended to meet the regulation could be made available to
sole proprietors.
In some respects, the regulation broadened the availability
of MEPs, particularly association MEPs, but not as
much as many advisers had wished. For example,
local
chambers of commerce could now create an association
MEP for their members, which generally are small businesses-including
sole proprietorships-in a geographic
or metropolitan area. However, the DOL specifically stated
that a bona fide association could not be a financial services
company-e.g., bank, adviser, broker/dealer (B/D)-thus
prohibiting such companies from sponsoring the MEP.
Further, the regulation did not go so far as to allow for
open MEPs. And, finally, last year, a federal district court, in
New York v. U.S. Department of Labor, in reviewing the DOL's
association health plan regulation, stated that it too broadly
interpreted the terms " employee benefit plan, " " employer "
and " employee organization. " Thus, the DOL struck down a
good portion of that regulation. The court's decision has led
some to be concerned that the association retirement plan
regulation is also subject to legal challenge on such grounds.
The SECURE Act, beginning in 2021, allows for the creation
of PEPs, which are closer to the open MEPs many advisers had
envisioned making available to employers. A PEP is a single
plan under the Employee Retirement Income Security Act
(ERISA) and need file only one Form 5500 and receive only one
annual audit by an independent Certified Public Accountant
(CPA). There need not be a commonality of interests among
the employers that participate, and the PEP's sole purpose is
to provide employee retirement benefits.
The PEP also may be offered by a pooled plan provider and
may be an adviser or other financial institution. The pooled
plan provider acts as the PEP's plan administrator and may
act as the plan's named fiduciary for purposes of ERISA,
effectively assuming those responsibilities from the participating
employers. For the adviser, to manage and administer
a single PEP could be much more efficient than managing and
administering multiple, small retirement plans.
In deciding whether and how to implement a PEP, advisers
should consider a number of issues. For example, participating
employers act as fiduciaries in selecting and monitoring any
party that acts as the PEP's named fiduciary; thus, employers
likely will evaluate a number of pooled plan providers before
selecting a PEP. Also, the PEP must have a trustee that is a
financial institution responsible for collecting plan contributions
and assuring plan assets are held in trust. The PEP
must be registered and meet a number of requirements in
the statute, which will be affected by future DOL and Treasury
regulations and guidance.
Moreover, advisers who offer a PEP may wish to use affiliates
to provide services to it and offer proprietary investment
products as investment options under it. Doing so raises
complex fiduciary and prohibited transaction issues that
must be addressed.
In view of the opportunities both plans present, advisers
and other providers should look carefully at these options
and determine how they might offer them to their clients.
David Kaleda is a principal in the fiduciary responsibility practice group
at Groom Law Group, Chartered, in Washington, D.C. He has an extensive
background in the financial services sector. His range of experience
includes handling fiduciary matters affecting investment managers,
advisers, broker/dealers, insurers, banks and service providers. He served
on the DOL's ERISA Advisory Council from 2012 through 2014.
46 | planadviser.com January-February 2020
Art by Tim Bower
http://www.planadviser.com
PLANADVISER - January/February 2020

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