The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in late 2019. Designed to aid Americans’ ability to save for retirement, it enjoyed broad-based, bipartisan support in Congress. “The SECURE Act excites us here at JULY because its aim is in lockstep with our mission: building retirement security,” John Humphrey, President and CEO of JULY, says. “We enthusiastically support any legislation designed to expand Americans’ access to a more secure retirement future.”
Prior to the SECURE Act’s passage, small business owners and employees already had the option of utilizing a multiple employer plan (MEP) – a retirement savings plan shared by two or more related employers. This enabled them to lower a plan’s associated administrative costs and shift fiduciary responsibility from themselves to the plan provider. The SECURE Act sought to build upon – and slightly adjust – the MEP model’s demonstrated success in lowering costs and increasing access to retirement saving via several key provisions:
Fixed the “One Bad Apple” Rule for MEPs
Removed the “Common Nexus” Requirement
Created Pooled Employer Plans (PEPs) to be Governed by Pooled Plan Providers (PPPs)
Fixed “One Bad Apple” Rule
MEPs are not a new concept, having been around for the better part of a century now. However, many companies were justifiably hesitant to adopt them because of a risk factor beyond their control: fellow participating employers in the plan. There was a fear that “one bad apple” among the employers that comprised the MEP would shirk fiduciary responsibility (e.g. fail to make timely contributions) therefore jeopardizing the plan’s overall health.
The SECURE Act created a mechanism for spinning these “bad apples” out of MEPs while keeping the rest of the participants’ funds safe. “Small business owners and employees will find MEPs not only digestible, but appetizing now that this safeguard is in place,” Blake Willis, COO of JULY, says.
Removed “Common Nexus” Requirement
Participating employers were formerly required to be bound by a connection besides their retirement plan such as being in the same trade industry or geographic location. The SECURE Act removed this limiting “common nexus” requirement. Companies are now free to band together with fellow unrelated employers under an Open MEP for the practical, attractive benefits of lowering costs, increasing bargaining power and shifting both the administrative and/or fiduciary burden.
Created Pooled Employer Plans (PEPs)
The SECURE Act also created an entirely new type of MEP: the pooled employer plan (PEP). A PEP allows unrelated small businesses to band together under one retirement plan, hopefully creating economies of scale, which must be governed by a pooled plan provider (PPP).
Think of a MEP as a sector fund. Its representative members are confined to a single industry. A PEP, on the other hand, is more akin to a general mutual fund. Its participating employers represent many industries from a broad swath of the market.
Pooled Plan Provider (PPP)
The SECURE Act stipulates that pooled plan providers (PPPs) will serve as a PEP’s named fiduciary and plan administrator. This builds upon and legitimizes the past decade’s trend whereby providers began taking on more 3(16) and 3(38) fiduciary responsibility.
While small business owners participating in a PEP will still have a fiduciary responsibility to choose a prudent advisor and ensure said advisor’s continued prudence, the PPP dramatically eases their exposure to liability. “The SECURE Act settles the question of whom top-level fiduciary responsibility belongs to,” Willis says. “It is definitively the province of the PPP.”
The professionals at JULY have a proven track record of providing 3(16) fiduciary services, and are well-positioned to enter the PEP market. The retirement plan industry awaits specific regulatory language about the SECURE Act’s provisions from the DOL. JULY is actively monitoring developments to ensure our products and services take full advantage of the Act’s many beneficial provisions.
"Small business owners will spend much of 2020 rebuilding their businesses as a result of the economic hit they incurred from COVID-19. However, one thing the pandemic hasn’t changed is this: providing employees with access to solid retirement security options is one of the best ways for small business owners to demonstrate they care about their employees’ wellbeing,"– Humphrey says.
If the pandemic has brought anything into perspective, it’s how invaluable savings are during times of uncertainty. PEPs should provide a measure of comfort for small business owners and employees seeking to build retirement security.
JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website. https://www.julyservices.com .