The SECURE Act
The Setting Every Community Up for Retirement Enhancement (SECURE) Act expanded Americans’ access to retirement savings. One of its provisions created an entirely new type of multi-employer plan (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).
Pooled Plan Providers (PPPs)
The SECURE Act stipulates pooled plan providers (PPPs) will serve as a PEP’s named fiduciary, plan administrator and perform all associated administrative duties.
PPPs are responsible for all oversight of the plan. This builds upon the past decade’s trend whereby providers began taking on more 3(16) and 3(38) fiduciary responsibility.
Requirements to Become A PPP
1. Register with Department of Labor & Treasury – The DOL will issue more guidance.
2. Provide Written Acknowledgement of Named Fiduciary & Plan Administrator Status – The DOL will issue more guidance.
3. Maintain ERISA Fidelity Bonding – An ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. It protects the plan, NOT the fiduciary. This is another level of protection for small businesses.
4. Hire Trustee to Collect Contributions – This approved custodian will be responsible for collecting employers’ contributions in a timely, consistent and integrated manner.
Likely PPP Candidates
Although there are no imposed conditions on who may serve as a PPP, because of the above requirements, financial service providers are most likely to serve as PPPs. These include:
Banks
Insurance Companies
Registered Investment Advisor Firms
Third Party administrators (TPAs)
401(k) Recordkeepers
The Department of Labor will release more guidelines regarding what entities may act as a PPP.
PPPs Shift Fiduciary Responsibility
While small business owners participating in a PEP will still have a fiduciary responsibility to: select a prudent advisor, ensure said advisor’s continued prudence and retain responsibility for the selection of monitoring of the PPP, the pooled plan provider dramatically reduces their exposure to liability.
PEPs shift the real risk and administrative burden from employers who lack the time, industry-specific knowledge and resources to the PPP.
About JULY:
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://julyservices.wpengine.com.
