MEPs and PEPs How They Compare
The new Pooled Employer Plans (PEPs) are basically MEPs for everyone else. Take a look at some of their unique features.
MEP or PEP?
Multiple employer plans have existed for decades and have been a great solution for companies that were part of an association or part of a PEO. They provided huge economies of scale, professional plan management, and the ability to offload a ton of fiduciary liability at a great price. Reduced work and less liability with better services and better pricing made MEPs a great option for companies that were lucky enough to have access to a MEP. But access was very limited since the regulations required that all the companies that participated in the MEP had an “employer nexus” like being a member of an existing employer association or having a co-employment relationship with a PEO.
But now the SECURE Act has made a MEP-like arrangement available to all companies and eliminated the requirement that the participating employers have an employer nexus. Called Pooled Employer Plans or PEPs, they allow different companies to participate in the same retirement plan and realize all the benefits that MEPs have enjoyed. Take a look at some of the similarities and differences between MEPs and PEPs.
In the PEP world, a Pooled Plan Provider (PPP) effectively replaces the Plan Sponsor as the named plan fiduciary and is responsible for plan administration, ensuring that ERISA’s bonding requirements are met, and filing the annual 5500. In the PEP world, while many things are still evolving, the PPP will more likely be a professional service provider (like BlueStar or a trusted advisor or retirement consultant).
In traditional MEPs, the plan sponsor would typically be one of the lead employers, like the PEO or the association itself.
In the PEP world, decisions about investment options could sit with the PPP, a different entity, or remain with the participating employers. Depending on the structure of the PEP, it is possible that there may be more than one investment option within the PEP so that all participating employers do not share the same menu.
In the traditional MEP or single employer plan world, investment decisions typically rested with the Plan Sponsor. The Plan Sponsor could delegate that authority to a 3(38) Investment Manager, but it started with the plan sponsor.
While sharing many common features with MEPs, PEPs do have a unique governance structure that is not currently anticipated within readily available documents. The document will need to explain the different roles for the entities, including designating the pooled plan provider and one or more trustees responsible for collecting contributions and holding assets.
Since MEPs have been around for a while, there are a variety of plan document options, including pre-approved Volume Submitter documents.
For PEPs, any private company looking for a great retirement plan is a potential participating employer. The participating employer, however, will be responsible for selecting which PEP to join. Therefore, it will be important that participating employers are provided great information about the pricing, services, and qualifications of the service providers, so they can make an informed decision.
For traditional MEPs, participating employers were a “closed” group since they had to be part of the association or clients of the PEO.
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