Proposed Rule2025-14281
Pooled Employer Plans: Big Plans for Small Businesses
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 29, 2025
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains limited interpretive guidance to help small employers select high-quality, low-cost "pooled employer plans" or "PEPs." This document also solicits information about prevailing pooled employer plan market practices. The Department will consider the responses as part of a process aimed at developing a potential regulatory safe harbor or safe harbors that comprehensively encourage market participants to offer and employers to join such plans. These efforts, taken pursuant to President Trump's January 20, 2025, Memorandum titled "Delivering Emergency Price Relief for American Families and Defeating the Cost-of-Living Crisis," are designed to reduce investment costs for workers saving for their retirement, thereby improving their lives. These efforts also will help small employers provide more attractive benefits to potential hires, drawing discouraged workers into the labor force.
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 143 (Tuesday, July 29, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 143 (Tuesday, July 29, 2025)]
[Proposed Rules]
[Pages 35646-35652]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14281]
[[Page 35646]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2510, 2520, 2550
RIN 1210-AC10
Pooled Employer Plans: Big Plans for Small Businesses
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Guidance and request for information.
-----------------------------------------------------------------------
SUMMARY: This document contains limited interpretive guidance to help
small employers select high-quality, low-cost ``pooled employer plans''
or ``PEPs.'' This document also solicits information about prevailing
pooled employer plan market practices. The Department will consider the
responses as part of a process aimed at developing a potential
regulatory safe harbor or safe harbors that comprehensively encourage
market participants to offer and employers to join such plans. These
efforts, taken pursuant to President Trump's January 20, 2025,
Memorandum titled ``Delivering Emergency Price Relief for American
Families and Defeating the Cost-of-Living Crisis,'' are designed to
reduce investment costs for workers saving for their retirement,
thereby improving their lives. These efforts also will help small
employers provide more attractive benefits to potential hires, drawing
discouraged workers into the labor force.
DATES: To be assured consideration, comments must be received at one of
the following addresses no later than September 29, 2025.
ADDRESSES: The Employee Benefits Security Administration (EBSA)
encourages interested persons to submit their comments on this request
for information online. You may submit comments, identified by RIN
1210-AC10, by either of the following methods:
Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the
instructions for submitting comments.
Mail: Office of Regulations and Interpretations, Employee Benefits
Security Administration, Room N-5655, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210, Attn: Pooled Employer
Plans: Big Plans for Small Businesses Regulation RIN 1210-AC10.
Instructions: All submissions must include the agency name and
Regulatory Identifier Number RIN 1210-AC10 for this request. If you
submit comments online, do not submit paper copies. All comments
received will be posted without change on <a href="https://www.regulations.gov">https://www.regulations.gov</a>
and <a href="https://www.dol.gov/agencies/ebsa">https://www.dol.gov/agencies/ebsa</a> and will be made available for
public inspection at the Public Disclosure Room, N-1513, Employee
Benefits Security Administration, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210.
Warning: Do not include any personally identifiable or confidential
business information that you do not want publicly disclosed. Comments
are public records that are posted online as received and can be
retrieved by most internet search engines.
FOR FURTHER INFORMATION CONTACT: Scott Ness, Office of Regulations and
Interpretations, Employee Benefits Security Administration, (202) 693-
8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
In this document, the Department is taking initial steps to build
on positive market developments to help small employers join high-
quality, low-cost retirement plans called pooled employer plans (PEPs)
and provide more attractive benefits to workers and potential hires.
Because PEPs are relatively new, small employers may be unaware of
PEPs, or may not understand the Employee Retirement Income Security Act
of 1974 (ERISA) standards applicable to them. The Department hopes to
address challenges such as these which may impede small employers from
taking advantage of PEPs. In addition to promoting retirement savings
and reducing participant costs, expanding the use of PEPs is aligned
with the Department's broader economic goals, including improving job
quality and increasing labor force participation, especially at small
businesses. Section II of this document provides a general description
of the ERISA framework applicable to PEPs. Section III contains limited
observations of the PEP marketplace made by the Department based on
reports filed with the agency. Section IV provides limited interpretive
guidance to help small employers understand their responsibilities as
fiduciaries in connection with joining a PEP. Section V includes a set
of ``tips'' to assist small employers in selecting a PEP. Section VI
solicits information about prevailing PEP practices, responses to which
will be considered as a possible basis for a regulatory safe harbor
that encourages market participants to offer and employers to join such
plans. Section VII seeks input on information to assist the Department
in developing the report to Congress required by section 344 of SECURE
2.0.
II. Background
Statutory Authorization for Pooled Employer Plans
Under ERISA, an employee benefit plan (whether a pension plan or a
welfare plan) must be sponsored by an employer, by an employee
organization, or by both. Section 3(5) of ERISA defines the term
``employer'' for this purpose as ``any person acting directly as an
employer, or indirectly in the interest of an employer, in relation to
an employee benefit plan, and includes a group or association of
employers acting for an employer in such capacity.''
By regulation, 29 CFR 2510.3-55, the Department of Labor
(Department) has interpreted the definitional provisions of ERISA to
permit a multiple employer plan (MEP) to be established or maintained
by a bona fide group or association of employers or by a bona fide
professional employer organization. Although that regulation clarified
and expanded the types of arrangements that can be treated as MEPs
under Title I of ERISA, it does not extend to so-called ``open MEPs.''
The term ``open MEP'' generally refers to a single defined contribution
retirement plan that covers employees of multiple unrelated
employers.\1\
---------------------------------------------------------------------------
\1\ See generally Request for Information titled `` `Open MEPs'
and Other Issues Under Section 3(5) of the Employee Retirement
Income Security Act'' at 84 FR 37545 (July 31, 2019) (referring to
``open MEPs'' as single defined contribution retirement plans that
cover employees of multiple unrelated employers).
---------------------------------------------------------------------------
The Setting Every Community Up for Retirement Enhancement Act of
2019 (SECURE Act) removed possible legal barriers to the broader use of
multiple employer plans by authorizing a new type of ERISA-covered
defined contribution retirement plan--a ``pooled employer plan''
operated by a ``pooled plan provider.'' \2\ The SECURE Act added
sections 3(43) and 3(44) of ERISA to define and authorize these pooled
employer plans, which offer benefits to the employees of multiple
unrelated employers without the need for any commonality among the
participating employers or other genuine organizational relationship
unrelated to participation in the plan, thus enabling
[[Page 35647]]
a type of open MEP.\3\ A pooled employer plan arrangement can allow
most of the administrative and fiduciary responsibilities of sponsoring
a retirement plan to be transferred to a pooled plan provider.
Therefore, a pooled employer plan can offer employers, especially small
employers, an efficient workplace retirement savings option with
reduced burdens and costs compared to sponsoring their own separate
retirement plan. New section 3(44) of ERISA establishes requirements
for pooled plan providers, including a requirement to register with the
Department and the Department of the Treasury before beginning
operations as a pooled plan provider. The effective date for these
provisions allowed ``pooled employer plans'' to begin operating on or
after January 1, 2021.
---------------------------------------------------------------------------
\2\ The SECURE Act was enacted as Division O of the Further
Consolidated Appropriations Act, 2020 (Pub. L. 116-94) (December 20,
2019).
\3\ See also ERISA section 3(2)(C) providing that a pooled
employer plan shall be treated as a single pension plan.
---------------------------------------------------------------------------
Statutory Requirements for Pooled Employer Plans
Under section 3(2) of ERISA, which defines the term ``pension
plan'' generally,\4\ a pooled employer plan is treated for purposes of
ERISA as a single pension plan that is a multiple employer plan. A
pooled employer plan, in turn, is generally defined in section 3(43)(A)
as a plan which is an individual account plan established or maintained
for the purpose of providing benefits to the employees of two or more
employers.\5\ A pooled employer plan may be a plan described in section
401(a) of the Internal Revenue Code (Code) which includes a trust
exempt from tax under section 501(a) of such Code or in section 403(a)
of the Code. A pooled employer plan may also be a plan that consists of
annuity contracts described in section 403(b) of such Code. The terms
of the pooled employer plan must meet certain statutory requirements
described below.
---------------------------------------------------------------------------
\4\ Section 3(2)(A) of ERISA, in relevant part, defines a
``pension plan'' to mean ``any plan, fund, or program . . .
established or maintained by an employer or by an employee
organization, or by both, to the extent that by its express terms or
as a result of surrounding circumstances such plan, fund, or program
(i) provides retirement income to employees, or (ii) results in a
deferral of income by employees for periods extending to the
termination of covered employment or beyond . . . .'' Section
3(2)(C) of ERISA, in relevant part, provides that a ``pooled
employer plan shall be treated as--(i) a single employee pension
benefit plan or single pension plan; and (ii) a plan to which
section 210(a) applies.''
\5\ The term ``pooled employer plan'' does not include a
multiemployer plan or plan maintained by employers that have a
common interest other than having adopted the plan. The term also
does not include a plan established before the date the SECURE Act
was enacted unless the plan administrator elects to have the plan
treated as a pooled employer plan and the plan meets the ERISA
requirements applicable to a pooled employer plan established on or
after such date.
---------------------------------------------------------------------------
Section 3(43)(B) of ERISA specifically provides that the terms of
the pooled employer plan must contain certain requirements. For
instance, the plan terms must designate a ``pooled plan provider'' and
provide that the pooled plan provider is a named fiduciary of the plan.
The terms of the plan also must designate a named fiduciary (other than
an employer in the plan) to be responsible for collecting contributions
to the plan and require such fiduciary to implement written
contribution collection procedures that are reasonable, diligent, and
systematic.
Section 3(43)(B)(iii)(I) of ERISA provides that the terms of the
plan must provide that each employer in the plan retains fiduciary
responsibility for the selection and monitoring, in accordance with
ERISA fiduciary requirements, of the person designated as the pooled
plan provider and any other person who is designated as a named
fiduciary of the plan. Subparagraph (II) of this section also provides
that each employer in the plan retains fiduciary responsibility for the
investment and management of the portion of the plan's assets
attributable to the employees of that employer (or beneficiaries of
such employees) in the plan to the extent not delegated to another
fiduciary by the pooled plan provider and subject to the ERISA rules
relating to self-directed investments.
Section 3(43)(B)(iv) of ERISA states that the terms of the plan
must provide that employers in the plan, and participants and
beneficiaries, are not subject to unreasonable restrictions, fees, or
penalties with regard to ceasing participation, receipt of
distributions, or otherwise transferring assets of the plan in
accordance with applicable rules for plan mergers and transfers.
Section 3(43)(B)(v) of ERISA provides that the terms of the plan
must require the pooled plan provider to provide to employers in the
plan any disclosures or other information that the Secretary of Labor
(Secretary) may require, including any disclosures or other information
to facilitate the selection or monitoring of the pooled plan provider
by employers in the plan. This section also requires each employer in
the plan to take any actions that the Secretary or pooled plan provider
determines are necessary to administer the plan or to allow for the
plan to meet the ERISA and Code requirements applicable to the plan,
including providing any disclosures or other information that the
Secretary may require or which the pooled plan provider otherwise
determines are necessary to administer the plan or to allow the plan to
meet such ERISA and Code requirements.
Section 3(43)(B)(vi) provides that any disclosure or other
information required to be provided to participating employers may be
provided in electronic form and must be designed to ensure that only
reasonable costs are imposed on pooled plan providers and employers in
the plan.
Pooled Plan Provider Defined
A pooled plan provider with respect to a pooled employer plan is
defined in ERISA section 3(44) to mean a person that is designated by
the terms of the plan as a named fiduciary under ERISA, as the plan
administrator, and as the person responsible to perform all
administrative duties (including conducting proper testing with respect
to the plan and the employees of each employer in the plan) that are
reasonably necessary to ensure that the plan meets the Code
requirements for tax-favored treatment and the requirements of ERISA
and to ensure that each employer in the plan takes such actions as the
Secretary or the pooled plan provider determines necessary for the plan
to meet Code and ERISA requirements. Such actions may include providing
to the pooled plan provider any disclosures or other information that
the Secretary may require or that the pooled plan provider otherwise
determines are necessary to administer the plan or to allow the plan to
meet Code and ERISA requirements.
Section 3(44) specifically provides that a pooled plan provider
must acknowledge in writing its status as a named fiduciary under ERISA
and as the plan administrator. In addition, this section also provides
that the pooled plan provider is responsible for ensuring that all
persons who handle plan assets or who are plan fiduciaries are bonded
in accordance with ERISA requirements.\6\
---------------------------------------------------------------------------
\6\ The SECURE Act requires that pooled plan providers must
ensure that all plan fiduciaries and other persons who handle plan
assets are bonded in accordance with section 412 of ERISA. In the
Department's view, the SECURE Act confirms the application of ERISA
section 412 requirements to pooled employer plans, except that the
Act establishes $1,000,000 as the maximum bond amount as compared to
$500,000 for plans that do not hold employer securities. Thus, the
normal section 412 rules for ERISA plans govern the bonding
requirements for pooled employer plans and the pooled plan provider
is subject to the provisions of ERISA section 412(b), which provides
that ``it shall be unlawful for any plan official of such plan or
any other person having authority to direct the performance of such
functions, to permit such functions, or any of them, to be performed
by any plan official, with respect to whom the requirements of
subsection (a) [of ERISA section 412] have not been met.'' See 29
CFR 2550.412-1, 29 CFR part 2580; see also Field Assistance Bulletin
2008-04 (providing a general description of statutory and regulatory
requirements for bonding). The Department does not read the SECURE
Act as broadening the section 412 bonding rules to apply to persons
who do not handle plan assets, funds or other property within the
meaning of section 412. Similarly, the existing statutory and
regulatory exemptions for certain banks, insurance companies, and
registered broker-dealers continue to apply.
---------------------------------------------------------------------------
[[Page 35648]]
Section 3(44) also requires the pooled plan provider to register
with the Secretary, and to provide to the Secretary such other
information as the Secretary may require, before beginning operations
as a pooled plan provider. In the Department's view, the primary
purpose of the registration requirement is to provide the Department
with sufficient information about persons acting as pooled plan
providers to engage in effective monitoring and oversight of this new
type of ERISA-covered retirement plan. In 2020, the Department
published a final rule, titled Registration Requirements for Pooled
Plan Providers, to enable pooled plan providers to register with the
Department.\7\
---------------------------------------------------------------------------
\7\ 85 FR 72934 (Nov. 16, 2020); 29 CFR 2510.3-44 (Registration
Requirement to Serve as a Pooled Plan Provider to Pooled Employer
Plans).
---------------------------------------------------------------------------
To meet the registration requirements set forth by section 3(44),
pooled plan providers must file a Form PR prior to beginning
operations, as well as upon other events, such as when new PEPs are
added or terminated, to amend or correct previously submitted
registration information, or to signal that the pooled plan provider is
ceasing operations.
Though the Form PR data provides important information about the
universe of pooled plan providers, the Department relies on a
combination of the Form PR and the Form 5500, Annual Return/Report of
Employee Benefit Plan, submitted for each PEP to determine the number
of PEPs, along with information about the participants and assets of
those plans.
As reported through Form PR filings, 142 unique pooled plan
providers remained registered with the Department as of the end of
calendar year 2023. By matching Form 5500 data for the plan year ending
in 2022 with data from the Form PR registrations, the Department has
identified 190 PEPs in operation, which reported approximately 618,000
participants and nearly $5 billion in assets.
III. Common Elements of Effective PEPs
In advance of this RFI, the Department analyzed 2023 Form 5500
filings because these reports were the first to require new information
about the number of participating employers in a PEP. While the 2023
Form 5500 data may not be fully complete, it does include all PEPs that
filed a 2022 Form 5500 and reported more than $100 million in assets
and offers a reasonable dataset to assess the nascent PEPs marketplace.
The PEPs market was highly concentrated according to the 2023
filings. The 12 largest PEPs identified by assets under management held
nearly 70% of all PEP assets and the 4 largest PEPs held more than 40%
of all PEP assets.\8\ However, upon review, the Department found that
these 12 PEPs show a diversity of business models and serve different
kinds of employers. For example, the largest of these 12 PEPs held
$1.68 billion in assets in 2023 but only served 63 employers and
approximately 56,000 participants. The next largest PEP as of 2023 held
$1.08 billion in assets but served 33,773 employers and approximately
538,000 employees. More broadly, the average number of participants per
participating employer in each of these 12 PEPs ranged from 16 to 884,
with half of the PEPs serving employers that averaged at least 188
participants per participating employer.
---------------------------------------------------------------------------
\8\ These calculations were based on data pulled on February 7,
2025, and subsequent or amended filings could result in different
results.
---------------------------------------------------------------------------
Many of these PEPs appeared to be delivering on Congressional
intent by offering diversified investment lineups at a lower cost than
small plans could likely negotiate on their own behalf. For example,
Morningstar finds that the median total cost for each participant in a
small retirement plan is 84 basis points, accounting for likely
investment expenses and other administrative costs charged directly to
participants. In contrast, based on the same data source, the
Department estimates that the total costs to participate and invest
through one of the three largest PEPs reviewed were between 23 and 42
basis points for a typical participant in 2023.
In fact, some of these 12 PEPs have gathered enough assets to
access investment types that would typically be inaccessible to small
plans, such as collective investment trusts (CITs) and separately
managed accounts. These CITs are almost always cheaper than similar, or
even identical strategies, offered as registered open-end mutual
funds.\9\ A 2023 report by Morningstar found that retirement plans with
less than $25 million in assets held less than 10% of their assets in
CITs.\10\ In contrast, more than 40% of the largest 12 PEPs' assets are
held in CITs; however, 5 PEPs held no CIT assets at all. Of the 7 PEPs
holding CITs, the median percent of assets in CITs was 65%, but the
minimum was just 1% of assets.
---------------------------------------------------------------------------
\9\ Mitchell, Lia, 2023 Retirement Plan Landscape Report: An In-
Depth Look at the Trends and Forces Reshaping U.S. Retirement Plans
(April 2023), <a href="https://www.morningstar.com/lp/retirement-plan-landscape-2023">https://www.morningstar.com/lp/retirement-plan-landscape-2023</a>. Morningstar finds that CITs are generally half the
cost of registered open-end mutual funds and that CITs are cheaper
88% of the time compared to mutual funds.
\10\ Ibid.
---------------------------------------------------------------------------
Most--although not all--of the 12 PEPs we examined offered limited
investment lineups that appear to be designed to be accepted in their
entirety by participating employers. These lineups generally covered
major asset classes without overwhelming participants by offering
overlapping or arcane designated investment alternatives. (These
limited lineups could also help PEPs gather enough assets in specific
pooled investment strategies to gain the scale necessary to lower costs
for participants.) The median number of funds offered by these PEPs was
17 designated investment alternatives, not including target-date funds
(TDFs).
All but one of the largest PEPs offered TDFs, and collectively
participants invested the majority of their assets in these vehicles.
Fifty-eight percent of assets among the largest PEPs were invested in
TDFs. TDFs can be a simple way for plan participants to reasonably
manage the asset allocation of their investment portfolio. The 12
largest PEPs hold a greater proportion of assets in TDFs than is true
of the plan universe more generally. EBSA estimates that about 30% of
401(k) plan assets are held in TDFs as of 2023. Some of this difference
may be due to the fact that some legacy plans did not offer TDFs or
automatic enrollment in the past. Nonetheless, those PEPs that the
Department reviewed appear to be successfully channeling participants
into simple, low-fee TDFs, which can help participants who do not wish
to set their asset allocation mix themselves and do not use a managed
account or other advisory service.
About half of the 12 largest PEPs that the Department reviewed
seemed to avoid investments offered by parties in interest (sometimes
referred to as ``conflicted investments''). Seven of the 12 largest
PEPs entirely avoided party-in-interest investment strategies (i.e.,
investments offered by the pooled plan provider or an affiliate)
according to Form 5500 filings. Of the other PEPs, 29% of their assets
were held in party-in-interest investments, and two of these 5 PEPs
exclusively held party-in-interest investments.
[[Page 35649]]
IV. Interpretive Guidance for Investment Selection and Management
Section 3(43)(B) of ERISA sets forth certain requirements for plan
terms relating to pooled employer plan investments. This section, in
relevant part, provides that the terms of the PEP must provide that
each employer participating in the plan ``retains fiduciary
responsibility for the investment and management of the portion of the
plan's assets attributable to the employees of the employer (or
beneficiaries of the employees).'' \11\ This provision, among other
things, unmistakably places duties of selecting and monitoring plan
investments squarely on participating employers in accordance with
ERISA's fiduciary standards, including the duties of prudence and
loyalty, rather than exclusively on the trustee of the plan as is
ordinarily the default under ERISA.\12\
---------------------------------------------------------------------------
\11\ ERISA Sec. 3(43)(B)(iii)(II).
\12\ See ERISA Sec. 403(a) (upon acceptance of being named or
appointed, the trustee or trustees shall have exclusive authority
and discretion to manage and control the assets of the plan subject
to two exceptions).
---------------------------------------------------------------------------
However, section 3(43)(B)(iii)(II) of ERISA explicitly provides
that the terms of the PEP may grant the pooled plan provider, as a
named fiduciary, the authority to delegate the investment and
management functions ``to another fiduciary.'' The statute thus allows
the pooled plan provider to transfer the investment and management
functions and obligations of participating employers to another
fiduciary. In such circumstances, the pooled plan provider, as a named
fiduciary, is subject to and must ensure compliance with sections 402,
403, 404, 405, and 406 of ERISA to effect such a transfer. Among other
things, this means that the pooled plan provider must prudently select
the fiduciary who will be performing the investment and management
functions, and the pooled plan provider also must monitor that
selection at reasonable intervals, in such manner as may be reasonably
expected to ensure that the appointment comports with the terms of the
plan and statutory standards.
If a pooled plan provider, as named fiduciary, were to appoint an
investment manager as defined in section 3(38) of ERISA, the manager
would be responsible for the prudent investment and management of the
plan's assets--not the participating employers. Further, in such
circumstances, neither the participating employers nor the pooled plan
provider would be liable for any acts or omissions of the investment
manager, except for any potential co-fiduciary liability under section
405(a) of ERISA. In the Department's view, the risk to participating
employers of fiduciary liability could be minimized greatly if the
pooled plan provider, as named fiduciary, expressly assumed full
responsibility for, and exercised sole discretion and judgment in
selecting and retaining the manager and did not attempt to reduce its
responsibility by relying on authorization or ratification from the
participating employers for the selection and retention, such as
through an adhesive participation agreement. In these circumstances,
fiduciary liability of participating employers would be minimized
because the pooled plan provider assumed full responsibility for
selecting and retaining the investment manager. This means the pooled
plan provider has the duty to directly monitor the investment manager.
Participating employers, in turn, must prudently monitor the pooled
plan provider.
V. Fiduciary Tips for Small Employers Selecting a PEP
Pending additional guidance, the Department has prepared the
following tips to assist small business owners in picking a PEP.
1. Consider what a PEP has to offer you and your employees. Unlike
establishing and maintaining your own retirement plan for just your
employees and shouldering the day-to-day operations of the plan, PEPs
can offer a turnkey retirement savings solution, managed completely by
professionals. They can also offer you economies of scale. These
features could leave you with the time you need to run your business
while simultaneously providing your employees with an opportunity to
save and achieve retirement security.
2. Make sure you understand the type of PEP under consideration.
PEPs are a relatively new type of retirement plan, and although they
all have certain things in common, they do not all operate the same
way. For example, some PEPs are straightforward and offer uniform
features to all participating employers and their employees. By
contrast, other PEPs may offer flexibility and customization. Each
approach is permissible under the law--the best fit depends on the
needs and goals of your business and employees. Once you decide on the
best fit, consider several similar PEPs before selecting one.
3. Make sure you consider the experience and qualifications of the
PPP. Federal law requires all PEPs to be administered by a person
called the ``pooled plan provider'' or ``PPP.'' Understanding the
experience and qualifications of the pooled plan provider is one of the
most important--if not the single most important--aspects of joining a
PEP. Federal law generally holds the pooled plan provider accountable
for all operations of the PEP. Therefore, it is crucial that you ask
the pooled plan provider about its experience with employee benefit
plans. Examples of relevant questions for pooled plan providers include
questions relating to the quality of their services, customer
satisfaction, prior litigation or government enforcement matters, and
whether they are registered with the Department as is required by law.
Other examples of relevant questions include queries about the number
of employers and participants in the plan and the amount of its assets,
to evaluate whether the PEP will offer economies of scale.
4. Make sure you ask questions about the PEP's fees. Operating a
PEP involves services such as trustee services, custodial services,
recordkeeping, audits, and other administrative services. Fees for
these services are often quoted on a per-participant basis or based on
the level of the employer's assets in the plan, or a combination of the
two. There may also be start-up fees. It is important to understand all
the fees and expenses that will be charged by the PEP and how they will
be allocated among participating employers and their employees'
accounts. Examples of relevant questions include asking the pooled plan
provider for a breakdown by service of all the fees and expenses
associated with joining the PEP. Also relevant is a breakdown by
service of how much the pooled plan provider (and any affiliate) gets
paid and who approves these fees and expenses. Another relevant
question is whether the pooled plan provider receives any compensation
from third parties in connection with the PEP, and whether it uses the
data from participant accounts for cross-selling activities.
5. Make sure you understand the investment options. Examples of
relevant questions include the number of fund options, whether they are
diversified, how they perform relative to their benchmarks, and whether
they have materially different risk and return characteristics. Also
relevant is who selects the funds on the menu and how often their
choices and process are reevaluated. You may want to ask about the
default investment for employees who do not direct the investment of
their account assets. TDFs have become an increasingly popular
investment option in 401(k) plans and similar employee-directed
retirement plans.
[[Page 35650]]
You may want to ask the pooled plan provider whether the PEP has TDFs.
It is also important to understand the fees associated with the
investments made available for employees. As discussed in #6 below, you
may have fiduciary responsibility for the selection of the investment
options for your employees.
6. Ask questions about your exposure to fiduciary liability for
investments. Under federal law, employers joining a PEP are legally
responsible as fiduciaries for the proper selection of investment
options for their employees unless the pooled plan provider hires an
investment professional to act as a fiduciary with respect to
investment selection. Therefore, it is very important to know whether
the PEP has a fiduciary for this purpose. If so, you may want to ask
the pooled plan provider to name the fiduciary that is responsible for
selecting the PEP's investment options and the person responsible for
selecting this fiduciary. You have fiduciary responsibility for the
investment and management of the portion of the PEP's assets
attributable to your employees if no such delegation occurred.
7. Ask questions about your exposure to fiduciary liability should
you join the PEP. Sometimes, through a subscription agreement, a PEP
may purport to disclaim ultimate fiduciary responsibility for the
service providers it hires, the fees it pays to these service
providers, and the fees it pays to itself or affiliates internally.
Therefore, an example of a relevant question is whether the PEP is
structured to assume all plan administration, management, and operation
functions. Put differently, you may want to ask whether the PEP's
governing documents put any fiduciary duties on you.
8. Don't forget to monitor your PEP on an ongoing basis. Federal
law requires employers in the PEP to prudently monitor the pooled plan
provider and any other persons specifically designated as a named
fiduciary of the PEP. This does not mean that you are required to
oversee the day-to-day activities of these individuals. However, at
reasonable intervals you should review the operations and performance
of the PEP, including performance of the investments, to make sure it
is operating the way you expected it to. This would include, as
applicable, a review of the resolution of complaints about the PEP from
your employees. This would also include checking to see if the fees
that were charged are the same as the ones you agreed to, and if not,
actively seeking out an explanation.
9. Make sure you fully inquire about the implications of exiting
the PEP. Your company's business circumstances may change such that the
PEP you have selected is no longer the best fit for you and your
employees. For example, your company and the size of its workforce may
grow, and you may decide to sponsor a single-employer plan, perhaps a
defined benefit plan, or the company may downsize or even go out of
business. Or you may conclude that the PEP simply is no longer the best
PEP for your needs. Accordingly, when initially interviewing a PPP,
examples of relevant questions include asking the pooled plan provider
for an explanation of what would happen if you, as the employer, or any
of your employees who separate from service, were to cease
participation in the PEP and seek to transfer assets to another
retirement solution. A good question to ask in this context can be
whether the PEP imposes any restrictions (including fees, timing,
penalties, etc.) on the ability of a participating employer or its
separated employees to cease participating in the PEP. If the PEP does
impose restrictions, an example of a relevant follow up question would
include asking what they are and why do they exist? Another good
question to consider asking is whether the PEP or any of its
investments contain a market value adjustment that would be triggered
when the employer or employee ceases participation, receives
distributions, or otherwise transfers assets out of the PEP. You should
also understand what happens to the unvested portion of your employees'
account balances under the plan's forfeiture provisions if the employee
ceases participation upon separation of service. You may want to also
ask if, as the participating employer, you cease participating in the
PEP and terminate your company's involvement with the PEP altogether,
whether the accounts of your current and former employees remain in the
PEP.
VI. Request for Information
In this Section VI, the Department solicits responses to questions
primarily for the purpose of considering whether additional guidance to
facilitate small employers joining PEPs would be helpful.
Shortly after the SECURE Act introduced PEPs, the Department began
to examine PEP formations and operations. The point of the examination
was to determine whether there is a need or demand for a new prohibited
transaction class exemption or for amendments to existing prohibited
transaction exemptions. The examination started on June 18, 2020, with
the publication in the Federal Register of a Request for Information
concerning the possible parties, business models, conflicts of
interest, and prohibited transactions that might exist with PEPs (2020
MEP RFI).\13\
---------------------------------------------------------------------------
\13\ Prohibited Transactions Involving Pooled Employer Plans
Under the SECURE Act and Other Multiple Employer Plans, 85 FR 36880.
---------------------------------------------------------------------------
Responses to the 2020 MEP RFI reflected a broad range of views and
included no consensus. Some individuals stated that there were no
potential conflicts of interest implicated by a pooled plan provider
offering an investment in which it has a financial interest. Others,
however, stated that such arrangements should be prohibited because
they are inherently and unlawfully conflicted.
Notably, many individuals stated that the nascent PEP marketplace
was not yet ready for a class exemption because the need for such
relief depends on the structure of PEPs and structures were still
maturing. Considering the varied and inconclusive responses to the 2020
MEP RFI, coupled with the increased number of PPPs since then as well
as the further development and maturation of the PEP marketplace, the
Department requests information based on the questions below.
General Questions
1. The law does not limit the types of entities that may elect to
serve as pooled plan providers. Which types of entities (for example,
asset managers, third-party administrators, recordkeepers) are acting
as pooled plan providers? Are these entities generally contracting out
most administrative functions or performing these functions themselves?
2. How are PEPs marketed and distributed and by whom? Do marketing
and distribution methods differ depending on the model? Do PEPs
compensate third parties to advertise, distribute, promote, or
otherwise supply access to and participation in PEPs? If yes, how is
such compensation typically determined and from what source(s) is it
paid?
3. Do vendors of pooled employer plans (including businesses that
are themselves pooled plan providers but that are vending in a non-
pooled-plan-provider capacity) also offer model single-employer plans
or different PEP options? How do they determine which option to
recommend to employers? To what extent and for what reasons do they
offer customization and variations, such as different share classes,
within the same PEP?
4. What barriers, if any, prevent small employers from becoming
aware of, understanding, or trusting PEPs? Have employers with existing
plans merged
[[Page 35651]]
their plans into PEPs? Are there specific challenges associated with
doing so that could or should be addressed through guidance or
regulatory intervention?
5. In the context of corporate transactions, are there specific
challenges for the retirement plans of acquiring businesses to accept
acquired businesses' assets from PEPs (e.g., through plan spin-offs/
mergers or through direct rollovers)? What are the challenges
associated with preventing leakage when an entity participating in a
PEP is acquired?
6. Have professional employer organizations (PEOs) offered PEPs or
do they offer only traditional multiple-employer plans? Are there any
obstacles or barriers that would prevent a PEO from offering a fully
integrated HR platform with a PEP retirement solution?
Conflicts of Interest and Mitigation
7. What percentage of pooled plan providers are using independent
3(38) investment managers pursuant to the delegation permitted by
section 3(43)(B)(iii)(II) of ERISA? For this purpose, independent means
not affiliated with the pooled plan provider. When 3(38) investment
managers are used, are the agreements entered into between the 3(38)
investment managers and the pooled plan providers, or do the 3(38)
investment managers contract directly with the participating employers?
8. When independent 3(38) investment managers are used for
investment and management of assets, how often do the managers provide
services to the PEP or pooled plan provider other than investment
management services, and what type of other services?
9. Do pooled plan providers purport to limit authority of their
3(38) investment managers to choose the funds or arrangements in which
they invest? To what extent do pooled plan providers encourage or
require investments from a limited menu of options? To what extent do
pooled plan providers purport to limit the range of options to those in
which the pooled plan providers have a financial interest?
10. Are PEPs offering investments with revenue sharing arrangements
that offset the costs of recordkeeping or other plan services? Are PEPs
offering investments that are proprietary to the pooled plan provider,
its affiliates, or any other PEP service provider?
11. How do pooled plan providers manage potential conflicts of
interest in cases in which they offer investments in which they have a
financial interest?
12. Are there any potential conflicts of interest in PEP
distribution models? If so, how are they managed?
13. What existing prohibited transaction exemptions (statutory or
administrative) do pooled plan providers rely on, if any?
14. Based on the business models that pooled plan providers have
developed, is there a need for additional prohibited transaction
exemptions? If so, explain why they are needed, what conditions should
be included, and why they would be in the interest of, and protective
of, affected plans.
Safe Harbor Considerations
15. Should the Department codify a regulatory safe harbor based on
the guidance and tips in Sections IV and V of this RFI, respectively,
for small employers to satisfy their fiduciary responsibilities for
selection and monitoring pooled plan providers and other named
fiduciaries referenced in section 3(43)(B)(iii)(I) and their fiduciary
responsibilities for the investment and management of the portion of
the PEP's assets attributable to their employees referenced in section
3(43)(B)(iii)(II)? Why or why not? Are there additional considerations
or conditions, apart from the guidance and tips in Sections IV and V,
that the Department should consider with respect to the design or
adoption of such a safe harbor?
16. Would the safe harbor referenced in question 15 encourage the
growth of high-quality PEPs? Would such a safe harbor help pooled plan
providers market PEPs to participating employers while simultaneously
encouraging small businesses to join PEPs?
17. Should the safe harbor referenced in question 15 require the
PEP to use a 3(38) investment manager that is not affiliated with the
pooled plan provider?
18. What disclosures should be provided to participating employers
as part of such a safe harbor? Have employers experienced difficulties
in obtaining information about PEPs before joining and, if so, what
types of information?
19. Should arrangements between an independent 3(38) investment
manager and participating employers be permitted, encouraged, or
discouraged as part of the safe harbor referenced in question 15--for
instance, should the safe harbor encourage or discourage arrangements
under which each participating employer in a PEP has a different
investment menu for its own employees, or create special protective
conditions for such arrangements? Should the safe harbor include
conditions designed to ensure that the PPP gives all participating
employers and plan participants the same investment options and fee
structures on the same terms? Why or why not?
20. Should such a safe harbor exclude PEPs that offer investments
in which the pooled plan provider has a financial interest?
21. Should such a safe harbor create any specific requirements
regarding the offer of TDFs, the offer of managed accounts, the
acceptable number of pooled investments offered as designated
investment alternatives, or the asset class coverage of designated
investment alternatives available to participating employers in a PEP?
22. Should such a safe harbor designate a permissible range of
total fees for participants in the PEP? For this purpose, the safe
harbor could define total fees as an average percent of assets.
23. Are there any issues specific to registered investment company
funds or collective investment trusts that such a safe harbor should
address? If so, what are they and why are they relevant for the safe
harbor?
24. Should such a safe harbor require the use of written
representations or certifications by the pooled plan provider about the
PEP and the pooled plan provider's diligence in meeting the
requirements of ERISA. Could any such written representations help
participating employers satisfy their duty to prudently monitor the
pooled plan provider, working similar to the way the written
representations work in the fiduciary safe harbor in section 408(e) of
ERISA (safe harbor for annuity selection)?
25. In addition to the safe harbor referenced in questions 15
through 24 for participating employers, do market participants see a
need for a safe harbor for pooled plan providers themselves to
encourage the formation of high-quality PEPs? If so, which service
provider relationships (e.g., recordkeepers, consultants, trustees,
investment managers) and which PEP model (e.g., bundled or unbundled)
are most in need of a safe harbor or safe harbors? What should such a
safe harbor include?
VII. Report to Congress
Section 344 of SECURE 2.0 directed the Department, not later than
five years after enactment, and every five years thereafter, to submit
a report to Congress, and make publicly available on a website, the
Department's findings from a study of the PEP industry, including
recommendations on how PEPs can be improved, through legislation, to
serve and protect retirement plan participants. On August 11, 2023, the
Department issued a
[[Page 35652]]
Request for Information (August 2023 RFI) with a series of questions
aimed at developing this report.\14\ After studying the responses to
the August 2023 RFI, the Department solicits responses to the following
additional questions primarily for the purpose of assisting the
Department with this report. The Department recognizes potential
limitations in existing Form 5500 and Form PR data, including
inconsistent reporting and a lack of participant-level cost and service
detail. Commenters are encouraged to recommend improvements to plan
data collection and public reporting that would facilitate more
accurate monitoring and evaluation of the PEP market.
---------------------------------------------------------------------------
\14\ 88 FR 54511, 12 (August 11, 2023).
---------------------------------------------------------------------------
26. What information can commenters provide on the range of
investment options provided in PEPs, both in terms of the number and
type of investments? The ``range of investment options'' means the
specific investment options the responsible plan fiduciary has selected
as ``designated investment alternatives'' under the PEP, without regard
to the amount of assets invested in each. This excludes investments
available through a brokerage window or similar arrangement.
27. What types of fees are assessed in PEPs and what is the range
of the amount of such fees?
28. How do employers select a PEP? Do they tend to use third
parties to assist in the selection process? How do employers monitor
PEPs? Specifically, which aspects of PEPs are periodically reviewed?
How often do employers conduct reviews of the PEPs they have joined?
29. What disclosures are provided to participants in PEPs? Are they
generally the same disclosures that are required to be disclosed under
ERISA to participants in other defined contribution plans? Responses to
the August 2023 RFI stated that disclosures to PEP participants should
not be any different than disclosures in other defined contribution
plans. Do those responses represent the current view of the public?
Signed at Washington, DC, this 24th day of July 2025.
Janet Dhillon,
Acting Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2025-14281 Filed 7-28-25; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on July 29, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.