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January 3, 2024

Pooled employer plan designated fiduciaries unveiled

Watch the video for more on this topic.

In retirement planning, the Pooled Employer Plan (PEP) emerged as a groundbreaking innovation under the SECURE 1.0 Act in 2019. As we reflect on the first anniversary of SECURE 2.0 Act, it's pertinent to delve into the details of PEPs and the notable changes that unfolded. 

A PEP allows unrelated employers to collaborate, participating in a single defined contribution plan sponsored by a Pooled Plan Provider registered with the IRS and the Department of Labor. The Pooled Plan Provider can include bundled recordkeepers, third-party administrators, independent fiduciaries, insurance companies, mutual fund management firms, plan investment advisory firms, or broker-dealers.

Initially limited to 401(k) plans, PEPs underwent a transformative shift in fiduciary structure under SECURE 1.0 Act. Responsibilities shifted away from individual participating employers onto the Pooled Plan Provider and its service providers. Participating employers retained certain fiduciary duties, such as selecting and monitoring the Pooled Plan Provider.

However, a challenge arose in collecting and submitting contributions to the PEP trust. Multiple participating employers with distinct processes, software programs, and payroll service providers resulted in administrative chaos. SECURE 2.0 Act, effective January 1, 2023, introduced a pivotal change.

Under SECURE 2.0 Act, PEPs could designate a named fiduciary, distinct from participating employers, to collect contributions. This designated fiduciary, often a service provider or the Pooled Plan Provider, must implement written contribution collection procedures that are reasonable, diligent, and systematic.

This adjustment allows for the incorporation of a single-payer system and service provider, streamlining the collection of contributions for all participating employers. The named fiduciary overseeing this collection process assumes the fiduciary duty previously borne by participating employers.

Introducing this designated fiduciary option provides a more cohesive and efficient structure for PEPs. It addresses the challenges faced in contribution collection, promoting uniformity and mitigating potential discrepancies arising from diverse employer processes.  

As we celebrate the evolution of PEPs under SECURE 2.0 Act, it's evident that these changes contribute to this retirement plan model's enhanced viability and effectiveness. Participating employers can now navigate their PEP responsibilities with greater clarity and efficiency, fostering a more seamless collaboration in retirement planning.

Stay tuned for further insights as we explore the dynamic landscape of retirement planning in the wake of legislative advancements.

Contact your Marsh McLennan Agency retirement plan advisor to learn about SECURE 2.0 and how it affects your organization.