Offering a retirement plan can be a valuable benefit for attracting and retaining talent, but it also comes with significant fiduciary responsibilities under the Employee Retirement Security Act (ERISA). For many employers, these obligations can feel overwhelming, especially given the potential for personal liability in the event of a compliance failure. The introduction of Pooled Employer Plans (PEPs) under the SECURE Act offers a new way to streamline plan administration, reduce risk, and leverage professional expertise. Here, Meghan Hannon, CRPS®, CPFA®, Partner and Head of Retirement Plan Consulting, breaks down the key fiduciary responsibilities under Pooled Employer Plans.
What Are ERISA Fiduciary Responsibilities for Retirement Plans?
Before diving into how PEPs can change the landscape for plan sponsors, it’s important to understand the baseline duties set forth by ERISA.
Under ERISA, retirement plan fiduciaries must:
- Act solely in the interest of plan participants and beneficiaries by following the “exclusive benefit rule”, which requires putting participants’ interests above all others
- Operate with prudence by exercising the same care, skill, and diligence that an expert would use
- Diversify plan investments to minimize the risk of large losses
- Follow plan documents unless they conflict with ERISA
- Ensure plan expenses are reasonable
The stakes are high. Fiduciaries can be personally liable for losses resulting from breaches. In a traditional single-employer plan, these responsibilities rest heavily on the employer and its appointed committee members.
How PEPs Redistribute Fiduciary Duties
The SECURE Act introduced PEPs to redistribute many of these fiduciary obligations. Instead of every employer carrying the full weight, the Pooled Plan Provider (PPP) assumes a central role.
In most cases, the PPP manages investment selection and monitoring, provides centralized plan oversight, and engages professional service providers to handle compliance and operational duties. This shift allows adopting employers to reduce their exposure to certain fiduciary risks while benefitting from economies of scale and specialized expertise.
What is the Role of a Pooled Plan Provider (PPP) as a Named Fiduciary?
The Pooled Plan Provider is the cornerstone of the PEP’s fiduciary structure, assuming the named fiduciary responsibility under the ERISA. In this role, the PPP:
- Oversees regulatory compliance and key plan decisions
- Selects and monitors service providers like third-party administrators, recordkeepers, and investment managers
- Handles participant disclosures and regulatory filings, including Form 5500
- Makes key plan decisions, from invesment lineup selection to fee negotiations
When evaluating a PEP, employers should carefully review the PPP’s experience, resources, and registration status with the Department of Labor to ensure strong risk management and regulatory compliance.
Employer Fiduciary Responsibilities Under a Pooled Employer Plan
While PEPs can significantly reduce fiduciary burden, they do not eliminate it entirely. Employers are still responsible for:
- Selecting and monitoring the performance of the PEP itself
- Ensuring that employee contributions are deposited promptly, typically within 7 business days for small plans
- Transmitting complete and accurate employee information to the PEP administrator
- Understanding the fees charged by the PEP to ensure they remain reasonable
These residual responsibilities, while significant, represent a fraction of the fiduciary burden in a traditional single-employer plan. Employers should document their processes for fulfilling these duties to demonstrate prudent oversight.
What does a 3(16) Plan Administrator Role Do in a PEP?
Many PEPs include a 3(16) Plan Administrator, who handles administrative fiduciary duties such as signing and filing Form 5500 annually, administering loans and distributions, ensuring plan document compliance, and issuing required notices to participants. They also are responsible for interpreting plan provisions by making determinations on eligibility, vesting, and other plan matters.
The value of 3(16) services can be substantial, as these administrative functions are often the source of costly errors in traditional plans. When evaluating a PEP, employers should confirm the scope of 3(16) services provided and any limitations on the administrator’s responsibilities.
Investment Fiduciary Services in Pooled Plans
Investment-related fiduciary duties represent some of the highest-risk areas for retirement plan sponsors. Most PEPs utilize a 3(38) Investment Manager, who assumes full responsibility and discretion over investment selection and monitoring. This provides the highest level of fiduciary protection for employers, removing the need for day-to-day investment decision-making.
Best Practices for Managing Residual Fiduciary Risk
Even with the reduced fiduciary burden of a PEP, employers should implement these best practices:
- Document the PEP selection process by keeping record of your evaluation criteria, the providers considered, and the rationale for your final decision
- Establish a monitoring protocol for reviewing PEP performance, including costs and service quality
- Confirm fiduciary insurance coverage for both employer and PPP
- Maintain a fiduciary file documenting all plan related decisions and communications
- Conduct periodic benchmarking against alternatives in the market
- Stay informed about evolving PEP regulations and best practices
- Ensure that anyone involved in retirement plan duties understands their responsibilities
By implementing these practices, employers can maximize the fiduciary benefits of PEPs while properly managing the responsibilities that remain. Learn how you can chart a wiser plan with Boulay’s RetireNAV(k).
Investment Advisory Services offered through Boulay Financial Advisors, LLC a SEC Registered Investment Advisor. Certain Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC
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