SECURE Act Deep-Dive: Unscrambling PEPs, MEPs and GoPs
Many of the SECURE Act’s provisions are geared towards broadening retirement plan access for all Americans. Thus, the Pooled Employer Plan (PEP) and Multiple Employer Plan (MEP) provisions are some of the most hyped elements of the SECURE Act. PEPs and MEPs are new plan structures that allow employees of more than one (typically smaller) employer to participate in a single retirement plan, with the goal of expanding retirement plan access for all individuals.
What are PEPs?
The SECURE Act introduced a new type of retirement plan - the Pooled Employer Plan. Pooled Employer Plans (PEPs) allow unrelated employers that meet certain requirements (such as having the same Pooled Plan Provider; typically a bundled recordkeeper or TPA) to band together to participate in a single retirement plan, in order to take advantage of their collective purchasing power to obtain lower fees and better services. Note that PEPs are limited to 401(a) defined contribution plans, 401(k) plans and IRAs. Defined benefit (DB) plans, 403(b) plans, governmental 457(b) plans and multi-employer plans for collectively bargained employees are excluded from the new PEP provisions.
What are MEPs?
Multiple Employer Plans (MEPs) allow related businesses (e.g., plumbing companies) to band together in a manner similar to PEPs to participate in a single retirement plan. While MEPs existed prior to the SECURE Act, they are now easier to establish. The “one bad apple” rule, where the compliance failures of one employer could disqualify the entire plan, was eliminated by the SECURE Act. Additionally, smaller MEPs (and PEPs), with fewer than 1,000 participants, are exempt from a potentially expensive audit requirement, as long as no one employer exceeds 100 participants.
What are GoPs?
Group of Plans, or GoP, is another new type of plan established by the SECURE Act, in which employers (whether unrelated, related, or part of the same controlled group) can file a single Form 5500 for multiple defined contribution plans. The plans must have the same trustee, administrator, fiduciaries, investments and plan year in order to be considered a GoP. However, unliked PEPs or MEPs, GoPs are not single plans, but rather a single Form 5500 filing. Unfortunately, for plan sponsors looking to adopt a GoP, it appears that the audit exception for smaller MEPs described above will not apply, unless the Department of Labor (DOL) issues guidance to the contrary. Therefore, a small plan that is consolidated into a larger Form 5500 filing may potentially subject itself to an expensive audit requirement when none existed before.
Where Do We Go from Here?
The expansion and creation of these arrangements is a benefit for plan sponsors of smaller retirement plans. For existing MEPs, the SECURE Act created an opportunity to band together with each other to create a “super” PEP, and this arrangement may have the power to dramatically lower fees and enhance services for those participating employers. However, MEPs have been around for some time without widespread adoption, due the fact that they are primarily used by small employers with limited options. This makes it difficult for the plans to accumulate assets and obtain the type of purchasing power to deliver on the promise of lower fees and enhanced services. Despite the efforts of the SECURE Act to broaden these arrangements, it did nothing to address the fundamental issue, which will likely prevent MEPs (and PEPs) from becoming a retirement plan industry game-changer.
Although less hyped, in practice, GoPs may actually be the most successful arrangement. However, retirement plan sponsors will need to wait until regulations are issued to determine how these consolidated Form 5500s will work. While PEPs, and the new MEP rules are effective in 2021, the GoP provision is not effective until the 2022 plan year Form 5500 filings.
While the SECURE Act’s expansion of MEPs and creation of PEPs and GoPs may not be the panacea for smaller retirement plan sponsors, these changes are a positive step in providing individuals with greater access to retirement plan benefits.
For a comprehensive look at the SECURE Act provisions, please click here. Stay up to date with the SECURE Act by visiting the Knowledge Center on our website or following Cammack Retirement on LinkedIn or Twitter.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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