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The US Department of Labor (DOL) published a request for information (RFI) on June 18 in the Federal Register on the subject of pooled employer plans (PEPs). The RFI provides interested parties until July 20 to submit comments to the DOL addressing potential prohibited transaction (PT) issues confronting PEPs, pooled plan providers (PPPs), participating employers, and others. Read our LawFlash for a refresher on PEPs and relevant parties.

Generally, ERISA provides that any transaction between a plan and a party in interest (such as a service provider or participating employer), and any transaction between a fiduciary (such as the PPP) and the plan, could constitute a PT, for which the plan fiduciaries and certain other parties may be liable absent an available prohibited transaction exemption (PTE). The DOL has promulgated a number of class and individual PTEs (describing certain situations in which transactions that would otherwise be PTs are treated as exempt from the PT rules, subject to the conditions of the exemption being met).

The RFI is intended to assist the DOL in determining whether additional exemptive relief is necessary or appropriate for PEPs (and, to a lesser extent, traditional multiple employer plans (MEPs), which were the subject of a previous RFI raising similar questions). By responding to the RFI, PEP stakeholders (such as potential participating employers, aspiring PPPs, and other PEP service providers) may help shape any such relief.

The RFI requests comments in three categories:

PPPs and MEP sponsors. Requests center around:

  • PEP design decisions, such as what entities will serve as PPPs and the business models that PEPs may utilize
  • Conflicts of interest that PPPs will have with respect to PEPs, and whether that may be a function of what type of entity is serving as the PPP
  • Application of current PTEs to PEPs and the need, or lack thereof, for additional exemptive relief specifically addressing PEPs, including fee and compensation issues and whether existing PTEs are sufficient to address any issues unique to PEPs
  • Whether bona fide groups or associations of employers or PEOs face similar PT issues as PEPs

Plan Investments. Requests center around:

  • Types of investment options that will be made available to PEP participants
  • The role PPPs and their affiliates will play with respect to PEP investments

Participating employers in PEPs or MEPs. Requests center around:

  • Types and numbers of employers that are expected to join PEPs, and whether substantial size differences between employers can create PT issues
  • Potential for PTs due to transactions involving employer stock issued by, and real property leased to, participating employers (so-called “employer securities” and “employer real property” in which plans may invest under ERISA, subject to certain conditions)
  • Potential PTs where the PPP transfers assets attributable to employees of a noncompliant employer (and such employees’ beneficiaries) to an IRA or an eligible single employer retirement plan sponsored by such noncompliant employer

There are two key attributes of PEPs that drive many of these issues: (1) the fact that the PEP would serve multiple employers, increasing the range of potential conflicts that could arise and affecting the ability to address those conflicts; and (2) the primary role of the PPP in managing the PEP. For example, with respect to (2), actions taken by the PPP in the course of operating the PEP, such as (i) setting the range of available investment options (potentially to include proprietary funds of the PPP or an affiliate), (ii) hiring PEP service providers and determining the compensation paid to such service providers (potentially including the PPP or an affiliate providing additional services to the PEP for a fee), and/or (iii) determining how to divest the PEP of assets of noncompliant employers (potentially having such divested assets record-kept or trusteed by the PPP or an affiliate), could give rise to a number of potential conflicts to the extent they involve products or services of the PPP or its affiliates. While these types of issues are addressed by a number of existing PTEs, those PTEs may not deal with specific circumstances that could arise for PEPs and their PPPs.

As indicated above, the RFI is focused on whether exemptive relief is needed. There is no mention of the status of any other guidance the DOL might be expected to provide to implement the PEP provisions, which go into effect on January 1, 2021. Critically, guidance is still needed from both the IRS and the DOL on the PPP registration process (PPPs are required to register with the IRS and DOL as PPPs before beginning to operate as a PPP).

If you are considering submitting information in response to this request for information or have any questions about PEPs or MEPs, please feel free to contact the authors or your Morgan Lewis contacts.