DOL Issues RFI on Prohibited Transactions, Open MEPs and SECURE Act

Responses to the request for information (RFI) will help the Department of Labor (DOL) evaluate the need for a proposal on new prohibited transaction exemptions related to pooled employer plans.

The U.S. Department of Labor (DOL) has issued a formal request for information (RFI) on prohibited transactions involving pooled employer plans (PEPs) as defined under the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Acting Assistant Secretary of Labor for the DOL’s Employee Benefits Security Administration (EBSA) Jeanne Klinefelter Wilson says the RFI—available online here—is an opportunity for the public to provide data and information that may be used to evaluate whether the EBSA should propose a new prohibited transaction class exemption.

Information is requested on the possible parties, business models and conflicts of interest that respondents anticipate will be involved in the formation and ongoing operation of PEPs. 

By way of background, the SECURE Act, beginning in 2021, will allow for the creation of PEPs, which are a close analog to open multiple employer plans (MEPs). Importantly, a PEP is treated as a single plan under the Employee Retirement Income Security Act (ERISA) and the PEP need file only one Form 5500 and receive only one annual audit by an independent certified public accountant. Under the SECURE Act, there need not be a “commonality of interests” among the employers that participate, and the PEP’s sole purpose is to provide employee retirement benefits.

The PEP also may be offered by a pooled plan provider that may be an adviser or other financial institution. The pooled plan provider will act as the PEP’s plan administrator and may act as the plan’s named fiduciary for purposes of ERISA, effectively assuming those responsibilities from the participating employers. For the adviser, to manage and administer a single PEP could be much more efficient than managing and administering multiple, small retirement plans.

Since the SECURE Act’s passage, legal experts have warned that the creation of a PEP could lead to a number of important regulatory considerations under the existing ERISA prohibited transaction framework. For example, financial advisers who offer a PEP may wish to use affiliates to provide services to it and offer proprietary investment products as investment options under it. Doing so raises complex fiduciary and prohibited transaction issues that must be addressed.

Beyond such challenges, the new RFI also requests information on issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.

There is a 30-day comment period that begins upon publication of the RFI in the Federal Register, an action expected within the next few days. Complete instructions for submitting comments are found in the RFI.

“We encourage all interested parties to submit comments in response to this request,” Klinefelter Wilson says. “The responses will help the Employee Benefits Security Administration evaluate the need for a proposal on a new exemption.”