Wanta Be a PPP?
Art by Tim Bower
As of this January 1, a pooled plan provider (PPP) may make available a pooled employer plan (PEP) to employers. The PEP presents an opportunity for advisers to offer a single participant-directed, tax-qualified defined contribution (DC) retirement plan such as a 401(k) to a group of employers that are unrelated. Each adviser should understand what it means to be a PPP and whether that’s a good role for him.
A PPP is an individual or an entity that sponsors the PEP. The terms of the PEP must designate the PPP as the plan administrator, and as a “named fiduciary” as defined in Section 402(a)(2) of the Employee Retirement Income Security Act (ERISA). The PPP must “perform all administrative duties … [that] are reasonably necessary to ensure that” the PEP meets the requirements of ERISA and the qualification requirements of Internal Revenue Code (IRC) Section 401(a). These include ensuring that all parties that handle the PEP’s assets are bonded in accordance with the provisions in ERISA Section 412. The PPP also must ensure that the participating employers meet any obligations they may have in order to keep the PEP compliant with ERISA and the IRC.
The PPP must acknowledge in writing that it is the PEP’s named fiduciary and plan administrator. Further, the PPP must register with the Department of Labor (DOL) pursuant to the DOL’s final regulation published this past November 16. In accordance with that regulation, the PPP must file a Form PR—i.e., pooled plan provider registration—with the DOL at least 30 days before starting to operate as the PPP. On the Form PR, the PPP must disclose, among other things, contact information for itself, for a “responsible compliance official” and for an agent assigned to service legal process.
The PPP must also identify on Form PR the administrative, investment and fiduciary services that it and its affiliates will provide to the PEP. Additionally, the PPP has an obligation to update its Form PR to report certain events such as significant changes to the PPP’s corporate or business structure and certain criminal or civil legal proceedings. The DOL can use Form PR to identify PPPs and, presumably, target them for investigation.
Clearly, the PPP is at the center of the PEP and assumes a substantial amount of legal responsibility; it could be subject to DOL scrutiny with regard to the PEP’s operation. Advisers who currently serve as fiduciaries to ERISA-covered plans by reason of providing investment advice or discretionary investment services may not be put off by the idea of acting as a fiduciary in connection with the PEP.
If they intend to serve as a PPP, however, they’ll assume fiduciary responsibility for a much broader range of services necessary to operate the PEP. Such advisers may lack the expertise to provide such services. In other cases, advisers may not normally assume fiduciary responsibility when they serve ERISA-covered plans, although they may be an expert at supplying some services necessary to operate one. For those advisers, the assumption of fiduciary status may seem like an impediment to being a PPP.
In either case, the PPP provisions in the IRC and ERISA, plus other, long-standing provisions in ERISA and related guidance, allow for advisers to act as a PPP or, alternatively, as a fiduciary or nonfiduciary service provider to a PEP. Importantly, an adviser may meet the PPP requirements by working with affiliated companies. Thus, for example, while a registered investment adviser (RIA) may not have the expertise to serve as plan administrator and perform all of the administrative services necessary to ensure the PEP complies with ERISA and the IRC, an affiliated recordkeeper or other service provider may be able to do so.
Furthermore, the party acting as the PPP, in the event that it lacks investment expertise, could delegate investment management authority to an investment manager or hire an investment adviser to supply the PPP with investment advice. Thus, if an adviser does not want to be a PPP, he may still play an important role in the PEP marketplace by providing these plans advisory or administrative services. In this role, he can partner with the entity that will be the PPP.
PEPs may prove to be an important vehicle for broadening retirement plan access to American workers.
David Kaleda is a principal in the fiduciary responsibility practice group at Groom Law Group, Chartered, in Washington, D.C. He has an extensive background in the financial services sector. His range of experience includes handling fiduciary matters affecting investment managers, advisers, broker/dealers, insurers, banks and service providers.