Tag Archive for: PEP

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401(k)s, 403(b)s and MEPs

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“One of my clients is a health care association, the members of which offer both 401(k) plans and 403(b) plans to employees. The association is considering offering a multiple employer plan (MEP). Would there be any issues in creating one MEP that would include both the 401(k) plans and the ERISA 403(b) plans?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Illinois involved a case related to multiple employer plans (MEPs).

Highlights of Discussion

  • Under Section 106 of SECURE Act 2.0 of 2022 (SECURE 2.0), we now have certainty that 403(b) plans have access to MEPs and Pooled Employer Plans (PEPs) on par with 401(k) plans. A MEP is a single plan that covers two or more associated employers that are not part of the same controlled group of employers. A PEP covers two or more unrelated employers under a single plan.
  • However, existing treasury regulations do not allow mergers or transfers of assets between 403(b) and 401(k) plans [Treasury Regulation 1.403(b)-10(b)(1)(i)]. Further, the IRS has stated in at least one private letter ruling (PLR) (e.g., PLR 200317022) that if a 403(b) plan is merged with a plan that is qualified under IRC Sec. 401(a), the assets of the 403(b) plan will be taxable to the employees. Combining 401(k) and 403(b) assets in one trust could also jeopardize the tax-qualified status of the 401(k) plan.
  • Therefore, it would not be possible to maintain one MEP that covers both 403(b) and 401(k) plans. The association could use one 401(k) MEP to cover the 401(k) plans and a separate MEP for 403(b) plans.

 

Conclusion

While the law permits both 403(b) MEPs and 401(k) MEPs, it is not possible to have one MEP that covers both types of plans. The IRS treats 403(b)s and 401(k)s as unlike plans and, therefore, incompatible, for the purpose of plan-to-plan transfers or mergers.

 

 

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Group of Plans or Defined Contribution Group Plans

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“Are there any new plan types for 2022?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from New York is representative of a common inquiry related to types of retirement plans. The advisor asked: “Are there any new plan types for 2022?”

Highlights of Discussion

Yes, there is. Thanks to The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, Pub. L. 116–94, effective for the 2022 plan year the industry now has Groups of Plans (GoPs) (a.k.a., Defined Contribution Group Plans). Technically, it is a simplified mechanism for filing a single Form 5500 information return for a collection of defined contribution plans that have the same

• Trustee,
• Named fiduciary (or named fiduciaries),
• Plan administrator,
• Plan year, and
• Investment options.

If you are thinking Multiple Employer Plan (MEP) or Pooled Employer Plan (PEP), think again. Generally, MEPs and PEPs allow more than one employer to participate in a single retirement plan. In contrast, GoPs allow several employers each with their own defined contribution plan to file a single Form 5500 for the collection of plans, if they have the same trustee, named fiduciary, administrator, plan year and investment options.

While the industry received some information on GoPs in the Department of Labor’s (DOL) proposed Form 5500 changes released in September 2021, more was anticipated in the DOL’s final Form 5500 regulations and news release issued December 29, 2021. Unfortunately, none was present—just a promise that the consolidated filing option for certain groups of defined contribution retirement plans would be the subject of one or more later final notices.

Conclusion
The SECURE Act created a consolidated Form 5500 filing option for GoPs beginning with the 2022 plan year. The devil is in the details, as they say, and the industry anxiously awaits them.

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Pooled Plan Providers to Date by State

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An advisor asked:  “Do you have any statistics around how many Pooled Plan Providers (PPPs) for Pooled Employer Plans (PEPs) have registered with the Department of Labor (DOL), and where they are located?”    

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Colorado is representative of a common inquiry related to Pooled Plan Providers.

Highlights of the Discussion

Yes, we do have some statistics based on a tool on the DOL’s website that shows PPP filings. As of August 3, 2021, the number of PPPs that have registered with the DOL to be able to offer PEPs is 117.* Keep in mind that number will continue to change. Registering with the IRS and DOL is one of the requirements for a firm to become a PPP of a PEP.  Below is a summary of the number of PPPs by state.

Pooled Plan Providers by State*

AR 1
AZ 3
CA 4
CO 1
CT 3
FL 42
GA 2
IL 6
IA 2
KS 1
MD 1
MA 3
MI 1
MN 6
MS 2
NB 1
NV 1
NJ 4
NY 9
OH 1
PA 6
SD 2
TN 1
TX 8
UT 4
VA 1
WA 1
TOTAL 117

*(As of 08.04.2021. States without registrants omitted.)

The most likely entities to serve as PPPs include financial institutions, such as banks and insurance companies, record keepers, large broker/dealers, registered investment advisor firms, payroll providers and local chambers of commerce.

To encourage more businesses to sponsor workplace retirement plans, Congress created PEPs, available for adoption starting in 2021 through registered PPPs. PEPs are new plan structures created by a segment of the Further Consolidated Appropriations Act of 2020 also known as the Setting Every Community Up for Retirement Enhancement (SECURE) Act. These new plan arrangements allow two or more completely unrelated employers to participate in a single retirement plan administered through a registered PPP. Each employer has the fiduciary duty to prudently select and monitor the PPP and other fiduciaries of the PEP.

The idea behind PEPs is that employers would be more inclined to offer retirement benefits if they could band together to reduce the burdens and costs of plan maintenance. And, to sweeten the deal, the special plan startup tax credits in the SECURE Act allow eligible employers to receive up to $5,000 in tax credits for the first three years and offer an additional $500 tax credit for adding an automatic enrollment feature that can be used with PEPs.

Conclusion

PEPs became available for adoption starting in 2021 through registered PPPs. Thanks to a tool on the DOL’s website, the industry can stay up to date on PPP registrants.

© Copyright 2024 Retirement Learning Center, all rights reserved