The rise of the Pooled Employer Plan (PEP) under the SECURE Act has opened the door for small and mid-sized employers to offer a competitive 401(k) plan structure without the full weight of standalone administration. But with this opportunity comes a complex regulatory landscape. ERISA compliance, Department of Labor (DOL) oversight, and IRS rules still apply—just in a different configuration. This checklist-style guide outlines the essential elements of PEP compliance, clarifies roles between the Pooled Plan Provider (PPP) and participating employers, and highlights practical steps for effective plan governance and retirement plan administration.
PEPs in context: Unlike a traditional Multiple Employer Plan (MEP), a PEP permits unrelated employers to band together under one plan, with a registered PPP responsible for key fiduciary and administrative functions. The goal is consolidated plan administration that reduces redundancy and cost while preserving participant protections.
Below is a structured compliance framework you can adapt to your own PEP engagement.
- Eligibility and Plan Setup Verify PEP qualification: Ensure your plan documentation reflects the SECURE Act’s definition of a PEP and identifies a registered PPP. PPP registration and disclosures: Confirm PPP is listed with the DOL, has filed Form PR, and provides initial disclosures, services descriptions, and fiduciary acknowledgments. Adopting employer agreements: Execute participation agreements that define employer responsibilities versus PPP responsibilities, including payroll remittance, eligibility tracking, and employee communications. Named fiduciaries and 3(16)/3(38) roles: Confirm who serves as the ERISA section 3(16) plan administrator and whether investment fiduciary responsibilities (e.g., 3(21) or 3(38)) are appointed to the PPP or another provider. Plan Governance and Fiduciary Oversight Governance charter: Establish a governance framework that defines decision rights, meeting cadence, escalation paths, and documentation standards for the PPP and any plan committees. Fiduciary training: Provide annual training for PPP staff and adopting employers on ERISA compliance, prohibited transactions, fee reasonableness, and recordkeeping standards. Conflicts management: Maintain a written conflicts-of-interest policy for the PPP and any service providers; review related-party transactions under ERISA §406 and applicable exemptions. Service provider monitoring: Document due diligence and ongoing monitoring of recordkeepers, custodians, investment managers, auditors, and the PPP itself. Investment Oversight Investment policy statement (IPS): Maintain an IPS that defines selection, monitoring, and replacement criteria for the fund lineup or QDIAs; document deviations from IPS and rationale. 3(38) discretionary management: If appointed, ensure the 3(38) acknowledges fiduciary status in writing and provides quarterly reports and annual certification of prudence. Share class and fee reasonableness: Periodically benchmark investment fees and share classes, document revenue-sharing treatment, and ensure transparency in participant disclosures. Operational Compliance and Retirement Plan Administration Eligibility and enrollment: Align plan provisions with payroll coding; test that eligibility and auto-enrollment rules are applied correctly for each adopting employer. Timely deferral deposits: Establish procedures to remit employee deferrals and loan repayments as soon as administratively practicable, aiming for the earliest deposit standard; document controls and exception handling. Employer contributions: Validate formula accuracy, funding timelines, and application of last-day/1,000-hour rules; reconcile annually. Loans and distributions: Implement standardized controls for hardship, in-service, and termination distributions; maintain documentation and 1099-R reporting. Beneficiary designations and QDROs: Centralize and standardize processing; ensure qualified domestic relations orders are reviewed under written procedures. Cybersecurity and data governance: Follow DOL cybersecurity guidance; ensure contracts allocate responsibilities for data security, incident response, and participant notification. Testing, Audits, and Annual Filings Nondiscrimination and coverage: Conduct required ADP/ACP and coverage testing or apply safe harbor provisions; document testing methodology across all adopting employers. Top-heavy and 415 limits: Monitor top-heavy status and apply minimum contributions if needed; enforce 402(g), 415, and 404 limits. Audit readiness: Determine whether the PEP is a large plan subject to independent audit; coordinate consolidated audit logistics and engagement letters at the plan level. Form 5500 and schedules: File a single Form 5500 for the PEP with required schedules, including a listing of adopting employers and their EINs; ensure accuracy of financials and auditor’s report. ERISA bonding and fiduciary liability insurance: Maintain appropriate fidelity bond coverage for those handling plan assets and consider fiduciary liability insurance for PPP and committees. Form 8955-SSA and participant statements: Ensure accurate reporting of deferred vested participants; deliver required quarterly and annual participant disclosures. Fee Governance and Participant Disclosures 408(b)(2) and 404a-5 compliance: Maintain comprehensive service provider disclosures, fee schedules, and participant-level fee notices; ensure updates upon changes. Fee allocation policy: Define how plan-level expenses are shared among adopting employers and participants; disclose the method (per capita, pro rata, allocation by assets) and review annually. Reasonableness review: Benchmark recordkeeping, advisory, and custody fees; document the market check and the PPP’s negotiation efforts. Corrective Actions and Voluntary Compliance Error correction playbook: Maintain an operational failure matrix and correction pathways under EPCRS for IRS issues and VFCP for DOL-reportable transactions. Late deposit corrections: Calculate lost earnings using DOL methodology and submit VFCP when applicable; disclose on Form 5500. Document restatements and amendments: Track interim amendments, required restatements, and SECURE/SECURE 2.0 updates; confirm timely adoption across all employers. Adopting Employer Responsibilities Payroll integrity: Implement file validation checks for compensation definitions, deferral rates, and rehire status; reconcile payroll to trust each pay period. Employee notices: Distribute safe harbor, auto-enrollment, and QDIA notices timely; maintain proof of delivery. Local HR procedures: Train HR teams on eligibility triggers, termination processing, and documentation retention standards consistent with the PEP’s procedures. Risk Management and Documentation Minutes and evidence: Keep minutes for all governance meetings, retain investment reviews, RFP results, fee analyses, and testing reports. Business continuity: Document contingency plans for PPP service interruptions and data migration; test annually. Whistleblower and complaint handling: Track participant complaints and DOL inquiries; escalate and resolve per documented timelines. Transitioning from a MEP or Single-Employer Plan Asset mapping: Plan QDIA mapping and fund-to-fund transitions with blackouts disclosed per ERISA. Recordkeeping conversions: Reconcile participant balances, loans, and historical sources; conduct pre- and post-conversion testing. Employer onboarding: Standardize participation agreements, payroll specs, and data validations for each new adopting employer.
Practical Tips for Effective PEP Management
- Clarify the 401(k) plan structure: Document what is centralized at the PEP level versus delegated to each employer. Embrace consolidated plan administration: Leverage the PPP to standardize processes and reduce variability that causes errors. Use dashboards and SLAs: Track deposits, distributions, testing status, and open issues with clear service-level expectations. Schedule annual “health checks”: Combine fiduciary training, fee benchmarking, IPS review, cybersecurity testing, and a mock audit.
Common Pitfalls to Avoid
- Assuming the PPP bears all risk: Adopting employers still have fiduciary duty to prudently select and monitor the PPP and the PEP arrangement. Inconsistent payroll coding: Small payroll errors cascade into failed tests and late deposits; invest in validation scripts and exception reporting. Neglecting document alignment: If operations deviate from plan terms, fix the process or amend the document promptly. Under-communicating changes: Fund lineup shifts, blackout periods, or fee changes require timely and clear participant notices.
FAQs
Q1: What distinguishes a Pooled Employer Plan (PEP) from a Multiple Employer Plan (MEP)? A: A PEP, created by the SECURE Act, allows unrelated employers to participate under one plan overseen by a registered Pooled Plan Provider (PPP). Unlike many legacy MEPs, a PEP offers consolidated plan administration with the PPP taking key fiduciary roles, reducing the “one bad apple” risk via IRS guidance that allows for employer-level remediation.
Q2: What fiduciary roles does the Pooled Plan Provider (PPP) typically assume? A: The PPP is generally the named ERISA section 3(16) plan https://pep-program-structure-employer-strategy-knowledge-base.raidersfanteamshop.com/compliance-corner-form-5500-and-audit-requirements-in-peps administrator and may appoint a 3(38) investment manager. It handles plan governance, filings, and vendor oversight, while adopting employers retain duties to select/monitor the PPP and ensure accurate payroll and timely remittances.
Q3: Are adopting employers still responsible for ERISA compliance? A: Yes. Employers must prudently select and monitor the PPP and PEP arrangement, maintain accurate payroll operations, deliver required notices, and cooperate with testing and audits. The PPP centralizes many functions but does not eliminate employer fiduciary obligations.
Q4: What annual filings apply to a PEP? A: The PEP files a single Form 5500 with schedules and an adopting employer list, coordinates any required plan audit, and handles participant disclosures. PPPs also maintain Form PR registration; the plan may file Form 8955-SSA for deferred vested participants.
Q5: How should fees be monitored in a PEP? A: Establish a fee governance policy, ensure 408(b)(2) and 404a-5 disclosures are current, benchmark all service and investment fees, document revenue-sharing practices, and assess allocation methods for fairness across adopting employers and participants.