From TPAs and QDIAs to MEPs and RMDs, the retirement plan market has never lacked acronyms to sprinkle into its hearty alphabet soup. PEPs—pooled employer plans—are the latest addition to the mix.
Courtesy of the 2019 SECURE Act, PEPs were cleared for takeoff on Jan. 1, 2021, making them the shiny new object for industry insiders. In truth, pooled solutions have been around for decades, but the recent buzz may have advisors wondering how (or whether) to incorporate them into their practices. As with any retirement solution, pooled plans have nuances advisors should know and understand. Pooled plans may not be appropriate for every organization or retirement plan practitioner.
I am privileged to lead the pooled plan practice for Transamerica, an industry pioneer that launched its first multiple employer plan (MEP) in 2001. In my role, I have testified before the IRS as officials wrestled with decisions about structure and availability. I also have daily conversations with advisors considering jumping into the pooled-plan arena.
With that in mind, I want to cover some basics (as well as some of the more advanced concepts) about these arrangements. In upcoming articles, that’s what I will do. For now, let’s go back in time and see how pooled plan arrangements came to be.
A Quick History Lesson
In 1875, the American Express Company established the first private pension plan in the United States,[1] and another dozen or so were active at the start of the 20th Century. By 1940, 4.1 million private-sector workers were covered by a single-employer pension plan.
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In 1947, the Labor-Management Relations Act—also known as Taft-Hartley—set guidelines for multiple employer plans, allowing them to be jointly administered by employers and labor unions. Professional employment organizations (PEOs) also began sponsoring MEPs. This allowed employers that were associated by virtue of belonging to the same PEO or union to join the MEP and take advantage of economies of scale in investments and professional oversight functions.
But why limit the benefits only to employers with a common link? In the early 2000s, a few providers—including Transamerica—cast a critical eye on the traditional interpretation of MEPs and decided to take a more aggressive stance.
The common link, they argued, was a desire to expand retirement benefits to all workers—regardless of whether they worked at an auto dealership, nail salon, convenience store, or any other business. This structure—a de facto open MEP—required participating employers to file separate Form 5500s and conduct independent audits, but it allowed them to enjoy the overall benefits of a pooled plan.
Fast forward to 2015, when the concept of truly open, pooled employer plans started to take hold. After several years of debate and discussion, the SECURE Act paved the way for a new kid on the block. The PEP—which could be sponsored by a third-party pooled plan provider and adopted by virtually any employer—has arrived.
So is the emergence of PEPs tantamount to a modern-day gold rush for plan service providers? How can you decide if you should jump in? Those topics, and more, to come.
Deborah (Deb) Rubin serves as Vice President and Managing Director of TPA and Special Markets at Transamerica.
[1] “A History of Public Sector Pensions in the United States,” Pension Research Council, Wharton
