SEC Offers Securities Law Flexibility for PEPs

The Securities and Exchange Commission issued a statement on Monday clarifying how pooled employer plans may be treated under federal securities laws, potentially easing regulatory hurdles and opening the door to wider participation.

In a statement, the SEC’s Division of Investment Management addressed questions about how pooled employer plans—retirement plans allowing multiple unrelated employers to participate—fit within existing securities regulations.

The guidance centered on two key issues: whether PEPs can rely on the “single trust exclusion” under the Investment Company Act of 1940 and whether certain investment vehicles tied to these plans can avoid registration requirements under the Securities Act of 1933.

Pooled employer plans were created in the Setting Every Community Up for Retirement Enhancement Act of 2019 to make it easier for small businesses to offer retirement benefits by joining together in a single plan. However, the structure of PEPs—covering multiple, unrelated employers—has raised questions about whether they qualify for regulatory exemptions traditionally reserved for single-employer plans.

The questions are particularly important as PEPs have become increasingly popular. At the end of 2024, PEPs had more than 50,000 participating employers and approximately $21 billion in assets, according to Bank of America.

In its statement, the SEC stated it would not object if PEPs are regarded as single-employer plans for purposes of certain exemptions, provided they meet requirements under the Employee Retirement Income Security Act and the Internal Revenue Code.

The clarification could have significant implications. By allowing PEPs to rely on these exclusions, the guidance may reduce compliance burdens and encourage broader adoption of pooled plans by small employers.

The SEC statement also addressed the use of collective investment trusts, a popular and often lower-cost investment option. Historically, CITs have faced limitations when serving plans that include self-employed individuals. SEC staff indicated that these restrictions may be eased, allowing such plans to access CITs without triggering registration requirements.

Some industry participants have previously argued that prior uncertainty discouraged inclusion of self-employed workers in pooled plans. Still, the agency emphasized that the statement reflects staff views and does not carry the force of law or create new legal obligations.