DOL Seeks Comment on PEPs for Small Employers

The Department of Labor is asking for input on how to make pooled employer plans more viable for small businesses.

On Monday, the department announced that its sub–agency, the Employee Benefits Security Administration, will accept input for 60 days, advising those interested in joining such plans to ask about fiduciary liability.

“In addition to promoting retirement savings and reducing participant costs, expanding the use of PEPs is aligned with the department’s broader economic goals, including improving job quality and increasing labor force participation, especially at small businesses,” the guidance stated.

According to the guidance, the department is seeking comment on:

• Structure and marketing of PEPs;
• Use of independent fiduciaries to mitigate conflicts;
• Development of a potential regulatory safe harbor to reduce legal exposure for small employers joining PEPs; and
• Whether further legislation or exemptions are needed to facilitate market growth.

In advance of the request, the department analyzed Form 5500 filings from 2023, the first to require information about the number of participating employers in a PEP. While the 2023 Form 5500 data may not be fully complete, it included all PEPs that filed a 2022 Form 5500 and reported at least $100 million in assets, according to the DOL. The department stated that the data “offers a reasonable dataset to assess the nascent PEPs marketplace.”

The department also found the market for PEPs “highly concentrated,” according to the 2023 filings. The 12 largest PEPs, by assets under management, held nearly 70% of all PEP assets, and the four largest PEPs held more than 40% of all PEP assets.

The department also reported that the 12 largest PEPs use a diversity of business models and serve different kinds of employers. For example, the largest of the 12 PEPs held $1.68 billion in assets in 2023 but only served 63 employers and approximately 56,000 participants. The next largest PEP, as of 2023, held $1.08 billion in assets and served 33,773 employers and approximately 538,000 employees. More broadly, the average number of participants per participating employer among the 12 largest PEPs ranged from 16 to 884, with half of the PEPs serving an average of at least 188 participants per participating employer.

The DOL stated that establishing regulations would reduce the investment costs for workers who are PEP participants and would encourage more small employers to offer retirement benefits to their workers.

In the guidance, the DOL also offered “fiduciary tips,” which the department characterized as light guidance on how employers should evaluate plan costs, investment options, provider qualifications and legal obligations, but the DOL stated it would have more guidance after the comment period.

Comments can be submitted here. The deadline to submit a comment is September 29.