Are PEPs Available to 403(b) Plan Sponsors?

“As a small 403(b) plan sponsor, I read with great interest the new pooled employer plan (PEP) provisions of the SECURE Act that will allow unrelated employers to band together into a single retirement plan to increase their purchasing power. Are PEPs available to 403(b)s?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Unfortunately, no. The new PEP rules, do not apply to 403(b) plans (nor to 457(b) governmental plans, multiemployer plans for collectively bargained groups, and defined benefit plans). Thus small 403(b) plans are still somewhat limited in their opportunities to band together into a single plan to increase their purchasing power.

Though 403(b) MEPs, which unlike PEPs, require a relationship between the participating employers (for example an association of universities, hospitals, etc.), do exist, the existing Code sections addressing MEPs do not apply to 403(b) plans, which can make such MEPs problematic from a Code perspective. Of course, small tax-exempt employers could band together to form 401(k) MEPs, but those plans have drawbacks of their own, such as the actual deferral percentage (ADP) testing requirement for 401(k) plans. A 401(a) MEP could be a possibility as well, but that would only address employer contributions, as pre-tax elective deferrals are not permitted in 401(a) plans.

Other solutions to the purchasing power issue may be available to certain types of 403(b) plan sponsors. For example public education employers (colleges/universities and K-12 public school districts), may be able to participate in a 403(b) sponsored by the state in which their operate (or a state agency, such as a Board of Regents), that is maintained specifically for such employers. And public entities may also be able to participate in 457(b) plan sponsored by the state In which they operate and/or a grandfathered 401(k) (one that was in existence prior to May 7, 1986) that are sponsored in a limited number of states (see this Ask the Experts column for more details on such state plans). Also, institutions that are affiliated with a church, may be able to participate in the denominational plan of that church entity.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.