Prohibited Transactions Involving Pooled Employer Plans Under the SECURE Act and Other Multiple Employer Plans, 36880-36882 [2020-13142]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 85, Number 118 (Thursday, June 18, 2020)]
[Notices]
[Pages 36880-36882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13142]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-12010]
Z-RIN: 1210-ZA28


Prohibited Transactions Involving Pooled Employer Plans Under the 
SECURE Act and Other Multiple Employer Plans

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Request for information.

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SUMMARY: The Setting Every Community Up for Retirement Enhancement Act 
(SECURE Act) amended the Employee Retirement Income Security Act of 
1974 (ERISA) to allow for pooled employer plans (PEPs). PEPs are 
required to designate a pooled plan provider who is a named fiduciary 
of the PEP. As a fiduciary, the pooled plan provider is subject to 
standards and restrictions in ERISA and the Internal Revenue Code, 
including the prohibited transaction provisions restricting fiduciaries 
of plans from engaging in conflict of interest transactions. This 
document requests information on the possible parties, business models, 
and conflicts of interest that respondents anticipate will be involved 
in the formation and ongoing operation of PEPs. This document also 
requests information on similar issues involving multiple employer 
plans sponsored by employer groups or associations or professional 
employer organizations (referred to herein as ``MEPs''). The Department 
of Labor (the Department) is considering whether to propose a class 
exemption on its own motion to cover prohibited transactions involving 
PEPs and MEPs.

DATES: Comments should be submitted to the Department on or before July 
20, 2020.

ADDRESSES: You may submit written comments to the Office of Exemption 
Determinations by any of the following methods, identified by Z-RIN 
1210-ZA28:
    Federal eRulemaking Portal: https://www.regulations.gov at Docket ID 
number: EBSA-2020-0001. Follow the instructions for submitting 
comments.
    Email to: [email protected].
    See SUPPLEMENTARY INFORMATION below for additional information 
regarding comments.

FOR FURTHER INFORMATION CONTACT: Erin Hesse, telephone (202) 693-8546, 
Office of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

Comment Instructions

    All comments received must include the agency name and Regulation 
Identifier Number (Z-RIN) for this request for information. In light of 
the current circumstances surrounding the COVID-19 pandemic caused by 
the novel coronavirus which may result in disruption to the receipt of 
comments by U.S. Mail or hand delivery/courier, persons are encouraged 
to submit all comments electronically and not to follow with paper 
copies. Comments will be available to the public, without charge, 
online at https://www.regulations.gov and https://www.dol.gov/agencies/ebsa, and at the Public Disclosure Room, Employee Benefits Security 
Administration, Suite N-1513, 200 Constitution Avenue NW, Washington, 
DC 20210.
    Warning: All comments and hearing requests will be made available 
to the public. Do not include any personally identifiable information 
(such as Social Security number, name, address, or other contact 
information) or confidential business information that you do not want 
publicly disclosed. All comments and hearing requests may be posted on 
the internet and can be retrieved by most internet search engines.
    The Department of Labor (the Department) is considering whether to 
propose a class exemption on its own motion to cover prohibited 
transactions involving PEPs and MEPs under the authority of section 
408(a) of ERISA, and section 4975(c)(2) of the Internal Revenue Code of 
1986, as amended, and in accordance with the procedures set forth in 29 
CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).

I. Background

A. Setting Every Community Up for Retirement Enhancement Act (SECURE 
Act)

    The SECURE Act was signed into law on December 20, 2019. It amended 
the Employee Retirement Income Security Act of 1974 (ERISA) to allow 
for a type of employee benefit plan called a pooled

[[Page 36881]]

employer plan (PEP). A PEP is an individual account plan established or 
maintained for the purpose of providing benefits to the employees of 
two or more employers, that is treated as a single employee pension 
benefit plan or single pension plan for purposes of ERISA. A PEP does 
not include a plan maintained by employers that have a common interest 
other than having adopted the plan.
    A PEP must have a pooled plan provider that is designated as a 
named fiduciary, plan administrator, and the person responsible for 
specified administrative duties. Additionally, the PEP's governing 
documents and operation must have and be operated pursuant to certain 
specified terms, including terms relating to the designation of 
trustees and terms providing that employers, participants, and 
beneficiaries may not be subject to unreasonable restrictions, fees, or 
penalties for ceasing participation, receiving distributions, or 
transferring assets to another plan. Further, the PEP's governing 
documents must provide that each employer in the plan retains fiduciary 
responsibility for: (1) The selection and monitoring of the pooled plan 
provider and any other named fiduciaries of the plan, and (2) to the 
extent not otherwise delegated to another fiduciary by the pooled plan 
provider and subject to the provisions of ERISA section 404(c), the 
investment and management of the portion of the plan's assets 
attributable to their own employees and the employees' beneficiaries.
    The SECURE Act also amended Internal Revenue Code (Code) section 
413 to add a new subsection addressing qualification requirements for 
plans with pooled plan providers as well as plans maintained by 
employers with a common interest other than having adopted the plan. 
Under Code section 413(e), these types of plans will not be treated as 
failing to meet certain requirements of the Code merely because one or 
more employers of employees covered by the plan fail to take actions 
required to meet the requirements. In order for Code section 413(e)(1) 
to apply, the plan must require that:

    (1) The assets attributable to the noncompliant employer's 
employees and the employees' beneficiaries will be transferred to a 
plan maintained only by the noncompliant employer (or its 
successor), to an eligible retirement plan defined in Code section 
402(c)(8)(B), or to any other arrangement that the Secretary of the 
Treasury determines is appropriate, unless the Secretary of the 
Treasury determines that it is in the best interest of the employees 
and beneficiaries to retain the assets in the plan; and
    (2) the noncompliant employer (and not the plan or any other 
employer in the plan) shall be liable for any liabilities with 
respect to a plan attributable to the noncompliant employer's 
employees and the employees' beneficiaries, except to the extent 
provided by the Secretary of the Treasury.

The SECURE Act provides that the Secretary of the Treasury shall issue 
such guidance as the Secretary determines appropriate to carry out the 
new subsection.

B. Department's MEP Final Rule and Previous Request for Information on 
Open MEPs

    The SECURE Act amendments furthered an existing regulatory 
initiative of the Department to expand access to affordable, quality 
retirement savings options. In 2019, the Department issued a final rule 
(MEP Final Rule) clarifying the circumstances under which an employer 
group or association or a professional employer organization (PEO) may 
sponsor a single pension plan under ERISA for the employees of multiple 
employer members or clients, respectively (referred to herein as a 
``MEP'').\1\ The Department's initiative responded to President Trump's 
Executive Order 13847, ``Strengthening Retirement Security in 
America.''
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    \1\ Definition of ``Employer'' Under Section 3(5) of ERISA--
Association Retirement Plans and Other Multiple-Employer Plans, 84 
FR 37508 (July 31, 2019).
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    On the same day it issued the MEP Final Rule, the Department 
published an additional request for information which sought comments 
on whether to amend the regulations to facilitate the operation of 
``open MEPs''--i.e., by expressly permitting financial institutions or 
other persons/entities to maintain a single ERISA plan on behalf of 
employers with no relationship other than their joint participation in 
the plan.\2\ The request for information included a series of questions 
directed at the conflicts of interest that might exist for the persons/
entities that would operate ``open MEPs'' and the need for additional 
prohibited transaction exemptions if such arrangements were permitted. 
While the Department received valuable input on those issues, the 
request did not specifically address the structure of PEPs as 
established by the SECURE Act or the amendment to Code section 413.
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    \2\ ``Open MEPs'' and Other Issues Under Section 3(5) of the 
Employee Retirement Income Security Act, 84 FR 37545 (July 31, 
2019).
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C. Prohibited Transaction Exemptions

    ERISA and the Code prohibit fiduciaries with respect to plans, 
including PEPs and MEPs, from engaging in self-dealing transactions. 
Fiduciaries violate these prohibited transaction provisions if they use 
their authority to affect or increase their own compensation or the 
compensation of affiliates or related entities, or if they receive 
payments from third parties in connection with transactions involving a 
plan.\3\ Further, fiduciaries to plans may not act in their individual 
capacity or any other capacity, in any transaction involving the plan, 
on behalf of a party whose interests are adverse to the interests of 
the plan or the interests of its participants and beneficiaries.\4\
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    \3\ ERISA section 406(b)(1) and (3) and Code section 
4975(c)(1)(E)-(F).
    \4\ ERISA section 406(b)(2).
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    The Department has authority to grant administrative exemptions 
from the prohibited transaction provisions in ERISA and the Code.\5\ 
Before granting an exemption, the Department must find that the 
exemption is administratively feasible, in the interests of plans and 
their participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of plans.
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    \5\ ERISA section 408(a) authorizes the Secretary of Labor to 
grant exemptions from the prohibited transaction provisions in 
ERISA. Code section 4975(c)(2) authorizes the Secretary of the 
Treasury to grant exemptions from the prohibited transaction 
provisions of the Code. Reorganization Plan No. 4 of 1978 (5 U.S.C. 
App. (2018)) generally transferred the Secretary of the Treasury's 
authority to grant administrative exemptions under Code section 4975 
to the Secretary of Labor.
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    As a result of the SECURE Act amendments to ERISA and the Code, a 
variety of service providers may decide to become pooled plan 
providers. The Department is seeking information regarding the possible 
parties, business models, conflicts of interest, and prohibited 
transactions that might exist in connection with PEPs, for the purpose 
of assessing the need for new prohibited transaction exemptions or 
amendments to existing exemptions. This document also requests 
information on similar issues involving MEPs.

II. Request for Information

    This document contains a number of questions. Respondents need not 
answer every question, but should identify, by number, each question 
addressed. Respondents also are encouraged to address any other matters 
they believe are germane to the general topic of the request for 
information.

[[Page 36882]]

A. Pooled Plan Providers and MEP Sponsors

    1. What types of entities are likely to act as pooled plan 
providers? For example, there are a variety of service providers to 
single employer plans that may have the ability and expertise to act as 
a pooled plan provider, such as banks, insurance companies, broker-
dealers, and similar financial services firms (including pension 
recordkeepers and third-party administrators). Are these types of 
entities likely to act as a pooled plan provider? Are some of these 
entities more likely to take on the role of the pooled plan provider 
than others? Why or why not? How many entities are likely to act as 
pooled plan providers? Will a single entity establish multiple PEPs 
with different features?
    2. What business models will pooled plan providers adopt in making 
a PEP available to employers? For example, will pooled plan providers 
rely on affiliates as service providers, and will they offer 
proprietary investment products?
    3. What conflicts of interest, if any, would a pooled plan provider 
(along with its affiliates and related parties) likely have with 
respect to the PEP and its participants? Are there conflicts that some 
entities might have that others will not?
    4. To what extent will a pooled plan provider be able to 
unilaterally affect its own compensation or the compensation of its 
affiliates or related parties through its actions establishing a PEP or 
acting as a fiduciary or service provider to the PEP? What categories 
of fees and compensation, direct or indirect, will pooled plan 
providers and their affiliates and related parties be likely to receive 
as a result of operating a PEP, including through the offering of 
proprietary investment products? Are there likely to be any differences 
in types of fees and compensation associated with operation of a PEP as 
compared to a single employer plan?
    5. Do respondents anticipate that the Department's existing 
prohibited transaction exemptions will be relied on by pooled plan 
providers, and if so, which exemptions are most relevant? Are any 
amendments needed to the Department's existing exemptions to address 
unique issues with respect to PEPs? Do respondents believe that there 
is a need for additional prohibited transaction exemptions? If so, 
please describe the specific transactions and the prohibited 
transactions provisions that would be violated in connection with the 
transactions.
    6. If additional prohibited transaction relief is necessary, should 
the Department consider developing distinct exemptions for different 
categories of pooled plan providers (e.g., to specifically address the 
unique prohibited transactions involved for certain entities) or should 
the Department address pooled plan provider conflicts more generally, 
in a single exemption? What are advantages and disadvantages of either 
approach?
    7. To the extent respondents do not believe additional prohibited 
transaction relief is necessary, why? How would the conflicts of 
interest be appropriately addressed to avoid prohibited transactions? 
Are different mitigating provisions appropriate for different entities? 
Why or why not?
    8. Do employer groups, associations, and PEOs described in the 
Department's MEP Final Rule face similar prohibited transactions to 
those of pooled plan providers, and do they have similar need for 
additional prohibited transaction relief? Are there prohibited 
transaction issues unique to employer groups or associations, or PEOs?

B. Plan Investments

    1. What plan investment options do respondents anticipate will be 
offered in PEPs and MEPs? Are the investment options likely to be as 
varied as those offered by large single employer plans? Are the options 
likely to be more varied than those offered by small single employer 
plans?
    2. What role will the entities serving as pooled plan providers or 
MEP sponsors, or their affiliates or related entities, serve with 
respect to the investment options offered in PEPs and MEPs?

C. Employers in the PEP or MEP

    1. How many employers are likely to join a PEP or MEP? Will joining 
a PEP or MEP be more appealing to employers of a particular size? Are 
there any estimates of the total number of employers and participants 
likely to be covered by newly formed PEPs and MEPs? Are there any 
estimates of the number of employers and participants that will migrate 
from a single employer plan to a newly formed PEP or MEP?
    2. Will larger employers also seek to join PEPs or MEPs in order to 
take advantage of additional economies of scale? Will any additional 
prohibited transactions exist as a result of substantial size 
differences between employers in the PEP or MEP (e.g., because a large 
employer has greater ability to influence decisions of a pooled plan 
provider or MEP sponsor as compared to a small employer)?
    3. Will the existence of multiple employers in a PEP or MEP cause 
greater exposure to prohibited transactions in connection with 
investments in employer securities or employer real property? In what 
form will PEPs and MEPs hold employer securities or employer real 
property?
    4. Do respondents anticipate that prohibited transactions will 
occur in connection with a decision to move assets from a PEP or MEP to 
another plan or IRA, in the case of a noncompliant employer? Do 
respondents anticipate that any other prohibited transactions will 
occur in connection with the execution of that decision?

    Signed at Washington, DC, this 15th day of June, 2020.
Jeanne Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.
[FR Doc. 2020-13142 Filed 6-17-20; 8:45 am]
BILLING CODE 4510-29-P