Co-Fiduciary Roles in PEPs: Advisor, PPP, and Employer Responsibilities

Co-Fiduciary Roles in PEPs: Advisor, PPP, and Employer Responsibilities

The emergence of Pooled Employer Plans (PEPs) under the SECURE Act has reshaped the 401(k) plan structure for small and mid-sized employers. By allowing unrelated employers to band together under a single plan, PEPs promise cost efficiencies, streamlined administration, and stronger fiduciary oversight. But with innovation comes complexity: who is responsible for what? Understanding the co-fiduciary roles of the Pooled Plan Provider (PPP), the advisor, and the participating employer is essential to sound plan governance and ERISA compliance.

At their best, PEPs deliver consolidated plan administration without sacrificing rigor. They can offload significant fiduciary and administrative burdens from employers that might otherwise sponsor a standalone 401(k). Yet, employers remain fiduciaries to some degree, and advisors and PPPs must execute clearly defined duties. The lines of responsibility—if carefully drawn—protect participants, enhance investment outcomes, and reduce risk for all parties.

How PEPs differ from MEPs and single-employer plans

Before the SECURE Act, many employers avoided Multiple Employer https://pep-management-plan-efficiency-playbook.wpsuo.com/outsourced-plan-management-with-peps-focus-on-your-business-not-paperwork Plans (MEPs) due to operational and compliance risks, including the “one bad apple” rule that could disqualify an entire plan because of one noncompliant employer. The SECURE Act introduced PEPs with a dedicated Pooled Plan Provider, clarified oversight requirements, and reduced the shared-risk problem through updated compliance remedies. In a PEP, employers adopt a consolidated plan administered by a PPP that is registered with the Department of Labor and the Treasury, simplifying retirement plan administration relative to running a standalone plan.

Key fiduciary actors and their roles

Pooled Plan Provider (PPP): The PPP is the named fiduciary and plan administrator for the PEP. It is responsible for day-to-day plan governance, consolidated plan administration, vendor management, ERISA compliance processes, and ensuring that the plan’s operations follow its governing documents. The PPP typically handles 5500 filings, audit coordination, eligibility and distribution rules, QDROs, and works with recordkeepers and custodians. Advisor to the PEP: The advisor may serve as an ERISA 3(21) co-fiduciary (recommendations) or an ERISA 3(38) investment manager (discretion). In a 3(38) capacity, the advisor assumes discretion over the investment lineup and model portfolios, relieving employers of most investment selection and monitoring responsibilities. In a 3(21) role, the advisor provides ongoing advice, benchmarking, and participant guidance, while the fiduciary decision remains with the named fiduciary (often the PPP). The advisor also supports education, fee transparency, RFPs, performance reviews, and fiduciary documentation. Participating employer: Employers adopting a PEP delegate substantial responsibilities to the PPP, but they remain fiduciaries where they retain discretion—most notably in selecting and monitoring the PPP, the advisor, and the plan itself for prudence and reasonableness. Employers are responsible for timely and accurate payroll contributions, providing participant data, implementing plan eligibility and automatic features at the payroll level, and ensuring their HR and payroll processes align with plan provisions. Employers also decide whether to adopt optional features (e.g., safe harbor, Roth, auto-enrollment, student loan matching) as permitted within the PEP’s design.

The fiduciary framework: where responsibilities converge

Fiduciary oversight in a PEP hinges on clear allocation of duties documented in the plan document, service agreements, and adoption agreements. Strong plan governance means:

Documented delegation: The PPP’s role as named fiduciary and plan administrator should be explicit. If an advisor is engaged as a 3(38), that discretion must be formalized. Prudent selection and monitoring: Employers must prudently select the PEP, PPP, and advisor, then monitor them periodically. This is the core continuing fiduciary duty the employer cannot fully outsource. Process over outcomes: ERISA compliance focuses on prudent processes—fee benchmarking, investment policy adherence, timely remittances, and consistent administration—not on any single investment result.

Operational excellence through consolidated plan administration

A central advantage of PEPs is the unification of tasks that were fragmented across many single-employer plans. Consolidated plan administration can reduce duplication of audits, filings, and vendor oversight. The PPP coordinates recordkeeping, trust/custody, compliance testing, and the annual Form 5500, while centralizing communications and policies. The advisor provides investment due diligence and participant support across the pooled structure, bringing scale to education and guidance.

That said, payroll integration remains a critical employer function. Many operational errors stem from misaligned payroll codes, late deposits, or incorrect eligibility determinations. Even in a highly administered PEP, employers should implement controls around payroll feeds, contribution timing, and reconciliation to maintain ERISA compliance. Regular tick-and-tie processes, variance reporting, and periodic payroll audits can materially reduce error risk.

Comparing fiduciary load: PEP vs. single-employer 401(k)

Investment selection and monitoring: In a traditional single-employer 401(k) plan, the employer’s committee bears significant responsibility. In a PEP with a 3(38) advisor, the PPP and advisor shoulder most investment duties, leaving employers with oversight of the providers themselves. Plan document management: The PPP handles updates and amendments for the entire PEP, reducing employer exposure to missed restatements or delayed SECURE Act and related regulatory updates. Compliance testing and filings: The PPP coordinates annual testing, 5500 filings, and, where required, the audit. Employers still must supply accurate census data on time. Participant communications: Centralized communications and disclosures streamline delivery and improve consistency but depend on employer cooperation to ensure accurate contact data and eligibility status.

Risk management and best practices

To optimize outcomes within a PEP framework:

Establish a fiduciary file: Employers should maintain minutes of PPP and advisor reviews, fee benchmarks, service agreements, and evidence of prudent monitoring. Even with consolidated plan administration, your own file demonstrates process. Define service-level expectations: Clarify turnaround times for eligibility, loans, distributions, QDROs, and payroll error corrections. Include escalation paths and measurable KPIs for the PPP and recordkeeper. Formalize the investment policy: If the advisor is a 3(38), ensure the Investment Policy Statement reflects delegated discretion, screening criteria, QDIA selection, monitoring cadence, and mapping rules for fund changes. Align payroll operations: Coordinate with HRIS and payroll vendors to implement automated controls for contribution timing, compensation definitions, and rehire rules. The most frequent ERISA compliance issues in any 401(k) plan structure arise from payroll missteps. Conduct periodic fee and service benchmarking: Even in a pooled environment, fees should reflect scale benefits. Benchmark recordkeeping, trust, advisory, and PPP fees against peers and documented requests for information (RFIs/RFPs).

Advisor’s strategic role in participant outcomes

Beyond menu construction, advisors can leverage the scale of a PEP to improve participant engagement. Consistent education campaigns, targeted advice, and managed accounts can be offered across participating employers with uniform standards. Advisors can also support default strategies such as QDIAs, auto-enrollment, and auto-escalation, helping to raise participation and savings rates. This holistic approach, aligned with fiduciary oversight, creates a stronger foundation for retirement readiness.

When a PEP may not fit

Despite the benefits, some employers may prefer a standalone plan or a traditional Multiple Employer Plan (MEP) if they require bespoke plan design, unique eligibility rules, or specialized investment options not supported by the PEP’s standardized framework. Employers with highly complex payroll or union arrangements may also need custom administration. A careful analysis of costs, features, governance, and administrative capacity should precede any decision.

The bottom line

PEPs, enabled by the SECURE Act, offer a compelling path to reduce the administrative and fiduciary lift associated with retirement plan administration. In a well-structured PEP, the PPP centralizes plan governance and compliance, the advisor delivers investment prudence and participant support, and the employer focuses on prudent selection and accurate operational execution. Clear delineation of co-fiduciary roles, consistent monitoring, and disciplined processes help ensure ERISA compliance while improving the participant experience.

Questions and Answers

1) What fiduciary duties does an employer retain in a PEP?

Employers must prudently select and monitor the PEP, PPP, and advisor. They remain responsible for accurate and timely payroll contributions, providing data, and ensuring internal processes align with the plan document.

2) How does a PPP reduce employer risk?

The PPP serves as named fiduciary and plan administrator, handling consolidated plan administration, filings, audits, vendor oversight, and many operational tasks, thereby shifting substantial fiduciary and administrative responsibilities away from employers.

3) Do advisors in PEPs always act with discretion over investments?

Not necessarily. Advisors may serve as ERISA 3(21) co-fiduciaries (advice only) or as 3(38) investment managers (discretion). The adoption agreement and service contracts specify the role.

4) How do PEPs compare to MEPs?

Both pool employers, but PEPs created under the SECURE Act require a registered PPP and include modernized compliance frameworks. They generally reduce cross-employer risk and streamline oversight more effectively than many legacy MEP structures.

5) What operational area causes the most errors in a PEP?

Payroll integration and contribution remittance. Even with strong plan governance, employers must maintain robust payroll controls to stay in ERISA compliance.