Does an Adopting Employer in a PEP Still Need a Retirement Plan Committee?
Moving to a Pooled Employer Plan (PEP) can change more than the way a retirement plan is administered. It can change how an employer approaches plan governance.
For many plan sponsors, a retirement plan committee is a familiar part of plan governance. Committees may oversee investments, service providers, plan administration, compliance, fees and other aspects of the retirement program. In a traditional single-employer retirement plan, this structure can provide a practical way to distribute fiduciary responsibilities and demonstrate a prudent decision-making process.
But what happens when an employer joins a PEP? Does the employer still need a retirement plan committee?
Not necessarily.
A PEP does not require an adopting employer to maintain a retirement plan committee simply because it had one before joining the PEP. In fact, one of the potential advantages of a PEP is that many of the responsibilities traditionally handled by an employer’s internal retirement plan governance structure can be assumed by the PEP’s pooled plan provider (PPP).
However, that does not mean the adopting employer has no fiduciary responsibilities. Understanding what remains—and what has shifted to the PEP provider—is critical to determining whether a committee still makes sense.
Start With the Difference Between a Traditional Plan and a PEP
In a traditional single-employer retirement plan, the employer typically serves as the plan sponsor and may have responsibility for a broad range of fiduciary and administrative functions.
That can include:
- Selecting and monitoring service providers
- Overseeing plan administration
- Selecting and monitoring investments
- Reviewing plan fees and expenses
- Establishing plan governance policies
- Addressing compliance and operational issues
- Maintaining documentation of fiduciary decisions
Many employers establish retirement plan committees to help manage these responsibilities. A well-structured committee can bring together expertise from human resources, finance, legal and other areas of the organization and provide a documented process for making plan decisions.
Retirement plan committees can help sponsors make informed, prudent decisions, establish a decision-making framework, and document the rationale behind plan decisions. Committee members who exercise discretion over a plan’s management are generally acting as plan fiduciaries. A PEP changes this framework.
What Changes When an Employer Joins a PEP?
A PEP is designed to consolidate many plan-level responsibilities under a single pooled plan provider. The Department of Labor explains that PEPs are sponsored and administered by a PPP, which assumes most of the administrative and fiduciary responsibilities associated with sponsoring a retirement plan.
That means an adopting employer generally no longer needs to perform all of the functions it performed when sponsoring its own individual plan. For example, depending on the structure of the PEP, the PPP may be responsible for functions such as:
- Plan administration
- Plan-level compliance
- Plan governance
- Required filings
- Participant administration
- Coordination with service providers
- Other fiduciary responsibilities assigned to the PPP under the plan
The result is an important shift. The employer moves from managing the retirement plan itself to overseeing its relationship with the PEP and the responsibilities it retains. That distinction matters when considering whether an internal retirement committee is still necessary.
What Fiduciary Responsibility Does the Adopting Employer Retain?
For the avoidance of doubt, joining a PEP does not eliminate the adopting employer’s fiduciary responsibilities.
Under the SECURE Act’s PEP provisions, each adopting employer retains fiduciary responsibility for the selection and monitoring of the PPP and any other named fiduciary of the PEP.
The Department of Labor has specifically recognized this distinction: an adopting employer generally remains responsible for monitoring the performance of the PPP and other named fiduciaries with respect to its employees, while it does not retain responsibility for investment management that has been delegated to another fiduciary, such as a qualified investment manager. This creates a much narrower—but still important—governance responsibility.
The question for an adopting employer is therefore not simply: “Do we still need a retirement committee?” It is: “What responsibilities remain with us, and what is the most effective way to oversee them?”
Does an Adopting Employer Need a Retirement Committee? There is generally no requirement that an adopting employer maintain a retirement plan committee simply because it participates in a PEP. But that does not mean a committee is inappropriate. An employer may choose to maintain a committee if it provides a useful structure for:
- Monitoring the PEP provider
- Reviewing reports and performance
- Documenting the employer’s oversight process
- Coordinating internal stakeholders
- Escalating issues to the appropriate decision-makers
- Reviewing the employer’s ongoing obligations under the PEP
- Making employer-level business decisions regarding the retirement benefit
The important consideration is that the committee’s role should align with the responsibilities the employer actually retains.
A committee that continues to operate as though the employer were sponsoring its own standalone 401(k) may be unnecessary—or could create confusion about who is actually responsible for certain fiduciary functions.
A PEP Can Change the Role of the Committee
For an employer moving from a traditional plan to a PEP, the retirement committee does not necessarily have to disappear.
Instead, its role can evolve.
Rather than spending meetings reviewing investment performance, approving administrative processes or addressing issues that have been delegated to the PPP, the committee could focus on oversight of the PEP relationship and the responsibilities still retained by the employer.
For example, a committee might periodically review:
PEP provider oversight
Are the PPP and other service providers fulfilling their responsibilities in accordance with the plan documents and service agreements?
Service and operational performance
Are administration, participant service, communications and other services being delivered as expected?
Fees and expenses
Are the fees associated with the PEP reasonable in relation to the services being provided?
Fiduciary governance
Is the employer following a documented and prudent process for monitoring the PPP and other named fiduciaries?
Employer-level decisions
Are there decisions that remain with the adopting employer, and are they being addressed by the appropriate individuals?
This can result in a committee that is smaller, more focused and more strategic than the committee required to oversee a standalone retirement plan.
Don’t Maintain a Committee Just to Maintain a Committee
A retirement committee is not automatically beneficial simply because it exists. The Department of Labor emphasizes that fiduciary status is based on the functions a person performs and the discretion or control they exercise—not simply their title. That means an employer should be intentional about who is given authority over the PEP and what that authority entails.
If an employer maintains a committee, the committee’s charter, responsibilities and decision-making authority should be consistent with the PEP’s governing documents and service agreements.
The committee should know:
- What the PPP is responsible for
- What the employer is responsible for
- What the committee is responsible for
- Which decisions are fiduciary decisions
- Which decisions are business decisions
- What needs to be monitored
- What should be documented
- When an issue should be escalated to the PPP or another fiduciary
A PEP should prompt an employer to revisit its governance structure—not automatically replicate the governance structure it had before.
The Right Question for Employers Considering a PEP
One of the advantages of a PEP is that it can reduce the administrative and fiduciary burden associated with maintaining a standalone retirement plan.
But reducing responsibility is not the same as eliminating oversight.
The adopting employer still has an important role to play in selecting and monitoring the PEP provider and other fiduciaries. The Department of Labor describes this as an important responsibility that remains with participating employers.
For some employers, the best approach may be to maintain a retirement committee with a revised charter and a more focused oversight role.
For others, particularly smaller organizations, responsibility may be assigned to a designated individual or another appropriate governance structure.
The goal isn’t to preserve a committee for the sake of tradition. The goal is to establish a governance structure that matches the responsibilities the employer actually retains.
A PEP Should Simplify Governance—Not Create More of It
A well-designed PEP can give employers access to a retirement plan structure that centralizes many of the responsibilities that can make sponsoring a standalone plan complex and time-consuming.
That is part of the value proposition of the PEP model.
The employer’s role becomes less about managing the mechanics of the retirement plan and more about selecting the right PEP, understanding the responsibilities being delegated, and maintaining appropriate oversight of the fiduciaries and providers responsible for those functions.
For employers considering a PEP, the retirement committee question is therefore an important part of the due-diligence process:
What responsibilities will we retain, what responsibilities will the PEP provider assume, and does our current governance structure still make sense? The answer may be that the committee remains—but with a different mandate. It may be that the committee is streamlined. Or it may be that a committee is no longer necessary.
What matters is not whether an employer has a retirement plan committee. What matters is whether the employer has an appropriate, documented and effective process for fulfilling the fiduciary responsibilities it retains. PEPs help deliver that process.
To learn more about how PEPs simplify plan governance, contact a Pentegra expert at solutions@pentegra.com or 855-549-6689.
This article is for informational purposes only and is not intended to provide legal, tax or investment advice. Employers considering a Pooled Employer Plan should review the PEP’s governing documents, service agreements and allocation of fiduciary responsibilities and consult with appropriate legal or other professional advisers.