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On July 24, 2025, the Department of Labor released a document with respect to pooled employer plans (PEPs) that included a general description of PEPs and how they work, “limited interpretive guidance,” a set of “Fiduciary Tips for Small Employers Selecting a PEP,” and a request for information (RFI) “primarily for the purpose of considering whether additional guidance to facilitate small employers joining PEPs would be helpful.”
In this article, after a review of some PEP “basics,” we focus on DOL’s review of and guidance with respect to employer and provider fiduciary obligations with respect to a PEP. In a follow on article we’ll review DOL’s “tips” and (briefly) the issues raised in the RFI.
Background
SECURE 1.0 authorized “pooled plan providers” (PPPs) to establish PEPs – defined contribution plans for employees of multiple, unrelated employers. As explained by DOL, the PEP “value proposition” is that through pooling the retirement savings arrangements of multiple employers PEPs could “offer employers, especially small employers, an efficient workplace retirement savings option with reduced burdens and costs compared to sponsoring their own separate retirement plan.” The DOL document released in July provides some data in support of this proposition:
Morningstar finds that the median total cost for each participant in a small retirement plan is 84 basis points, accounting for likely investment expenses and other administrative costs charged directly to participants. In contrast, based on the same data source, the Department estimates that the total costs to participate and invest through one of the three largest PEPs reviewed were between 23 and 42 basis points for a typical participant in 2023.
PEP organization
Generally, a PEP would be organized by a PPP who would be designated by the terms of the plan as:
A named fiduciary under ERISA
The plan administrator
The person responsible to perform all administrative duties (including conducting proper testing with respect to the plan and the employees of each employer in the plan) that are reasonably necessary to ensure that the plan meets the Code requirements for tax-favored treatment and the requirements of ERISA.” (We assume that PEPs would typically be ADP testing safe harbor plans.)
The PPP would also be authorized to collect all necessary data from participating employer, including “any disclosures or other information that [DOL] may require or that the pooled plan provider otherwise determines are necessary to administer the plan or to allow the plan to meet Code and ERISA requirements.”
PEP investments/fiduciary issues
As explained by DOL, with respect to fiduciary investment responsibility/risk, the statute provides two alternative business models:
Alternative 1: Selection of investment options by the employer
As a default, the statute “unmistakably places duties of selecting and monitoring plan investments squarely on participating employers in accordance with ERISA’s fiduciary standards, including the duties of prudence and loyalty.”
Under this approach, the employer (as fiduciary) would be responsible for constructing the plan’s fund menu, although its choices may be limited by the PPP. In discharging this duty, the employer would be subject to the same fiduciary rules (and litigation exposure) as it is under a single employer DC plan.
Alternative 2: Selection of investment options by a designated fiduciary
Alternatively, “[t]he statute … allows the pooled plan provider to transfer the investment and management functions and obligations of participating employers to another fiduciary. In such circumstances, the pooled plan provider, as a named fiduciary, is subject to and must ensure compliance with [ERISA’s fiduciary provisions] to effect such a transfer.”
Use of an independent 3(38) investment manager
DOL, in its guidance, explains that under Alternative 2, where an independent 3(38) investment manager is appointed by the pooled plan provider to manage PPP investments, nearly all fiduciary responsibility/litigation risk would be carried by the investment manager:
If a pooled plan provider, as named fiduciary, were to appoint an investment manager as defined in section 3(38) of ERISA, the manager would be responsible for the prudent investment and management of the plan’s assets – not the participating employers. Further, in such circumstances, neither the participating employers nor the pooled plan provider would be liable for any acts or omissions of the investment manager, except for any potential co-fiduciary liability ….
DOL, in its guidance, highlights the advantages (for employers) of the Alternative 2 approach:
In the Department’s view, the risk to participating employers of fiduciary liability could be minimized greatly if the pooled plan provider, as named fiduciary, expressly assumed full responsibility for, and exercised sole discretion and judgment in selecting and retaining the manager and did not attempt to reduce its responsibility by relying on authorization or ratification from the participating employers for the selection and retention, such as through an adhesive participation agreement. In these circumstances, fiduciary liability of participating employers would be minimized because the pooled plan provider assumed full responsibility for selecting and retaining the investment manager. This means the pooled plan provider has the duty to directly monitor the investment manager. Participating employers, in turn, must prudently monitor the pooled plan provider.
As we read this statement, DOL seems to be advocating that PEP and PPPs take this Alternative 2 approach, as a way to make PEPs more “user friendly” for small employers.
The employer’s minimum fiduciary responsibility: selection of the PPP
Whatever the arrangement with respect to investments, employers joining a PEP will, as fiduciaries, always be responsible for the prudent selection of the pooled plan provider.
In that regard, the two critical issues will be competence (the ability of the PPP to deliver, e.g., adequate recordkeeping services) and fees. The latter issue is the nearly universal target of plaintiffs’ lawyers, and (with respect to it) DOL provides the following “tip”:
Make sure you [the employer] ask questions about the PEP’s fees. Operating a PEP involves services such as trustee services, custodial services, recordkeeping, audits, and other administrative services. Fees for these services are often quoted on a per-participant basis or based on the level of the employer’s assets in the plan, or a combination of the two. There may also be start-up fees. It is important to understand all the fees and expenses that will be charged by the PEP and how they will be allocated among participating employers and their employees’ accounts. Examples of relevant questions include asking the pooled plan provider for a breakdown by service of all the fees and expenses associated with joining the PEP. Also relevant is a breakdown by service of how much the pooled plan provider (and any affiliate) gets paid and who approves these fees and expenses. Another relevant question is whether the pooled plan provider receives any compensation from third parties in connection with the PEP, and whether it uses the data from participant accounts for cross-selling activities.
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In our second article on this topic we’ll discuss DOL’s ““Fiduciary Tips for Small Employers Selecting a PEP” in detail.