Industry claims PPP proposal asks too much

Retirement plan service providers, plan sponsors and other industry stakeholders are pushing back against the Department of Labor's proposed registration requirements for pooled plan providers, the companies that will run the new pooled employer plans expected to start rolling out Jan. 1 under the SECURE Act.

In comment letters to the Department of Labor, industry participants argued that the proposed registration requirements go well beyond what was anticipated under the legislation and urged the agency to streamline the information required.

"We were thinking that the registration would just be a short registration with basically contact information," said Jan Jacobson, senior counsel, retirement policy, at the American Benefits Council in Washington.

The anticipated new plans — or PEPs — were established under the SECURE Act to make it easier for employers in unrelated businesses to join a collective or pooled retirement plan for their workforces, a move that would allow companies to reduce administrative duties and lower retirement plan costs through economies of scale as well as attract employers that currently do not offer plans. The breadth of the proposed registration requirements would erode some of the intended efficiencies and cost savings, some industry participants argued.

"You're running the risk that the costs would become too great and you wouldn't meet your original goal of encouraging more employers to have retirement plans," Ms. Jacobson said.

The comment period, which closed Oct. 1, drew 22 responses from record keepers, third-party administrators, consultants, and plan sponsor, broker-dealer and asset manager trade groups.

Among other things, the Labor Department is asking pooled plan providers to furnish a description of administrative and investment services that they will offer, including identification of any affiliates expected to have role in the provision of those services. It is also asking for disclosures of ongoing criminal, civil or administrative proceedings.

"I completely understand the desire to protect participants, beneficiaries and employers joining a PEP, but some of the detail is extremely in the weeds," said David Levine, a principal at Groom Law Group in Washington. "Some simplification would be helpful."

Mr. Levine noted that the registration of PPPs was meant to help the Labor Department identify PPPs before they filed a Form 5500 for the PEPs they established. The Labor Department's proposal, however, would require the "disclosure of information that goes materially beyond what is necessary to simply identify PPPs," Mr. Levine said.

Stakeholders argued that the proposed information in some instances is more extensive than the disclosures demanded of single-employer plans. PPPs, for example, would be required to report significant changes to their or their affiliates' corporate or business structure on an ongoing basis, a requirement "for which there is no current analog in the single-employer plan reporting regime," Ms. Jacobson said.

"You don't want to put more requirements or make it more expensive for them to do the pooled plans than for them to do the single-employer plans," she said, referring to pooled plan providers.

Industry participants also noted that some of the required information is duplicative and can be found in other places, such as the Form 5500 and filings made with the SEC and other regulators. The service provider information required under the Labor Department's proposal, for example, will be reported on the Form 5500 for future PEPs that PPPs launch.

"If the DOL wants to collect information on the services being provided by PPPs, it could collect this information using Form 5500," Ms. Jacobson said.

The Labor Department has acknowledged that some of the information can be found in other filings but nevertheless justified the duplicative efforts due to the near two-year lag that could elapse between a PPP starting operations and the filing of a PEP's Form 5500.

Still, some stakeholders held their ground, refusing to be swayed by the Labor Department's thinking. "This lag may be relevant, but the DOL did not explain why it needs to know whether a plan exists sooner than Congress requires for any other type of plan," Ms. Jacobson said.

The American Retirement Association was more forgiving on this point. While some of the information is duplicative, "it is helpful to have everything in one place, especially if this is intended to be useful to plan sponsors and participants," said Allison Wielobob, ARA's general counsel in Washington.

Industry stakeholders, however, almost all agreed on the need to tone down what they saw as a particularly troublesome requirement. They urged the Labor Department to streamline disclosures of ongoing administrative proceedings against the pooled plan provider or any officer, director or employee of the pooled plan provider.

The requirement is overly broad and could be interpreted to include routine Labor Department or IRS audits or investigations or mere inquiries from governmental entities, Ms. Wielobob said.

"I don't know what an interested plan sponsor would think if they saw that a particular pooled plan provider had an ongoing audit," she said. "It could be potentially unfair if the plan sponsor were to draw conclusions about a service provider based on that information, which may not be anything."

The Securities Industry and Financial Markets Association, the U.S. Chamber of Commerce and others echoed similar concerns and urged the Labor Department to limit or define the types of administrative proceedings that must be disclosed.

Stakeholders also agreed that disclosures be limited to administrative proceedings against officers and directors of the PPP or the PPP itself but not employees.

"Many PPPs will have hundreds if not thousands of employees and this data element would require multiple supplemental filings regarding matters that may have little or no impact on the PEP," Ms. Wielobob said.

Some industry participants also took issue with the supplemental filings required under the Labor Department's proposal if there were any change to the information the PPP reported or if the PPP or a plan it sponsors underwent a reportable event such as a merger or acquisition.

"The ARA believes that the Form 5500 is more appropriate for disclosing reportable events to the DOL," Ms. Wielobob said.

Others called for streamlining supplemental filings or removing them altogether given that PPPs would likely go through frequent changes as the market for pooled employer plans evolves.

Asking for this level of detail when the market is still developing can stifle innovation, said Groom Law's Mr. Levine. "I completely understand people's need to have information, but there's a balancing act here," he said.

Ms. Jacobson summed it up tightly in her comment letter to the Labor Department: "At this stage in the development of the PEP marketplace," she said, "DOL should not be requiring PPP registration statements to report any information other than the PPP's basic contact and identifying information."