Common plan arrangements: looking back and looking to the future
From TPAs and QDIAs to MEPs and RMDs, the pension market has never been short of acronyms to sprinkle in its hearty alphabet soup. The latest addition to the list is PEPs (group employer plans).
Thanks to the SECURE law of 2019, PEPs were allowed to take off on January 1, 2021, making them the shiny new object for industry insiders. In truth, mutualized solutions have been around for decades, but the recent buzz may lead advisors to wonder how (or if) to integrate them into their practices. As with any retirement solution, group plans have nuances advisors should know and understand. Group plans may not be suitable for every organization or pension practitioner.
I have the privilege of leading the group plans practice for Transamerica, an industry pioneer who launched its first Multiple Employer Plan (MLP) in 2001. In my role, I have testified before the IRS as officials struggled with decisions about structure and availability. I also have daily conversations with advisors who are considering entering the group plan arena.
With that in mind, I want to cover some basics (as well as some of the more advanced concepts) about these arrangements. In the next few articles, this is what I will do. For now, let’s go back in time and see how the common plan agreements were born.
A quick history lesson
In 1875, the American Express Company established the first private pension plan in the United States, and a dozen others were active at the start of the 20e Century. In 1940, 4.1 million private sector workers were covered by a single employer pension plan.
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In 1947, the Labor-Management Relations Act, also known as the Taft-Hartley, established guidelines for multi-employer plans, allowing them to be administered jointly by employers and unions. Professional organizations for employment (OEP) have also started to sponsor MEPs. This allowed employers who were associated by virtue of belonging to the same PEO or trade union to join the MEP and take advantage of economies of scale in investment and professional oversight functions.
But why limit the benefits to only employers with a common bond? In the early 2000s, a few suppliers, including Transamerica, cast a critical eye on the traditional interpretation of MEPs and decided to take a more aggressive stance.
The common thread, they said, was the desire to extend retirement benefits to all workers, whether they worked in a car dealership, nail salon, convenience store, or any other business. This structure – a de facto open MEP – required participating employers to file separate 5500s and perform independent audits, but it allowed them to reap the overall benefits of a common scheme.
Fast forward to 2015, when the concept of truly open and pooled employer plans began to take hold. After several years of debate and discussion, the SECURE Act paved the way for a newcomer to the neighborhood. PEP, which could be sponsored by a third-party common plan provider and adopted by virtually any employer, has arrived.
So, does the emergence of PEPs amount to a modern day gold rush for plan service providers? How do you decide if you should go for it? These topics, and more, to come.
Deborah (Deb) Rubin is Vice President and General Manager of TPA and Special Markets at Transamerica.
 “A history of public sector pensions in the United States, Pension Research Council, Wharton