SEC Informal Guidance Clears Path for PEP Growth and CIT Access
The Securities and Exchange Commission (SEC) on Monday issued informal guidance that effectively makes Pooled Employer Plans (PEPs) more scalable, cost-effective and competitive, strengthening their role as a major distribution and growth channel in the retirement plan market.
“Building on the work of the President and our colleagues across the administration, today’s action by staff in the Divisions of Investment Management and Corporation Finance makes it easier for more Americans to access retirement plans and save for a secure retirement,” said SEC Chairman Paul Atkins in a post on X.
The guidance removes key structural barriers to PEP growth, enhances investment flexibility by providing access to Collective Investment Trusts (CITs), and expands the addressable market (especially small and self-employed employers)
The statement from SEC staff said the regulator will not object to PEPs relying on the “single trust” exemption under the Investment Company Act, which effectively allows PEPs to avoid being treated as investment companies if they meet ERISA and tax code requirements. This removes a significant regulatory ambiguity and reinforces PEPs as a viable, scalable solution for multiple employer plans.
From the SEC statement:
“Congress enacted the SECURE Act to, among other things, remove legal barriers preventing the broader use of multiple employer plans. For this reason, Congress, among other actions, amended ERISA and the Code to treat pooled employer plans as single employer plans for purposes of those statutes. Accordingly, the staff would not object if a pooled employer plan treats itself as a single employer plan for purposes of the Investment Company Act and relies on the single trust exclusion in section 3(c)(11) of the Investment Company Act to avoid registration as an investment company; provided that the pooled employer plan: (i) is subject to ERISA; and (ii) meets all of the requirements of the relevant section of the Code referenced in section 3(c)(11).”
CIT access
Regarding CITs, SEC staff now says they can be offered to PEPs without registration under Rule 180, opening the door for lower-cost investment options (CITs) in to help advisors deliver more competitive pricing compared to mutual funds.
The SEC statement notes that plan sponsors have generally avoided offering CIT investments to PEPs with self-employed participants due to uncertainty around Rule 180 requirements, limiting those plans’ access to CITs and sometimes discouraging inclusion of self-employed employers altogether.
“In the staff’s view, it is reasonable to similarly treat pooled employer plans as single employer plans for purposes of rule 180(a)(2),” the SEC statement says. “The staff would not object if a CIT issues interests to a pooled employer plan that covers self-employed persons without registering the offer and sale of the CIT’s interests under section 5 of the Securities Act in reliance on rule 180; provided that the plan: (i) is subject to ERISA; and (ii) the issuance meets all of the requirements in rule 180(a)(1) and (a)(3).”
The SEC staff says CITs can rely on the pooled plan provider—rather than individual employers—to meet the rule’s sophistication requirement, since the provider effectively serves as the plan’s fiduciary.
ICI applauds relief
“Under Chairman Atkins’ leadership, the SEC has shown it is committed to helping American workers save and invest for their futures. We thank the staff of the Divisions of Investment Management and Corporation Finance for their work on behalf of retirement savers to provide access to a broader array of investment options,” the Investment Company Institute said in a statement Monday in response to the SEC statement.
“This relief eliminates a technical impediment to small businesses participating in pooled employer plans that use collective investment trusts. It will provide retirement plans a broader range of cost-effective investment options…”
ICI statement
“This relief eliminates a technical impediment to small businesses participating in pooled employer plans that use collective investment trusts. It will provide retirement plans a broader range of cost-effective investment options, ultimately helping savers to succeed. We applaud the SEC for their work to accomplish the bipartisan goals of the SECURE 2.0 Act and increase plan coverage among self-employed Americans and small businesses,” the ICI statement reads.
The SEC statement concluded with a reminder that the staff statement merely represents the views of the staff of the Division of Investment Management, but clarifies that it is not a rule, regulation, or statement of the Commission.
“This staff statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person,” the statement concludes. “Future changes in rules, regulations, and/or the staff’s no‑action and interpretive positions may supersede some or all of the information in a particular staff statement.”
Persons with questions about this statement are asked to contact the Division of Investment Management’s Chief Counsel’s Office at IMOCC@sec.gov.
SEE ALSO:
• Recordkeepers List PEPs, Personalization as Leading Priorities
• LeafHouse, GTC Partner on Proprietary CIT Platform
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.