402(a) and PPP fiduciaries – a comparison

An opportune time to compare the basics of outsourcing fiduciary responsibilities

With the 2019 passage of the SECURE Act and the introduction of Pooled Employer Plans (PEPs), it is an opportune time to compare the basics of outsourcing fiduciary responsibilities. Employers who lack the expertise or resources to act in a named fiduciary capacity can hire an independent firm to serve as an outsourced 402(a) “named fiduciary” while still maintaining a single employer plan.

Employers also have an opportunity to leverage economies of scale and fiduciary outsourcing by joining a PEP. When joining a PEP, employers hire what is referred to as a Pooled Plan Provider (PPP). As part of the PEP arrangement, the PPP is required to serve as both the 402(a) named fiduciary and 3(16) plan administrator. While the PPP can outsource operational and fiduciary functions, the ultimate fiduciary responsibility for the operation of the PEP remains with the PPP.

In each of these scenarios, the employer’s fiduciary role may be substantially reduced through outsourcing, creating a greater incentive to provide a workplace retirement savings plan for employees.

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