Terminating from a PEP

Interested to see if anyone has dealt with a recordkeeper that has a solution for a company that wants to leave their PEP.  My understanding of the process is they must establish a new plan, transfer to the new plan, then terminate the plan.

The recordkeepers that we have PEPs with currently do not have a viable solution for this process.

Curious to see if anyone else is running into this issue and if you have a work around.

Thanks!

Doing what you suggest raises the possibility of a successor plan issue.  In effect, what needs to take place is a "spin-off from the PEP to a standalone plan.  Not sure it actually is, as the participation in the PEP is more of an administrative structure that a "plan" in the classical sense.  No new plan, no terminated plan.  Simple continuation of the plan the pan sponsor already has, sans the PEP structure.

I wonder if this question is/was addressed at the ASPPA conference?

Sounds like you're looking for some actual "hands on" experience/recommendations; for generic "how to" issues, here are a couple of articles that may (or may not) be of help:

Breaking Up Is Hard to Do: Exiting a Retirement Plan MEP or PEP

Getting Out of a MEP/PEO/PEP Is Not as Easy as You Might Think

Thanks for the information.  I understand the process to leave and terminate from a PEP.   However, none of the recordkeepers we deal with have any process of doing this. 

Keith - The process will depend on the specifics of the arrangement.  We have successfully worked with providers on spinning out the plan to a stand-alone plan and there are ways to have the stand alone plan be a continuation plan which is helpful if it is a safe harbor plan.  I do not know of any standard procedures, but generally if the sponsor intends to maintain the plan, then they would cease participation in the PEP and spin out to a stand alone plan.  Depends on what recordkeepers are involved as to how difficult the process is. 

Also thank you Lois for sharing my blog on the topic!

Hey Keith - Agree with the above.  As a firm we deal with standard DC plan terms all the time and I just read Newfront's article on this the other day as I was speaking with a PEO.  It's pretty comprehensive and seems like good advice, especially the bit about speaking with an ERISA attorney.

Two further thoughts:

Don’t assume a multiple-employer plan allows a spin-off; some might not.

When an employer or service recipient considers a pooled employer plan, association retirement plan, professional employer organization’s MEP, or other multiple-employer plan, recognize that one might become discontent with the arrangements; and evaluate the exit rights before signing the participation agreement.

Thanks again for everyone's comments.  

Let me try to clarify my original question.  My question was not necessarily the details of exiting a PEP, but rather if anyone had experience with how recordkeepers handle this process of an employer leaving a PEP and no longer having a 401(k) plan.

Specifically, do any of them have a solution in place ?  The recordkeepers I have worked with indicate they would price the "spin off" as a separate new plan.  This would add to the cost of shutting down the plan.

Thanks again.

I don't know any other way to do this other than a spin-off. That is how I would do it. Then terminate the plan as a single employer plan.  You can't terminate a PEP, only the sponsor can do that and you need a distributable event to pay everyone out.  

I believe this is an ongoing issue.  Most recordkeepers will not establish a new contract, spin-out a plan from a PEP, only to have that plan terminate or move to another recordkeeper, even though this is what should be done.  

ASPPA Annual was very light on PEP issues, only one 50 minute session.

33 minutes ago, jsample said:

I believe this is an ongoing issue.  Most recordkeepers will not establish a new contract, spin-out a plan from a PEP, only to have that plan terminate or move to another recordkeeper, even though this is what should be done.  

ASPPA Annual was very light on PEP issues, only one 50 minute session.

True, but Terry Powers did specifically address this. From his slides:

Participating Employer Plan Termination

  -No distributable event within the PEP

  -Establish new, single-employer plan

  -Transfer assets from the PEP to new plan

  -Terminate the new plan

Point of clarification: the pooled plan provider(P3) is NOT the plan sponsor.  TITLE I of SECURE Act of 2019 explicitly states that each of the adopting employers are the PEP's plan sponsor. Also, the P3 is NOT "the" 402a fiduciary on a PEP.  They are "a" 402 fiduciary that shares co-fiduciary duties with the plan sponsor/adopting employers.  As "limited scope" plan sponsors (only responsible for their participant and assets) the adopting employer (AE) has ultimate responsibility for their participants. 

Regarding, vacating a PEP:  prior to joining a PEP, the AE should fully understand the PEP's exit strategy and exit fees. Each P3/PEP has its own exit strategy.  Leaving any PEP is possible but understanding the process is important.

This is just one reason sponsors thinking of joining a PEP should work with an independent non-conflicted consulting group to ensure the AE chooses the best P3/PEP option for their participants. Also remember that each adopting employer is required by law to continually and consistently monitor the P3, PEP and service providers.  With more than 500 PEPs now registered with the DOL it is more difficult than ever to make the right decision to join a PEP and to continue to prudently its viability. 

Hope this is helpful.