This series of articles examines the DOL’s July 29, 2025, release that includes interpretative guidance on PEPs, solicits information about PEP practices, includes tips for selecting PEPs, and discusses a possible fiduciary safe harbor for adopting PEPs. 2025-14281.pdf (SECURED).

The first two articles in this series,  Things I Worry About (20) and Things I Worry About (21), discussed some of the DOL’s findings when it reviewed the 2023 Forms 5500 filed by PEPs.

The third, fourth and fifth articles, Things I Worry About (22), Things I Worry About (23), and Things I Worry About 24, reviewed issues identified by the DOL for deciding whether to join a PEP.

This article begins a series about the part of the guidance that was an RFI, where the DOL is soliciting information that would be helpful for future guidance. I quote and then discuss the questions that are the most interesting and relevant to employers and service providers.

One section of the Request for Information deals with the possibility of a fiduciary safe harbor for PEPs. Here are some of the questions and my comments:

15. Should the Department codify a regulatory safe harbor based on the guidance and tips in Sections IV and V of this RFI, respectively, for small employers to satisfy their fiduciary responsibilities for selection and monitoring pooled plan providers and other named fiduciaries referenced in section 3(43)(B)(iii)(I) and their fiduciary responsibilities for the investment and management of the portion of the PEP’s assets attributable to their employees referenced in section 3(43)(B)(iii)(II)? Why or why not? Are there additional considerations or conditions, apart from the guidance and tips in Sections IV and V, that the Department should consider with respect to the design or adoption of such a safe harbor?

Comment: The private sector responses have varied in material ways. Some say that, yes, small employers adopting PEPs should have a fiduciary safe harbor. One approach would be similar to the statutory safe harbor for insurance companies…a set of representations by the pooled plan provider—the PPP. Others say that all employers, both small and large, should be entitled to a safe harbor. And yet others say that employers sponsoring both PEPs and single employer plans should be entitled to a safe harbor.

As for me, I think that the question and the responses are beside the point. I am not aware of anything in ERISA that empowers the DOL to create a safe harbor for PEPs (unlike the statutory safe harbor for the selection of an insurance company). If the DOL does create a regulatory safe harbor, I believe the courts would set it aside using the authority in the Supreme Court’s Loper Bright decision. Stated slightly differently, I don’t see a way for the DOL to work around the prudent person standard of care and the duty of loyalty in ERISA §404(a).

However, I can see the DOL issuing guidance that would help adopting employers better understand their responsibilities and the process that would be needed to properly perform those responsibilities. Even there, though, adopting employers would need to engage in a prudent process, which includes understanding what they are responsible for and then considering the factors that a knowledgeable person would evaluate in making the decision. In that regard, section 3(43)(B) of ERISA provides that:

The requirements of this subparagraph are met with respect to any plan if the terms of the plan—(i) designate a pooled plan provider and provide that the pooled plan provider is a named fiduciary of the plan; (ii) designate a named fiduciary (other than an employer in the plan) to be responsible for collecting contributions to the plan and require such fiduciary to implement written contribution collection procedures that are reasonable, diligent, and systematic; (iii) provide that each employer in the plan retains fiduciary responsibility for—(I) the selection and monitoring in accordance with section 1104(a) of this title of the person designated as the pooled plan provider and any other person who, in addition to the pooled plan provider, is designated as a named fiduciary of the plan; and (II) to the extent not otherwise delegated to another fiduciary by the pooled plan provider and subject to the provisions of section 1104(c) of this title , the investment and management of the portion of the plan’s assets attributable to the employees of the employer (or beneficiaries of such employees);… [Bolding added by me.]

I think that a fair reading of the provision is that an adopting employer is responsible only for the selecting and monitoring of the PPP (and any other named fiduciaries—which would ordinarily include the 3(38) investment manager and the directed trustee) and the selection and monitoring of the investments, unless the PPP appoints a 3(38) investment fiduciary.

There are some possible inconsistencies there…in the sense that, if a PPP selects the 3(38) it would have a duty to monitor the 3(38) and the PPP would have the power to remove the 3(38), but the adopting employer would not. The only power the adopting employer would have is to leave the PEP. In that sense, it doesn’t make sense that both the PPP and the adopting employers need to monitor the 3(38) investment manager.  That is the job of the PPP.

Also, the statutory provision doesn’t mention fees. Under ordinary fiduciary principles, that would be the responsibility of the PPP and not the adopting employer. However, in some scenarios, that outcome isn’t logical. For example, could a large employer with significant plan assets prudently join a PEP designed for small employer with higher fees and expenses than a PEP designed for larger employers would have? It seems that the answer would be that a prudent adopting employer could not cause its participating employees to pay higher fees in that scenario.  As a result, I think that the more cautious position would be for adopting employers to evaluate the fees and costs in light of its plan assets, participants and other characteristics and in view of the range of PEPs reasonably available to that employer.

17. Should the safe harbor referenced in question 15 require the PEP to use a 3(38) investment manager that is not affiliated with the pooled plan provider?

Comment: This is an interesting question. In the quoted language from ERISA §3(43), it says that to meet the requirements of a PEP, the plan must: …provide that each employer in the plan retains fiduciary responsibility ….to the extent not otherwise delegated to another fiduciary by the pooled plan provider and subject to the provisions of section 1104(c) of this title, the investment and management of the portion of the plan’s assets attributable to the employees of the employer (or beneficiaries of such employees);…

In other words, an adopting employer is responsible for the prudence of the investments unless the PPP appoints an investment manager to select and monitor the investments in the PEP’s lineup. As a practical matter, an adopting employer could engage the investment manager, but in that case, the adopting employer is a fiduciary for the selection and monitoring of the investment manager. In other words, the adopting employer retains some of the fiduciary responsibility that it would have with a single employer plan. I doubt that the DOL would provide a fiduciary safe harbor for that arrangement (if it provides a safe harbor at all). If an adopting employer wants to shed as much fiduciary responsibility as possible, it would join a PEP where the PPP has engaged a 3(38) investment manager to prudently select and monitor all of the plan’s investments.

19. Should arrangements between an independent 3(38) investment manager and participating employers be permitted, encouraged, or discouraged as part of the safe harbor referenced in question 15—for instance, should the safe harbor encourage or discourage arrangements under which each participating employer in a PEP has a different investment menu for its own employees, or create special protective conditions for such arrangements? Should the safe harbor include conditions designed to ensure that the PPP gives all participating employers and plan participants the same investment options and fee structures on the same terms? Why or why not?

Comment: This is a complex issue. While PEPs that market their low costs will avoid this complexity, I have seen PEPs that have two distinct lineups to appeal to plan sponsors with different considerations. In that regard, picture, for example, a PEP with a more complex investment arrangement for white collar employers and a more straightforward investment lineup for employers with less educated workforces. Obviously, it would be simpler if those were two separate PEPs, but the law doesn’t preclude those arrangements.

A better example, though, is a PEP for large publicly traded employers who may want to offer a company stock fund. Why shouldn’t they be able to? On the other hand, that doesn’t cry out for a fiduciary safe harbor.

20. Should such a safe harbor exclude PEPs that offer investments in which the pooled plan provider has a finance al interest?

Comment: This is also complicated. I imagine that the  DOL is concerned about conflicts of interest and the potential of those conflicts to hurt participants. (Future articles will address the conflicts issues.)

My “bet” is that the DOL will be very cautious in providing a safe harbor where there are conflicts, such as affiliated investments. It is possible that the DOL will require specific steps for conflict management in order to protect participants against the potential negative effects of those conflicts. But I doubt that there will be a fiduciary safe harbor where the PPP or 3(38) have power to limit investments to primarily or exclusively be proprietary. We shall see in due course.

Concluding Thoughts

The RFI suggests that the DOL has a favorable view of PEPs—probably in light of the Congressional policy decisions to increase the adoption of retirement plans. In addition, the DOL may view management of plans by experienced fiduciaries in a favorable light. And the DOL almost certainly views the low costs reported by the more successful PEPs as a step in the right direction.

In legal time, PEPs are still in their infancy. We are just beginning to get data about their costs and performance. In the future we will learn more about the quality of management and the results being produced by PEPs. So, time will tell.

For the moment, my next article will continue looking at the DOL’s RFI questions.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.