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 article, Things I Worry About (22), started the review of issues identified by the DOL for deciding whether to join a PEP.

This is the second in a series of articles about the questions that the DOL suggested employers ask when adopting PEPs. That section—entitled “Fiduciary Tips for Small Employers Selecting a PEP”—posed nine questions that employers should ask. My last article, Things I Worry About (22), covered the first three questions. This article and my next one cover the remaining DOL questions and comments, as well as my comments.

My last article left off with question 3. Let’s move on to 4, 5 and 6:

4. Make sure you ask questions about the PEP’s fees. Operating a PEP involves services such as trustee services, custodial services, recordkeeping, audits, and other administrative services. Fees for these services are often quoted on a per-participant basis or based on the level of the employer’s assets in the plan, or a combination of the two. There may also be start-up fees. It is important to understand all the fees and expenses that will be charged by the PEP and how they will be allocated among participating employers and their employees’ accounts. Examples of relevant questions include asking the pooled plan provider for a breakdown by service of all the fees and expenses associated with joining the PEP. Also relevant is a breakdown by service of how much the pooled plan provider (and any affiliate) gets paid and who approves these fees and expenses. Another relevant question is whether the pooled plan provider receives any compensation from third parties in connection with the PEP, and whether it uses the data from participant accounts for cross-selling activities.

Comment: I think this is good advice for risk management. It’s never a good idea to make a fiduciary decision without knowing the associated fees and cost. However, I’m not sure that it is legally required. The SECURE Act added sections 3(43) and 3(44) to ERISA to create PEPs and to define the requirements. Section 3(43)(B)(iii) says, in part, that the requirements to be a PEP are satisfied “if the terms of the plan…provide that each employer in the plan retains fiduciary responsibility for—

1. 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

Comment: In real English, this says that the fiduciary responsibilities of an adopting employer are to prudently select and monitor the PPP—pooled plan provider—and any other named fiduciary. For example, the trustee of the PEP would be a named fiduciary. I read this as saying that the responsibility for fees and costs is on the PPP, not the adopting employer.

2. 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);…”

Comment: This says that, if the PPP doesn’t designate an investment manager to select and monitor the plan’s investments, the adopting employers are responsible as fiduciaries for the investments. If this is the case, the adopting employers can select their own 3(38) investment manager and not be responsible for the investments. But, of course, the adopting employer would be a fiduciary for the prudent selection and monitoring of the 3(38) manager. Obviously, the more straightforward (and easier for adopting employers) is to have the PPP select and monitor a 3(38) investment manager, relieving them of that fiduciary duty. However, for a variety of considerations, some PEPs are structured where the adopting employers are expected to select and monitor the investment manager—for some or all of the investments.

One curious thing about the structure of the law is that, where the PPP appoints the investment manager, the PPP is the fiduciary responsible for the selection and monitoring of the 3(38) investment manager. However, the law says that adopting employers are responsible determining if the “named fiduciaries” are prudent choices for its participating employees. A 3(38) investment manager would ordinarily be a named fiduciary it is appointed pursuant to a provision in the plan document authorizing the appointment of an investment manager. That raises the question of the scope of the fiduciary duty of adopting employers related to the investment manager—since the adopting employers cannot remove and replace an investment manager selected by the PPP.  While one interpretation could be that adopting employers don’t have a fiduciary responsibility to vet the investment manager. However, the only “safe” answer—without further guidance—is that  adopting employers should also vet the investment manager.

5. Make sure you understand the investment options. Examples of relevant questions include the number of fund options, whether they are diversified, how they perform relative to their benchmarks, and whether they have materially different risk and return characteristics. Also relevant is who selects the funds on the menu and how often their choices and process are reevaluated. You may want to ask about the default investment for employees who do not direct the investment of their account assets. TDFs have become an increasingly popular investment option in 401(k) plans and similar employee-directed retirement plans. You may want to ask the pooled plan provider whether the PEP has TDFs. It is also important to understand the fees associated with the investments made available for employees. As discussed in #6 below, you may have fiduciary responsibility for the selection of the investment options for your employees.

Comment: Again, if the PPP appoints a 3(38) investment manager, I see this as primarily being the responsibility of the investment manager. If the PPP prudently appoints an investment manager, neither the PPP not the adopting employers should be responsible for the investment decisions of the 3(38). That’s just how the law works. However, as I suggested above, a conservative approach would be for adopting employers to prudently vet the investment manager.

On the other hand—as lawyers like to say, if the PPP does not appoint an investment manager, then adopting employers are responsible as fiduciaries for the selection and monitoring of the investments or, if they select their own investment manager, for the prudent selection and monitoring of the investment manager.

As an aside, one of the curiosities of adopting employers selecting the investment manager is that typically the PEP has a single lineup that all of the adopting employers must accept. That puts the investment manager in the conceptually odd position of determining that a single investment line up is appropriate for all of the adopting employers and their covered workers. I say “conceptually” because a well-designed and low-cost investment lineup may in fact be appropriate for many different employers and their workforces.

6. Ask questions about your exposure to fiduciary liability for investments. Under federal law, employers joining a PEP are legally responsible as fiduciaries for the proper selection of investment options for their employees unless the pooled plan provider hires an investment professional to act as a fiduciary with respect to investment selection. Therefore, it is very important to know whether the PEP has a fiduciary for this purpose. If so, you may want to ask the pooled plan provider to name the fiduciary that is responsible for selecting the PEP’s investment options and the person responsible for selecting this fiduciary. You have fiduciary responsibility for the investment and management of the portion of the PEP’s assets attributable to your employees if no such delegation occurred.

Comment: I agree. Even beyond what the DOL says here, I would recommend that all agreements be reviewed in advance to look for any clauses that limit fiduciary responsibility or liability. If I were an employer considering a PEP, I would want to lay off all fiduciary responsibility other than what is legally required by ERISA section 3(43). Isn’t that one of the benefits of joining a PEP?

Having said that, I can understand where a PPP and/or 3(38) would want to have an employer select or approve a certain investment, e.g., a high quality, low-cost proprietary investment. But even there, adopting employers need to know what they are responsible for and to what extent.

Concluding Thoughts

This article, and Worry (22), cover the first 6 DOL questions for consideration of a PEP. My next article will cover the remaining questions. As a result, the three articles in combination will be a roadmap for choosing a PEP.

PEPs can offer substantial advantages to employers—transfer of administrative responsibility, professional investment management, perhaps lower costs, and so on. However, adopting employers still have some fiduciary responsibilities. These articles are intended to help employers and advisers navigate those fiduciary waters.

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.