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 employers who may be deciding whether to join a PEP.

My last  two articles Things I Worry About (25) and Things I Worry About (26) began a series about the part of the guidance that is an RFI—Request for Information, where the DOL is soliciting information that would be helpful for future guidance. This article continues that discussion with a focus on the part titled “Conflicts of Interest and Mitigation.”

7. What percentage of pooled plan providers are using independent 3(38) investment managers pursuant to the delegation permitted by section 3(43)(B)(iii)(II) of ERISA? For this purpose, independent means not affiliated with the pooled plan provider. When 3(38) investment managers are used, are the agreements entered into between the 3(38) investment managers and the pooled plan providers, or do the 3(38) investment managers contract directly with the participating employers?

Comment: As a part of the DOL’s interest in conflicts, it is asking for information about affiliated 3(38), or investment manager, arrangements. Under ERISA, if the PPP—the pooled plan provider—appoints the 3(38), adopting employers will be freed from any fiduciary responsibility to select and monitor the investments. On the other hand, if each adopting employer engages the 3(38), the adopting employers will be fiduciaries for the selection and monitoring of the 3(38) investment manager. In that case, the 3(38) should provide information, at least annually, to assist the adopting employers fulfill that responsibility. In addition, it is advisable, in my view, for the advisory agreement to (i) inform the adopting employers of that responsibility (particularly since some, or perhaps many, of the adopting employers signed onto the PEP to reduce their fiduciary responsibilities), and (ii) explain that, even though each adopting employer was engaging the 3(38) that the investment manager would be selecting a single lineup for the PEP for direction by the participating employees of all adopting employers…based on the demographics of the PEP as a whole and not based on any individual employers covered workforce.

While not stated in the question, I assume that the DOL may have a concern about the use of investment advisers who are affiliated with the PPP and the ongoing duty of the PPP to monitor the 3(38). There is likely  also be a concern where the 3(38) then selects proprietary investments for the PEP.

8. When independent 3(38) investment managers are used for investment and management of assets, how often do the managers provide services to the PEP or pooled plan provider other than investment management services, and what type of other services?

Comment: In my experience, the main role of affiliates of the investment manager is that their individual advisers or registered representatives may provide additional services to adopting employers, such as enrollment meetings, meetings with the adopting employers to explain the reports from the PPP and/or the investment manager, and assistance in coordinating with the PPP on any issues/problems encountered by an adopting employer. That is usually a compensated role for those advisors and paid from the PEP.

On the other hand, I have not seen the 3(38) investment managers directly provide other services to the PPP or PEP. But, then again, I haven’t seen everything.

9. Do pooled plan providers purport to limit authority of their 3(38) investment managers to choose the funds or arrangements in which they invest? To what extent do pooled plan providers encourage or require investments from a limited menu of options? To what extent do pooled plan providers purport to limit the range of options to those in which the pooled plan providers have a financial interest?

10. Are PEPs offering investments with revenue sharing arrangements that offset the costs of recordkeeping or other plan services? Are PEPs offering investments that are proprietary to the pooled plan provider, its affiliates, or any other PEP service provider?

Comment on 9 and 10: This hasn’t been the case on any of the PEPs that I have worked on, but I assume that it is occurring where a mutual fund manager wants to ensure that at least some of the funds selected by the 3(38) are proprietary funds.

Generally speaking, if the 3(38) is an independent investment manager (that is, is not affiliated with or controlled by the PPP), the only issue is whether the funds available for selection by the independent investment manager is so limited that it virtually guarantees that proprietary funds will be selected. In that case, there is a risk that the arrangement is tantamount to a prohibited conflict of interest. There isn’t any definition of the number of available funds necessary to avoid that problem, but there would need to be enough in each investment class and style to afford the investment manager real choices.

If the investment manager is affiliated with the adviser of any funds it selects, there will be a prohibited transaction; in that case, the manager will need to comply with the conditions of a prohibited transaction exemption.

11. How do pooled plan providers manage potential conflicts of interest in cases in which they offer investments in which they have a financial interest?

Comment: It is not clear to me what investment conflicts of interest are at issue here. If there is an independent 3(38) investment manager, and the manager can select from a large number of funds, that shouldn’t be a problem (unless there is evidence of undue influence). If funds are selected by the independent manager that pay revenue sharing to the PPP and/or an affiliated recordkeeper, that should not in and of itself be a conflict. However, it could be a reasonable compensation issue. In that case, though, if appropriate 408(b)(2) disclosures are made and the total fees and costs are not more than a reasonable amount, that “conflict” would  be properly managed.

12. Are there any potential conflicts of interest in PEP distribution models? If so, how are they managed?

Comment: The only potential distribution conflicts that I have seen is compensation to the representatives of the RIA or broker-dealer for the “sale” of the PEP and the servicing of the adopting employer and its employees. In my experience, that is typically done with a separate agreement with the adopting employers. In that case, and assuming appropriate disclosures and reasonable compensation, the legal requirements should be satisfied.

13. What existing prohibited transaction exemptions (statutory or administrative) do pooled plan providers rely on, if any?

Comment: My experience in representing PEPs is that my clients are not engaging in prohibited transactions and thus do not need to relief provided by exemptions. However, once the public comments are posted on the DOL’s website, we will be able to see what others are saying.

14. Based on the business models that pooled plan providers have developed, is there a need for additional prohibited transaction exemptions? If so, explain why they are needed, what conditions should be included, and why they would be in the interest of, and protective of, affected plans.

Comment: I want to see the answers to this question. In many, perhaps most, cases there are related entities. For example, a recordkeeper may serve as the PPP. A question is whether that presents a conflict (and perhaps even a prohibited transaction). In that case, the DOL would almost certainly need to issue an exemption. But that also raises the question of whether, in its capacity as the PPP, the recordkeeper must monitor itself. That question is unanswered. Fortunately, most recordkeepers can be, and are, prudent choices for the services they provide.

Concluding Thoughts

The responses to the RFI questions will be a treasure trove of information about the different PEP structures, the allocation of fiduciary responsibility, and the existence and management of conflicts. I am sure that there will be more blog posts once we see the responses.

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.