NPPG Touts SEC Registration for Administering PEPs

As pooled employer plans gather an increasing share of the retirement plan marketplace, an industry player is advocating for an additional layer of regulatory compliance: registering as an investment adviser with the Securities and Exchange Commission.

NPPG Plan Professionals LLC, a pooled plan provider currently overseeing 20 PEPs, announced Tuesday it registered last year as an investment adviser with the SEC specifically because it either operates as or selects the 3(38) investment fiduciary activities for the PEPs it oversees. SEC registration comes in addition to the firm registering a Form PR with the Department of Labor, the official requirement to run a PEP.

NPPG Founder and CEO Michael Salerno says the firm registered with the SEC in April 2023 to ensure compliance as an investment fiduciary either selecting the 3(38) provider for the PEPs it oversees or serving as that 3(38). Meanwhile, the firm wrote to the regulator inquiring if it could be exempt from registration; the reply came back a few weeks ago, according to Salerno, with a “No, we are not granting your dispensation, you must register.”

While Salerno admits “no one wants to register with the SEC,” he sees the logic of it and is promoting it as one of the benefits of working with NPPG. The announcement of the firm’s registration touts its dual registration by noting that “adopting employers can look up the registration status of their PPP using the SEC’s Investment Adviser search or by using FINRA’s Broker Check.”

“We are stepping into the shoes of a plan sponsor,” he says. “We sponsor the plan, we select the vendor. One of the vendors we select is a 3(38) fiduciary, we enter into a contract with that vendor, and that 3(38) is going to perform its investment management function.”

Filing Guidance

According to the DOL’s final PEP guidance, PPPs must register with the DOL by submitting Form PR before offering PEPs. Once the PEP is set up, the plan must file as a Form 5500, similar to any 401(k).

“We have seen no guidance, nor any hint of guidance, requiring pooled plan providers, who are not acting as either investment advisor 3(21) or investment manager 3(38), to register with the SEC,” Smith says. “Of course, if the P3 is acting as either the 3(21) or 3(38), then further registration is required, as is the case with single-employer plans and investment advice or management.”

PPPs, Smith notes, are not required to directly hire an investment adviser or investment manager.

“In several instances that we are aware of, the P3 requires the adopting employer to contract directly with the 3(21) or 3(38),” he says. In such cases, the PPP agrees to administer the adviser service, as well as monitor its activities.

Some of the confusion regarding a potential SEC registration requirement, Smith believes, may occur because many believe the PPP is “the” named fiduciary to a PEP—the sole fiduciary. However, the DOL regulation states that the PPP is “a” 402(a) named fiduciary, not “the” named fiduciary, making it only one of multiple fiduciaries. The Setting Every Community Up for Retirement Enhancement of 2019, which heralded in PEPs, also specifies that each of the PEP’s adopting employers are “limited scope” plan sponsors to the pooled plan.

“This is critical, as the P3 and adopting employers are co-fiduciaries, meaning they both share in the ongoing compliance monitoring duties,” Smith says. “However, the act is specific that the employer/sponsor has ultimate responsibility for the investments attributable to their participant’s plan assets. As the PEP’s limited-scope plan sponsors, the adopting employers must develop stringent monitoring protocols to ensure that the plan management and investments are solely in the best interests of participants.”

PEPs were created in 2019 as a way to allow companies of all sizes to be part of a larger defined contribution plan while reducing both fiduciary liability and administrative costs. Smith, who tracks PPP registration, says there are about 150 registered according to his most recent count; meanwhile, there are about 450 PEPs registered with the DOL.  

Selling Card

NPPG CEO Salerno notes that some PPPs may have the plan sponsor sign a contract with the 3(38) vendor directly. NPPG currently has a letter to the SEC asking if that setup would provide dispensation to PPPs to not register—Salerno says the firm will make the SEC’s response public.

Overall, he believes the business case for registering makes NPPG’s offerings more attractive.

“When a PPP is not registered, it begs the question as to whether the PPP is actually assessing the associated liability or passing it on to the participating employer with the PEP,” he says. “People are coming to offload their responsibility. How can we take half of it away but not the other half? We can’t split the baby.”

The discussion of registration will continue as PEPs continue to grow.

The largest PEP providers by assets at the end of 2023 were Voya Financial at $2 billion, Principal Financial Group at $1.7 billion and Transamerica Corp. at $1.6 billion, as drawn from the group of providers participating in the 2024 PLANSPONSOR DC Benchmarking Survey. PLANSPONSOR is a sister publication of PLANADVISER.