Statement Summary
The U.S. Securities and Exchange Commission’s staff has clarified the regulatory treatment of pooled employer plans (PEPs), a type of defined contribution retirement plan authorized by the SECURE Act. PEPs enable multiple unrelated employers to collectively offer retirement benefits, raising questions regarding their status under federal securities laws. The staff supports the characterization of PEPs as single employer plans for purposes of the Investment Company Act, allowing them to rely on the single trust exclusion to avoid investment company registration.
Furthermore, the staff indicates that Collective Investment Trusts (CITs) that provide investment options to PEPs covering self-employed individuals can leverage Rule 180, enabling them to issue interests without registration under the Securities Act, provided certain conditions are met. Overall, this guidance aims to facilitate broader participation in PEPs and enhance retirement savings opportunities for small businesses and self-employed individuals.
Original Statement
Division of Investment Management Since Congress enacted the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”), the staff of the U.S. Securities and Exchange Commission (the “Commission”) has received inquiries about how pooled employer plans should be treated under the Federal securities laws. Pooled employer plans, sometimes referred to as “PEPs,” are a type of defined contribution retirement plan created by Congress under the SECURE Act.
Pooled employer plans permit multiple, unrelated employers to join a single retirement plan and offer retirement benefits to their employees through the plan, subject to the requirements in the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 (the “Code”). Different types of employers may participate in a pooled employer plan, including employers with one or more employees that are self-employed individuals as defined in section 401(c)(1) of the Code.
Applicability of the “Single Trust Exclusion”
The staff of the Division of Investment Management is thus providing its views regarding the applicability of (i) the “single trust exclusion” in section 3(c)(11) of the Investment Company Act of 1940 to pooled employer plans, and (ii) Rule 180 under the Securities Act of 1933 to interests in collective investment trusts (“CITs”) maintained by a bank and issued to those pooled employer plans that cover self-employed individuals.
Applicability of Rule 180 to Interests in CITs
Many pooled employer plans offer CITs as investment options to employers participating in the plan and their employees. CITs typically do not register the offer and sale of their interests under section 5 of the Securities Act in reliance on the exemption in section 3(a)(2) of the Securities Act. However, CITs that accept assets from plans covering “self-employed individuals” as defined in the Code cannot rely on the exemption in section 3(a)(2).
As a result, CITs that accept such assets may seek to rely on Rule 180 under the Securities Act to avoid registering their interests under the Act. Rule 180 exempts from registration any interest or participation in a CIT issued to an employee benefit plan that covers self-employed individuals, provided that the plan and issuer meet the criteria set forth in the rule.
Conclusion
The staff has been made aware that sponsors of CITs have interpreted Rule 180 as being unavailable to interests issued to pooled employer plans that cover self-employed individuals. This interpretation may cause pooled employer plans to exclude employers with self-employed individuals from joining the plan to retain the pooled employer plan’s ability to include CITs as plan investment options.
In conclusion, the staff would not object if a CIT issues interests to a pooled employer plan that covers self-employed persons without registering the offer and sale of the CIT’s interests under section 5 of the Securities Act in reliance on Rule 180, provided that the plan is subject to ERISA and meets all of the requirements in Rule 180.
This staff statement represents the views of the staff of the Division of Investment Management. It is not a rule, regulation, or statement of the Commission and does not alter or amend applicable law.
