401(k) Specialist Issue 1 - 2021 - 26

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There's an old saying in the insurance business:
" Life insurance is sold, not bought. "
And it can be a tough sell at that, with many
consumers not understanding it, thinking they
don't need it or can't afford it. These objections
have long frustrated life insurance agents.
Will a brand-new type of retirement plan, the
Pooled Employer Plan (PEP), made possible by
the SECURE Act, bring similar frustration to
401(k)-focused advisors by also having to be sold,
not bought?
Maybe ... particularly when pitching them to
smaller employers or those without an existing
retirement plan.
A 2020 Cerulli report found at least one
quarter of 401(k) plan sponsors are at least
somewhat interested in joining a PEP, but
more than one-third (36%) of small 401(k)
plan sponsors (with less than $5 million in plan
assets) expressed " no opinion " on the topic.
" This may be the sign of a knowledge
gap related to PEPs in the lower end of the
market, " said Shawn O'Brien, a senior analyst
with Cerulli. " When addressing smaller
employers, more educational discussions
related to the costs and benefits of PEPs
may be in order. "
These new 401(k) structures, which
became available as of Jan. 1, 2021, allow
unrelated employers to cut red tape and
costs by " pooling together " to participate in
a retirement plan without the old " common
nexus " requirement that was standard for
traditionally underused Multiple Employer
Plans (MEPs). So new, in fact, that they are
still largely an unknown in many respects.
How many small- and medium-sized
businesses, recordkeepers, asset managers,
third-party administrators (TPAs) and intermediaries
are ready to jump into the PEP
pool, especially when they don't yet know
how deep it is?
ISSUE 1 2021 | 401kSpecialist.com
" It is quite possible
there will be very
few stand-alone
single-employer
defined contribution
plans in 20 years-
all but replaced
by PEPs. "
- 2020 Aon Whitepaper
While a Registered Investment Adviser
(RIA) can become a Pooled Plan Provider,
early indications are that most-with PPP
duties not among their core competencies-will
see too many risks and drawbacks,
and that TPAs and recordkeepers are
more likely to jump in first as PPPs.
" Providers considering the role of PPP
need to be aware of the 3(16) fiduciary
responsibilities involved, " O'Brien added.
" Recordkeepers and TPAs are seemingly a
natural fit for this role. "
Many have already jumped in, including
Aon, which launched its PEP on Day
1-Jan. 1, 2021. Aon, in a 2020 whitepaper
titled " Pooled Employer Plans: The Start of a
New Era for Retirement Plans, " predicts that
by 2031, roughly half of all U.S. plan sponsors
will have transitioned to PEPs.
" It is quite possible there will be very few
stand-alone single-employer defined contribution
plans in 20 years-all but replaced by
PEPs, " the report states. " Aon believes the
PEP can help employers deliver better retirement
outcomes to their employees with
lower fees, less staff time and involvement,
and better fiduciary governance (i.e., less
fiduciary risk)-allowing the employer to
better focus their energy on running their
business and taking care of their people. "
Such statements show how much some
in the industry believe in the potential this
new " pool " has to significantly transform the
employer-sponsored retirement plan market.
" The demand is increasing, and so is
the interest, " Wendy Von Wald, Fiduciary
Product Manager for Travelers, told 401(k)
Specialist. " We've had more discussions
with our agents and brokers who are asking
about fiduciary liability coverage for an
employer interested in joining a PEP. We've
also had brokers and agents submitting requests
to cover newly formed PEP plans. "
The New Kid In Town
Pooled Employers Plans were born out
of Congressional efforts to make employer-sponsored
retirement plans available to
more workers to help solve the retirement
savings crisis. The SECURE Act, signed into
law at the end of 2019, essentially created
PEPs to address/solve a pair of longstanding
issues that kept Multiple Employer Plans
from achieving widespread adoption: the
" one bad apple " rule and " common nexus "
requirement.
The SECURE Act removed these regulatory
roadblocks, with retirement reform
backers hoping that PEPs-without these
problems-can gain mainstream adoption
and help more Americans gain access to a
retirement plan.
" The intentions behind this addition to
the Employee Retirement Income Security
Act (ERISA) are good, so we'll have to see
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401(k) Specialist Issue 1 - 2021

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