401(k) Specialist Issue 1 - 2021 - 27

401(k) PRACTICE MANAGEMENT
how everything plays out, " Von Wald said.
" The lack of employer oversight of PEPs,
as noted by recent Department of Labor
comments, might give employers something
else to consider when choosing to
join a plan. The concern is that some small
employers might not look into everything
before making the decision to join a PEP, or
in choosing which one to join. "
While some PEP critics have voiced concern
that they could lead to some providers
" churning " existing clients from perfectly
sound 401(k)s into a shiny new vehicle that
may or may not be better for their participants,
there are definitely some things
about them that figure to attract employers
currently sponsoring their own plan.
For one, removing administrative burdens.
A PEP means only one Form 5500 filing for
the entire plan instead of each employer, and
only one plan audit. Many other administrative
requirements are done just once for the
plan as well, which is purposeful on the part
of regulators with a goal of reducing overall
costs of 401(k) plans for employers.
" Lower costs are appealing and available
to employers because the PEP would have
incurred the expenses needed to set the plan
up, such as the administrative tasks involved
that now wouldn't fall on the company, "
Von Wald said. " Another way a company's
costs can be reduced by joining a PEP is
the lower fees for things like investing and
recordkeeping with a larger plan when
compared to something smaller.
By pooling together, small plans can
finally enjoy the same economy of scale
larger defined contribution plans have
always enjoyed.
Since the PEP has already been established,
Von Wald noted an employer wanting
to join wouldn't have to incur the legal
costs and other fees that come from establishing
a plan, so there is a lower barrier to
entry. The PEP provider has already selected
the investment advisor, recordkeeper and
funds being offered.
There would also be a reduction in
fiduciary liability if an employer joins a
PEP because the provider will carry the
liability for the selection and monitoring
of the individual funds. " However, the
retirement plan benefit and allowing them
to confidently prepare for their financial
future, " said Tom Hammond, Paychex Vice
President of Corporate Strategy and Product
Management, in announcing the move
last December.
Paychex aligned with two other retirement
industry leaders to provide services for
the PEP offering. Mesirow Financial serves
as the 3(38) investment manager of the PEP
and Mid Atlantic Trust Company serves as
the Trustee.
" Over the last five years, we have seen a
" With the rise
in excessive fee
lawsuits and how
costly those can be,
it's important that
companies do their
due diligence. "
- Wendy Von Wald, Travelers
employer would still carry liability for the
selection and monitoring of the PEP plan
and provider, " Von Wald said. " This is not
as clear-cut as it might seem, leaving some
employers to question whether they are
shedding as much liability as they originally
thought when considering a PEP. "
Early Adapters
Pooled Plan Providers must register with
the Secretary of Labor and the Secretary of
the Treasury before they begin operations as
a PPP, and are then statutorily required to
serve as the 3(16) Administrative Fiduciary.
In addition to previously mentioned
Aon, Rochester, New York-based Paychex,
Inc. and Des Moines, Iowa-based Principal
Financial are among the early recordkeepers
wanting to test the PPP waters.
" Our new PEP will provide business
owners with a cost-effective plan option
that relieves the compliance and administration
burdens of a traditional 401(k) plan,
giving their employees access to a robust
shift from 3(21) to 3(38) fiduciary services,
particularly at the smaller end of the retirement
plan market. These small and mid-size
employers appear to be signaling an openness
to fully outsourcing fiduciary duties
and will likely be interested in the fiduciary
support afforded in a PEP, " said Mike Annin,
Senior Managing Director of Fiduciary
Solutions at Mesirow Financial.
Meanwhile, Principal is teaming up with
National Benefit Services as the TPA and
Wilshire as the investment fiduciary to
introduce a PEP called Principal EASE. It
is designed for employer plans up to $10
million in assets under management.
" By shifting liability to designated fiduciaries
with specific knowledge and skills,
employers benefit from investment management
as well as reduced administrative
tasks and risks, " said Jerry Patterson, Senior
Vice President of Retirement and Income
Solutions at Principal.
But that doesn't mean employers are in
the clear by joining a PEP. Plans can be set
up differently, so employers need to pay
close attention, Von Wald said. The provider
might not remove as much of the administrative
burden as initially thought by the
employer, and the company might have
administrative exposure for tasks such as
transferring PEP contributions in a timely
manner and filing forms with the Internal
Revenue Service and the Department of
Labor.
" With the rise in excessive fee lawsuits
and how costly those can be, it's important
that companies do their due diligence, " Von
Wald said. " One smart step is considering
fiduciary liability insurance, which can cover
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401(k) Specialist Issue 1 - 2021

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