401(k) Specialist Issue 1 - 2021 - 28

401(k) PRACTICE MANAGEMENT
the costs of defending an excessive fee lawsuit
and protects the company, its directors
and officers and any administrators serving in
a fiduciary role. "
What's In It For Advisors
As previously mentioned, RIAs and broker-dealers
are less likely to take on the PPP
role, at least at the outset and under current
guidance from the Department of Labor.
The biggest reason is that serving as both
the Pooled Plan Provider and an investment
advisor to the plan may be a prohibited
transaction.
In a Dec. 30, 2020, white paper on the
topic from Kitces.com, " The New Pooled
Employer 401(k) Plan And The Hazards Of Advisor-Led
PEPs, " author Jeffrey Levine writes:
" Absent some sort of Prohibited Transaction
Exemption, it would appear as though an
RIA serving as a Pooled Plan Provider may
very well be prohibited from hiring themselves
as the investment advisor to the plan in
order to manage the plan assets for an AUM
fee (which is presumably the primary reason
that an RIA would want to serve as a Pooled
Plan Provider in the first place!). "
Internal Revenue Code Section 4975(c)
(1) disallows a plan fiduciary from dealing
with the income or assets of a plan for their
own interest, or from receiving compensation
from the plan in connection with
transactions involving the income or assets
of the plan.
Even if the DOL eventually provides
favorable guidance, Levine says the fact that
the PPP is statutorily required to serve as the
3(16) Administrative Fiduciary is another reason
RIAs may want to steer clear from registering
themselves as a Pooled Plan Provider.
So where does that leave 401(k)-focused
advisors when it comes to PEPs?
Given the various business, regulatory,
operational and other challenges, one has
to wonder whether the vast majority of
RIAs won't be better off sticking with what
is essentially the status quo, Levine wrote
in the Kitces.com white paper, " which
would mean letting the administrators be
the Pooled Plan Providers and administrate,
while the RIAs continue to focus on investment
advice and participant education-a
system that has worked so well, for so many,
for so long. "
Brian Anderson is the Managing Editor of 401(k)
Specialist.
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401(k) Specialist Issue 1 - 2021

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