New PEP providers must register with the Department of Labor and the Treasury Department. But it’s unclear as of yet which fiduciary responsibilities they will take on, and that's a big deal for plan sponsors. If employees decide to sue somebody for the poor performance of their retirement funds, it’s important to know who’s going to be holding the fiduciary bag. Who selected the funds? Were any funds affiliated with the PEP operator? How much are they charging? Was there a conflict of interest in the funds’ selection?

“What it’s looking like is that there’s going to be a number of players … to help provide fiduciary responsibilities to that PEP," said Shawn O’Brien, a senior analyst for retirement at Cerulli Associates. "So you can have an investment consultant, say an Aon or CAPTRUST, serving as a 3(38) fiduciary to the PEP. You could have, say, a record-keeper or a CPA serving as the 3(16) fiduciary for the PEP, and also the pooled plan provider for the PEP. Or you can have a CPA serving as the pooled plan provider and then a record-keeper providing record-keeping services.”

Fiduciaries acting under Section 3(16) of the Employee Retirement Income Security Act of 1974 (ERISA) generally handle admin duties such as loan and distribution approval and they can make recommendations only. Under ERISA 3(38), meanwhile, plan sponsors largely offload the fiduciary burden onto the 3(38) advisor, who has discretion over choosing funds and managing the investments. In the 3(16) case, the advisor helps you, and in the 3(38) case the advisor largely does it for you, says the conventional wisdom (though lawyers caution that plan sponsors never totally shed their fiduciary obligation, since they are still choosing the providers and can get dinged for choosing bad ones).

“It would be really difficult to determine how big this market could or will be,” O’Brien said.

Who Will Be The Top Players?
The Department of Labor said that although the SECURE Act doesn’t limit who can act as pooled plan providers, “it is expected that financial services companies (such as insurance companies, banks, trust companies, consulting firms, record-keepers, and third-party administrators) will be the primary sponsors of pooled employer plans.”

The DOL estimates that roughly 3,200 entities will register to serve as PEP providers, and the pioneers will be the 2,378 record-keepers and plan administrators already serving existing DC plans, which are expected to make up 50% of the market. They’ll be followed by professional employer organizations, as well as direct annuity writers, chambers of commerce and registered investment advisory firms. In the 30,000-plus universe of RIAs the DOL counted, the estimated number of participants is only around 1,500, and their market share anticipated to be only 5%.

“While retirement plan advisors such as broker-dealers and registered investment advisers are also plausible candidates,” the DOL said, “the department believes that many would be reluctant to assume the named fiduciary and plan administrator roles.” In other words, they may want to serve indirectly, acting as 3(38) investment managers to the PEPs, but not take on fiduciary roles for the plan sponsors directly.

Jennifer Doss, the director and defined contribution practice leader at advisory firm CAPTRUST, said her company is interested in this market but doesn’t have a PEP vehicle ready to go as of yet. First, it wants the DOL to clarify certain things about a PEP’s roles and responsibilities and what actions are allowed.

Among the questions people are asking: What transactions are prohibited? What constitutes conflict of interest?

“There are some pooled employers that are going to be launching a PEP on January 1,” Doss said. “Yet we don’t have complete clarity on a couple of items related to PEPs at this point.

“I would say we do want to be involved in the PEP space," she added. "However, I would say we’re still contemplating what that role is. I don’t think we’re necessarily tied to having our own PEP."