Millions of Americans are scrambling for retirement help, yet the retirement plan market leaves yawning gaps in the populations it serves. For example, in 2017 Pew reported that 35% of private-sector workers age 22 and older had no access to any sort of retirement plan. Depending on which reports you read dealing with retirement preparedness, it appears that people without 401(k) access number in the tens of millions.
Then came the Setting Every Community Up for Retirement Enhancement Act of 2019, otherwise known as the SECURE Act. One of the goodies inside it was the creation of a new kind of multiple-employer plan known as pooled-employer plans, or PEPs. This new structure becomes a fact of life on January 1, 2021. And it rips open whole new possibilities for small companies looking to offer retirement access to their employees.
Unlike regular multiple-employer plans, which must serve similar industries, geographies or groups under a common nerve network, pooled-employer plans knock down the old legal walls so that conceivably any small company can join an outside plan. Ideally, this means a garment company in Connecticut can join the same PEP as a resort owner in California.
One of the knocks on small companies is that they are too small to launch their own 401(k)s, which they consider too expensive and less important than health-care benefits. In an ideal world, the new PEP structure would allow a company to come along and act as a big aggregator that rolls up all those little companies into a big outsourced plan and then acts as a giant HR department for them.
Firms such as Aon, Mercer (the Marsh & McLennan company) and Lockton are already getting their new PEPs ready for 2021. CAPTRUST in Raleigh, N.C., is considering its own PEP.
The U.S. Department of Labor writes, “By allowing most of the administrative and fiduciary responsibilities of sponsoring a retirement plan to be transferred to a ‘pooled plan provider,’ the pooled employer plan can offer employers, especially small employers, a way of offering their employees a workplace retirement savings option with reduced burdens and costs compared to sponsoring their own separate retirement plan.”
Among the chores that PEPs can take off an employer’s plate are Form 5500 filings, plan audits, hardship distributions and (the big one) investment selection, said insurance broker Lockton on its website.
Another company that has anticipated the PEP wave and is launching a new service is Mercer, whose existing retirement outsource plan solution called Mercer Wise 401(k) is using Empower Retirement as record-keeper. Mercer Wise 401(k) had already reached a billion in assets as of August, the company said.
Preston Traverse, a partner at Mercer in the DC plan solutions segment, says the firm has been working for the past nine months on a PEP project. He helped lead that team, as well as the team that launched Mercer Wise 401(k), which acts as fiduciary for plans in both 3(16) and 3(38) capacities. He noted that Mercer has 34 plans and several other plans in the works that operate very similarly to a PEP.
"The advantages of a PEP, obviously, is that a whole bunch of plans can pool their assets and bring scale to the program," he said. "We leverage the same type scale with our group of plans. So to us, we just look at the PEP as another iteration of what we’re doing. We think it’s actually really good for us.”
And he believes more companies entering the market with such plans will drive down costs for participants.
“You’re going to see a variety of consultants like us launching these vehicles,” Traverse said. “In these times of Covid and stress in the marketplace, it allows someone like Mercer to become an extension of the HR department.”
The new structure has created something of a land run among these retirement plan provider companies. But it’s also brought up a slew of questions about fiduciary responsibility—the things plan sponsors often want to outsource to various degrees to protect themselves from regulatory burdens, legal liability and the fallout from disappointing products.