Perhaps one of the biggest changes brought on by the passage of the SECURE Act in late 2019 is that it makes pooled employers plans (PEPs) a feasible option for some plan sponsors.
There is some hope that the economics of these plans will allow more employers to offer retirement plans to their employees, thereby getting more American workers engaged in the retirement system. This is a great opportunity.
PEPs would allow employers of any business or industry to join other unrelated employers to participate in the same retirement plan. They don’t need to have anything in common, which is the current requirement under existing multiple employer plans (MEPs). It could be the change that gives small businesses a chance to offer retirement plans to their employees.
In a PEP, small businesses could share the costs, administrative effort and fiduciary liability of running a plan, something that has been a hurdle for some. Past Empower research shows that some employers are interested in these types of plans and have told us they believe offering a retirement plan to their employees is the “right thing to do.” See survey results.
The regulations are not yet settled. As that work continues, Empower believes several core principles should lie at the heart of this new construct:
- Conflict-free advice: Conflict-free advice for both investments and administration should be central to every PEP when it comes to the role of the fiduciary in a plan.
- Advisor and TPA-driven: Plan advisors and third-party administrators (TPAs) should be at the center of every PEP along with recordkeepers that drive state-of-the-art plan services and technology to ensure customers have a chance of achieving better outcomes.
- Choice and price: Customers should have choice and access to the products and features that meet their needs at competitive prices.
- High comparability: PEPs should offer all the same capabilities and broad participant experiences provided by larger, single-sponsor plans.
Industry players should focus on these principles and on high-quality plan design in delivering PEPs.
At Empower, we have designed our business model to align with advisors, consultants and TPAs. For this reason, Empower works closely with our partners to create and deliver great solutions for our clients that are optimized based on an employer’s workforce.
Empower is an advocate for the further development of PEPs and will continue to use our voice in Washington, D.C., to help consumers and employers achieve better retirement outcomes. We continue to work closely with regulators to bring better clarity to remaining questions about PEPs and how they will be administered.
While Empower has been public in support of the SECURE Act – including its provisions around PEPs – we believe pooled solutions may not be best for all employers. Each employer will have to consider numerous factors, including the cost of administering a PEP and the fiduciary considerations of acting as a pooled plan provider.
It is incumbent on every sponsor to work with their advisor to determine the best model for their plan.