PLANADVISER - January/February 2021 - 31

a good understanding of what a particular client expects
from the PEP and PPP and helps make sure that the PEP, and
PPP the client ultimately chooses, meets that expectation. "
Advisers can help clients evaluate the various possible
service providers-which, besides the administrator, may
also include a third-party administrator (TPA) and an
investment adviser-involved with a given PEP to determine
whether the fit is appropriate. That includes confirming
whether the providers have experience with multiple
employer plans, have the right cybersecurity controls in
place, and have appropriate customer service experience.
Are the investment options correct for the
plan's participants?
One way that PEPs may be able to keep costs down is by
ensuring the available investment options stay limited, so
it is important for the sponsor to evaluate the offerings
of each plan to determine whether the investment menu
makes sense for its plan participants. Plan sponsors will
have no control over which investments are in their plan,
at least in its initial iterations, so the sponsor needs to be
comfortable with the selections that the PPP has chosen-
and with its approach to investment selection
and changes going forward.
Those serving as 3(38) investment advisers
will need to monitor the investments in the
PEP and provide the sponsor with a regular,
documented process for
reviewing funds'
performance and the rationale for making
fund changes when that becomes possible
or keeping watch-list funds in the lineup
despite their failing to meet standards, says
Dallas-based Courtney Stroope, a vice president
at Lockton Retirement Services, which
is launching a series of PEPs.
How much does the plan cost, and what is the client
paying for?
Because PEPs have just launched, their costs may vary
widely, so advisers will need to work with their clients to
carefully examine the fees associated with each plan as
well as evaluate the value of the plan's benefits. Prices may
come down over time as new plans are able to gain the scale
necessary for more favorable pricing.
Stroope says advisers should help plan sponsors to
understand how proprietary products are being used and to
know-and document-what revenue is being collected and
how that affects fees.
" If proprietary products are included and revenue from
them is being used to lower the administration cost of the
plan, make sure those choices meet the prudency test, " she
says. " If they did not lower fees, would these still be funds
you'd offer participants? "
Besides looking at bottom-line expenses, plan sponsors
will need to consider the value they receive from other
advantages of joining a PEP, such as reduced liability and
the opportunity to refocus staff on the company's core
business rather than plan administration. Companies that
Especially in these early days
of the PEP market, the design for
PEPs may be relatively barebones
and less open to customization
by member plan sponsors.
Does the plan design meet your client's needs?
Especially in these early days of the PEP market, the design
for PEPs may be relatively barebones and less open to
customization by member plan sponsors. Creating PEPs
with fewer bells and whistles allows the plan administrator
to keep its costs down and enables it to create more
favorable pricing for plan sponsors; this also reduces the
potential for errors.
But as PEPs will likely be more rigid in design than
would a 401(k) plan of even lesser size, advisers should
discuss with their clients which plan design elements, such
as the vesting schedule or company match level, are most
important and look for plans with those offerings. That is
particularly important for plan sponsors that like the design
elements of their existing 401(k) but are considering a PEP to
reduce expenses and administrative time.
" The best advice that advisers can give clients when
it comes to shopping for a PEP is they should understand
the provisions of the PEPs they're looking at and what the
differences are among the various ones they're considering, "
Sonneberg says.
have never previously offered a retirement plan might also
factor in the value of having an additional tool to attract
and retain employees.
Is there a non-PEP plan that might be more suitable?
PEPs will serve as a welcome alternative for some
employers, but even with the plans' lower costs, many
employers will find a traditional 401(k) plan the better
option. It is important for advisers to discuss both routes
with interested clients.
" Helping clients decide whether or not a PEP makes sense
for them really comes down to understanding their own
business strategy, " Stroope says.
Clients that want more control over their retirement plan,
or that use it for specific outcomes such as employee attraction
or incentive, may want a more flexible vehicle, she adds.
Clients that are focused elsewhere and that prioritize risk,
workload and cost reduction may be better served by a PEP.
" It will be interesting to see how competitive PEPs are,
up against the small-market solutions that already exist, "
DiStasio says. " There are some small-market solutions that
actually look a lot like PEPs already. " -Beth Braverman
planadviser.com January-February 2021 | 31
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PLANADVISER - January/February 2021

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