PLANADVISER - March/April 2020 - 16

cover story
" There's no question that this is the most significant event
to restructure the small-plan marketplace since the PPA
[Pension Protection Act of 2006], " says Bradford Campbell, a
partner with Faegre Drinker Biddle & Reath LLP, in Washington,
D.C. " PEPs have the potential to be a very significant
disruptor and change the way the small-business plan
marketplace works. "
The advantages to small-business owners are wellknown-the
lower fees, plus access to more favorable
pricing, as each owner no longer has to purchase services
on his own. Still, there is no size limit for participating
employers; therefore, adviser sources say, the actual impact
of PEPs could be much larger.
" The focus on closing the coverage gap among small
employers has been the headline for folks in Washington, "
" Small employers will see
a tremendous opportunity
in joining a PEP because
it's a more turnkey
retirement solution. "
says Pete Swisher, founder and president of Waypoint Fiduciary
in Lexington, Kentucky. " But [the regulation allows for]
a useful plan design, so it's going to be adopted by anyone
for whom it's useful. "
Swisher says he expects that a " significant minority " of
the retirement marketplace will shift into PEPs over the next
few years, including large employers. This is because even
they may like the idea of moving some of their fiduciary
responsibilities to the plan provider.
" Small employers will see a tremendous opportunity in
joining a PEP because it's a more turnkey retirement solution, "
says Michael Conte, director of retirement product
solutions for CUNA Mutual Retirement Solutions in Philadelphia.
" But there's also an opportunity for large employers
to leverage the construct of a PEP to minimize costs. "
Some fiduciary responsibilities, of course, Conte says,
will remain with employers, namely to select and monitor
the plan provider, to remit participant contributions in a
timely manner, and to deliver plan materials to participants.
Still, with their most burdensome responsibilities removed,
many employers could be willing to consider such a plan.
Favorable for Advisers
The potential for PEPs to become a huge market has many in
the retirement industry ready to jump in.
ries, 3(16)
" Everyone we talk to-financial advisers, 3(38) fiduciafiduciaries,
recordkeepers, mutual fund families,
investment houses, trustees-everybody is clamoring
to participate in PEPs, " says Richard Rausser, senior vice
president at Pentegra in White Plains, New York. " They're all
thinking they need, and want, to be a part of this. "
The plans will present several opportunities for advisers,
including to help their clients determine whether going the
PEP route makes sense and, if yes, to help them evaluate and
choose the PEP that is most suitable.
" Some advisers will develop a relationship with one or
two PEPs, and that will be the way they consult, " says Neil
Lloyd, a partner with Mercer and head of its U.S. defined
contribution and financial wellness research in Vancouver,
British Columbia. " Some advisers may become an expert on
all PEPs, and their role would be to choose which one is best
for a client, and maybe they develop a business that's more
focused on monitoring PEPs. "
Besides guiding new clients, advisers should re-examine
existing clients, as well, to see which might benefit from
switching to a PEP.
" PEPs may present an opportunity for some advisers to go
back and introduce a new service model or a better outcome
to plans they already have, " says Scott Matheson, managing
director of client solutions at CAPTRUST, in Raleigh-Durham,
North Carolina.
Some advisers may choose to create a PEP to sell to
clients and serve as the pooled plan provider. Other
advisers may opt not to build and sell plans themselves,
but to focus on 3(38) fiduciary work, selecting PEPs' investment
menu, or to serve as a third-party administrator
(TPA). Large advisory firms may choose to take on some or
all of these roles in-house.
" No matter where firms sit, whether they're a financial
adviser, a recordkeeper or a mutual fund manager, they're
going to be working together to put the program in place, "
Rausser says. " The biggest question is: Who will be the PPP? "
Once PEPs are up and running, there should continue
to be opportunities to bring on new clients, including new
small businesses.
Challenges for Advisers
While PEPs hold out many opportunities for advisers, they
also present challenges. Chief among these could be a surge
in competition for clients. If 100 employers can work with
just one adviser rather than 100 separate advisers, that
could leave 99 advisers without
Campbell says.
Plus, he says, advisers are not the only ones who can
serve as a PPP. Many recordkeepers are well-equipped for,
and interested in, doing so, along with broker/dealers (B/
Ds), banks and insurance companies, etc. Some of these
large institutions may opt to market their plans directly to
employers, cutting out the adviser entirely.
According to Rausser, no matter who sits on top as the
PPP, one of the biggest challenges to launching PEPs will be
establishing the scale necessary to make them viable. The
PPP could have trouble accessing lower prices, due to the
fact it is essentially starting from scratch.
" There are costs associated with getting a PEP ready:
the document selection, getting a platform, getting it cost
that potential business,
16 | planadviser.com March-April 2020
http://www.planadviser.com
PLANADVISER - March/April 2020

Table of Contents for the Digital Edition of PLANADVISER - March/April 2020
