PLANADVISER - November/December 2020 - 33

servicing strategies
Services (RAS) group is partnering with Newport Group to
offer a new pooled employer plan next year, and Mercer
plans to launch one then also, using Empower Retirement
as recordkeeper.
" We view PEPs as being transformative for the industry, "
says Clint Carey, head of delegated investment solutions
at Willis Towers Watson in Chicago. PEPs will be able to
embrace innovations found only in the large-to-mega end
of the market, such as retirement income solutions or
guidance on financial goals throughout a worker's lifetime,
Carey says. " We think this market will grow and evolve,
and there will be many options among PEPs in the next few
years that will allow employers to find the one that suits
them best. "
The Appeal of PEPs Is More Than Cost
For now, advisers can, by doing a cost-benefit analysis, help
plan sponsors weigh whether to join a PEP or to remain
with or launch a single defined contribution (DC) plan, says
David Swallow, head of consultant relations at TIAA in New
York City. " Smaller plans can potentially reduce costs, but
the PEP, in order to do so, needs to achieve scale. "
Cost might not be enough, however. Thomas Clark, a
partner and chief operating officer (COO) with The Wagner
Law Group in St. Louis, agrees that PEPs may not move the
needle if sponsors and advisers focus only on cost efficiency.
" We can already find cheap plans; that's not going
to be the mover, " he said at the virtual 2020 PLANADVISER
National Conference (PANC) in September. " To me, what
will make PEPs successful is if we get guidance from the
DOL that makes the fiduciary footprint for plan sponsors
smaller. For example, if there's an administrative error
that has to go through the voluntary correction program
[VCP] and plan sponsors know PPPs will pay for that in all
cases. Or, for example, if PEPs minimize the monitoring-ofservice-provider
requirement for plan sponsors. "
Potentially a larger benefit than cost, as Clark points
out, is support with fiduciary obligations-a recognized
plan sponsor need.
Some see PEPs as an extension of sponsors' increasing
dependence on outsourcing-both of 3(38) fiduciary investment
oversight and 3(16) administrative responsibilities.
" I think the transition that's happening is that fiduciary
duties are systematically being transferred from employers
to service providers, " says Swisher. " We can see that in the
evolution of 3(38); we can see it in the evolution of brokers
becoming fiduciaries; we can see it in the rise of 3(16). "
Sources anticipate that, as PEPs grow more common,
there will be a fiduciary responsibility for sponsors to
assess them-and a tremendous opportunity for advisers
to guide the process.
While the pooled plan provider that oversees the PEP
and registers with the DOL will take on the fiduciary duty
of running the plan, Swallow says, " there is no real magic
bullet " that gets sponsors completely off the hook. They
bear the fiduciary responsibility of selecting the PEP and of
continuing to monitor how well it is doing its job, he says.
Aside from the benefits just examined, the increased
ability to focus on one's core business may motivate many
businesses to join a PEP, says Preston Traverse, a partner
and chief operating officer of defined contribution and
financial wellness at Mercer in Boston.
Michael Duckett, vice president at Lockton, in Washington,
D.C., agrees, noting that-even putting fees and
fiduciary obligations aside-many plan sponsors will view
the additional few hours a week to devote to their core
business instead of to plan administration as a win.
On the other hand, a company may " want to maintain
control over investments and/or vendor selection, "
Traverse says. Advisers can help sponsors parse through
this decision.
A further plus with PEPs is " there will be some flexibility
for each sponsor on participation rules and vesting, "
Swallow says.
Traverse concurs that some customization will be
possible for PEPs at the larger end of the market, but he
expects the small-to-micro plans to be " cookie-cutter. "
For that reason, advisers need to help plan sponsor
clients decide whether they want to give up the ability to
customize their plan, says Jeff Cimini, senior vice president
of retirement product management at Voya in Boston.
" Some employers want to maintain control and advocate
for their employees and to ensure all decisions are in
their best interest, " Carey observes. " Then there's the issue
of branding. Many employers want to associate their retirement
plan with [their company]. " That will not happen
with PEPs, he says.
Waiting for Regulatory Clarity
Another factor sponsors need to consider before offering
a PEP is that the DOL still " has a lot to address in terms
of regulations and guidance, " says Erin Turley, a partner
at McDermott Will & Emery in Dallas. " Namely, the DOL
needs to address conflicts of interest and how to align the
incentives. " For instance, if an investment firm or recordkeeper
is the pooled plan provider or offers a bundled
arrangement, that could present conflicts of interest,
Turley says.
Such unknowns alone, along with the " ability of fiduciaries
to select their own compensation, " could delay broadbased
adoption of PEPs until 2022 or even 2023, says David
Whaley, a partner at Thompson Hine LLP in Cincinnati.
" The DOL's answer to these questions will drive how PEPs
get delivered. "
Turley suggests sponsors also wait for the DOL to issue
guidance regarding qualification rules on PEPs.
Despite what may seem like a rush from many companies
to get ahead of the upcoming deadline, like all retirement
plan issues, prudence and process are important.
The advice Clark gives his clients is: " It pays for advisers to
be looking at product offerings right now, but don't feel like
you're going to miss the boat by taking a deep breath and
making a decision in six, 12 or 15 months. It doesn't make
sense to be the first out of the gate. " -Lee Barney
planadviser.com November-December 2020 | 33
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