The Setting Every Community Up for Retirement Enhancement (SECURE) Act that was passed at the end of 2019 contained some of the most exciting retirement plan related regulations since the Pension Protection Act of 2006. Although the SECURE Act produced some extremely useful provisions, one such provision has seemed to have stolen the spotlight: Pooled Employer Plans (PEPs). Not much different than Multiple Employer Plans (MEPs), PEPs are being touted as a superior alternative because there does not have to be commonality between each employer within the PEP. It’s wide open! The PEP acts as a single plan with a single plan document, a single 5500 filing and a single plan audit that multiple, unrelated employers, can adopt for their employees.
Promoters of PEPs believe that PEPs will expand the number of employees covered by an employer sponsored retirement plan by eliminating obstacles, such as plan fees and fiduciary risks, that have kept small employers from offering a plan to their employees. PEPs can potentially reduce plan expenses by pooling assets to achieve economies of scale for investments and eliminating redundant expenses through a single plan document, 5500 filing and plan audit. PEPs would also minimize the fiduciary burden on the plan sponsor because the law requires each PEP to be sponsored by a Pooled Plan Provider (PPP). The PPP will serve as the named fiduciary for the plan as well as the ERISA 3(16) fiduciary. It is also assumed that the PPP will retain an investment advisor to serve the plan as a discretionary investment manager under ERISA 3(38), thereby, also reducing the fiduciary liability to the plan sponsor.
While any proposed solution to close the coverage gap for small employers is worth looking into, we feel that PEPs will not necessarily be the best solution for many. Everything that is offered in a PEP solution already exists for single employer plans. For small micro plans, we foresee the state-run retirement plan vehicles that are popping up throughout the country gaining more traction than PEPs. Although state-run retirement plans may not offer the same flexibility and contribution limits as single employer plans or PEPs, they will be a perfect solution for many small businesses.
Some of the larger service providers such as VOYA, Principal and Newport Group, to mention a few, have already started to offer PEPs, while Ascensus, the largest independent recordkeeping services partner and third party administrator in the country, has not. Like Ascensus, there are many 401(k) service providers who offer very competitive services, fees and fiduciary outsourcing for the same cost and potentially even less cost than the PEP offerings.
A recent overview by Ascensus provides observations and different viewpoints about PEPs (Ascensus, 2021). Like Ascensus, Baker Tilly Wealth Management (BTWM) believes in offering clients maximum flexibility and open architecture. Similarly to the PEP solution, BTWM offers a fully outsourced fiduciary model as well as best-in-class institutional funds with very low expense ratios.
If you would like more information on what our BTWM retirement plan advisory model looks like, contact Matt Payne.
Ascensus is not affiliated with Baker Tilly or Baker Tilly Wealth Management. The referenced material was cited with permission by Ascensus.
Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Securities, when offered, and transaction advisory services are offered through Baker Tilly Capital, LLC, Member FINRA and SIPC; Office of Supervisory Jurisdiction located at 4807 Innovate Ln., Madison, WI 53718; phone: +1 (800) 362 7301. Baker Tilly Wealth Management, LLC and Baker Tilly Capital, LLC are wholly owned subsidiaries of Baker Tilly US, LLP. Baker Tilly US, LLP, is an independently owned and managed member of Baker Tilly International. © 2021 Baker Tilly Wealth Management, LLC