With the passage of the SECURE Act in late 2019, there has been a lot written about the benefits of Pooled Employer Plans (PEP) for plan sponsors and their participants. These benefits include items such as potential cost savings, reduced work for the plan sponsor, better investment choices, better participant plan experience and reduced risk for employers and fiduciaries. While these plans are new, we expect many plan sponsors will eventually migrate to a PEP.
It is important to understand differences in the various PEPs in the market as we’ve discovered that no two PEPs are alike. Today, there are over 100 PEPs registered in the United States and indications from those providers are that more and more plans sponsors are migrating to a PEP on a regular basis.
Differences between PEPs can be significant and plans are set up with different plan sponsor characteristics in mind. All PEPs require some level of standardization to drive efficiencies, but there are key differences that may make some PEPs a better fit for some plan sponsors versus others. For example, some PEPs are designed with very limited flexibility in their offering (e.g., no loans, standard payroll feed, required safe harbor design), while others allow for more flexibility.
One key difference among the various PEP providers is fees and how those fees are applied. Some PEPs have a flat fee, some add an expense load to the assets invested, others charge a participant fee, and many use a combination of the above. The size of fees can also vary greatly. For example, items such as the plan’s audit fee can vary based on the number of participating sponsors and some PEP plans will actually absorb these costs. In our experience we have seen PEP fees differ by as much as 3x for a prospective plan sponsor.
Most PEPs are run by a combination of different service providers. Typically, we see up to three service providers that are involved in the various PEP services. However, some PEPs are managed within one organization. There are pros and cons to both approaches, but it is important for plan sponsors to understand those differences.
Finally, PEPs will vary in terms of how much fiduciary responsibility they will assume. It’s imperative for a plan sponsor to understand what will and/or will not be assumed if they join a PEP.
Over the coming months, we will be producing a series of short articles aimed to help educate plan sponsors about the variations in PEPs. PEPs are going to be an option that every plan sponsor will need to assess and will want to evaluate. As more plan sponsors enter into PEPs, we also believe that the PEP industry will further develop and make the benefits even more attractive to plan sponsors. It’s critical that plan sponsors fully educate themselves on the various PEPs and make sure they are doing proper due diligence. Since moving to a PEP may require changes to a plan sponsor’s current advisory relationships, it’s beneficial to gain this analysis from an independent source.