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The SECURE Act opened the door for employers from different industries to join pooled employer plans. Cerulli believes PEPs could be "instrumental" in helping employers and providers achieve their goals. However, there's a knowledge gap that must be addressed before PEPs are widely adopted.
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It's generally accepted that the biggest beneficiaries of wider access to PEPs will be small businesses that have avoided offering a retirement plan to their workers due to cost or administrative burdens. The SECURE Act removes the requirement that employers in a PEP have a common nexus, and transfers fiduciary responsibility from the sponsor to the pooled plan provider (PPP).
However, the January report from Cerulli, "U.S. Retirement Markets 2020: Exploring Opportunities in the Small Plan Market," found that although 26% of 401(k) sponsors are interested in PEPs, interest wanes among smaller plans. Those with assets under $5 million were less interested than larger counterparts, with 36% of micro plans saying they had "no opinion" about PEPs.
"This may be the sign of a knowledge gap related to PEPs in the lower end of the market," Shawn O'Brien, senior analyst at Cerulli, said in a statement. "When addressing smaller employers, more educational discussions related to the costs and benefits of PEPs may be in order."
Even industry insiders are hesitant to jump into pooled plans. Only 17% of DC recordkeepers said they were actively pursuing PEP business, Cerulli found. Thirty-nine percent said they would consider it — if an advisor or consultant approached them first. Despite the low interest expressed by smaller plans, Cerulli found that most advisors expect the sub-$25 million market to be their main target.
Cerulli expressed the importance of an effective service model for recordkeepers, asset managers, TPAs and other parties to capture this business.
"Providers considering the role of PPP need to be aware of the 3(16) fiduciary responsibilities involved," O'Brien added. "Recordkeepers and TPAs are seemingly a natural fit for this role."
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