As the market and retirement plan advisers take a wait-and-see approach to pooled employer plans, an alternative may be the group-of-plans model, which Jason Roberts, CEO at the Pension Resource Institute, calls “training wheels for PEPs.”
The group-of-plans model, which can go live in January 2022, is “the path of least resistance,” said Kim Cochrane, an RPA with Raffa Retirement Services.
The Department of Labor is expected to publish clarification about the group-of-plans model, or GOPs, in the next couple of weeks. The plan type has no requirement for a 3(16) fiduciary, and GOPs allow for a consolidated Form 5500 filing with the DOL, Roberts said. They also provide simplicity, with a single investment lineup, and have record-keeping pricing advantages.
For Raffa’s 403(b) clients, GOPs are the only option, although that may change if provisions of the SECURE Act 2.0 make it into legislation that is passed.
“We are pro-PEP,” Cochrane said. “But we didn’t want to be the [pooled plan provider] and didn’t know which provider to choose.”
There is no question that PEPs provide plan sponsors with greater fiduciary protection, but if the record keeper uses an outside 3(16), PEPs might end up being more costly than GOPs, even with a single audit, Cochrane said.
“A single audit might cost $15,000 to $20,000,” she said. “[That] can be reduced to $8,000 to $10,000 per plan in a PEP, which might not make up the additional 3(16) expense, which can run as high as 25 basis points.”
Roberts said that the clarifying GOP regulations might allow for a single audit.
The key difference is that with a PEP, there is a single plan sponsor or pooled plan provider, and all plans are under them, whereas each plan operates as a separate entity under a GOP, although there is a consolidated 5500.
“PEPs are ‘except for,’” Roberts said. “GOPs are ‘only’ those services specified.” That might make GOPs more appealing to RPAs.
For years, RPAs have been using single investment lineups, placing lots of similarly designed plans with a single provider to gain economies of scale. PEPs and GOPs make it simpler and might make plan sponsors more comfortable with the aspect of government approval. Like Raffa, which is part of a larger organization that includes employee benefits for smaller entities, RPAs may need PEPs or GOPs to efficiently handle smaller plans they don’t normally service.
Hub International has responded by creating a small market service that is neither a PEP nor a GOP, while OneDigital recently announced a PEP with Empower Retirement. Meanwhile, Platinum 401(k) has a small market service with Ascensus.
Larger entities like Envestnet may want a simple service for their adviser clients that only handle a few plans, which is why that firm partnered with Sallus, a startup PEP provider, using Ubiquity as the record keeper.
Insurance and employee benefits companies may also want something similar. If they need the extra fiduciary protection, they will choose PEPs.
Fintech record keepers like Guideline, Vestwell and Human Interest already have a “pseudo GOP,” with most if not all plans using similar investment lineups and design. Smart Pension, based in the U.K., started as a master trust provider.
It all works if the plan sponsor doesn’t require significant customization, which is why most people think PEPs and GOPs will start with the smaller plan, especially startups, as a result of state mandates.
But we are still in the early days of the consolidated plan model, whether PEPs or GOPs, even though multiple-employer plans have been around for a while.
“Plans have a long sales cycle,” Roberts said. “It will be even longer for groups.”
GOPs may be an easier way for RPAs to get the benefit of economies of scale and consolidate the number of providers they use, at a reduced cost, but also with less fiduciary protection than PEPs. Stay tuned for new regulations that are currently with the Office of Management and Budget.
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.