Products February 1, 2024

Ascensus, American Funds Launch Partnered PEP

Ascensus will administer the PEP with American Funds TDFs, leveraging both firms’ distribution networks with advisers and plan sponsors.

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Ascensus and American Funds, which is owned by Capital Group, have brought their pooled employer plan announced last year to market.

The multi-fund Ascensus | American Funds Pooled Employer Plan is available to plan sponsors and advisers, featuring an open architecture plan menu designed by investment advisory Wilshire that can include funds from American Funds, BlackRock Inc., T. Rowe Price and Principal Financial Group, among others, according to the Wednesday announcement.

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The PEP is the first to offer American Funds Target Date Plus, which provides “personalized allocation advice” that meets savers’ needs and objectives “more closely than a traditional TDF allocation based on age,” according to the firms. The savers’ inputs are provided by the recordkeeper, and their portfolio is then managed by Morningstar Investment Management LLC’s personalized glide path.

Ascensus has been an active player in the PEP market since the savings vehicles was established with the Setting Every Community Up for Retirement Enhancement Act of 2019 with the goal of providing lower-cost pooled plans that manage the fiduciary risk for adopting employers. Dresher, Pennsylvania-based Ascensus has $1.2 billion in PEP assets under administration, representing about 28,000 savers, according to the firm.

Another PEP provider, Aon, announced AUA of $2 billion in PEPs in November 2023, with 70 participating employers and 50,000 employees.

American Funds, meanwhile, is one of the country’s largest TDF providers by assets, seeing the most inflows among the largest 10 providers in 2023, according to the latest data from Simfund, which, like PLANADVISER, is owned by ISS STOXX. The Los Angeles-based firm has the third most overall assets in TDF funds, behind the Vanguard Group and Fidelity Investments, according to Simfund.

Through their collaboration, both Ascensus and American Funds will offer the PEP to employers and advisers through their distribution networks, according to the announcement. The firms tout the PEP as being a “streamlined solution” with efficient use by advisers and plan design flexibility for the employers.

The PEP offers 3(16) fiduciary services to manage fiduciary exposure and assist with plan administration. Financial Finesse is providing a financial wellness offering to participants.

“We’re thrilled to expand our alliance by launching the Ascensus I American Funds Pooled Employer Plan, inclusive of Target Date Plus, and support American Funds entering this growing market,” Jason Crane, Ascensus’ head of core retirement, said in a statement.

Ascensus has more than $723 billion in AUA, with brands including retirement services and consulting firm Newport and third-party administrator FuturePlan by Ascensus.

Capital Group managed more than $2.5 trillion in equity and fixed-income assets.

 

Compliance January 31, 2024

Can 403(b)s and CITs Some Day Be Friends?

Legislation to permit the pooled investment into 403(b) plans continues to inchworm its way through Congress.

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403(b) plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. This is despite other defined contribution plans, such as 401(k)s and 457s, being able to use CITs and, according to recent data, doing so in greater volume every year.

At the moment, the best chance in the near-term for 403(b)s to access CITs is a bill in the U.S. House of Representatives that could come up for vote in early March. The outcome will be closely watched by many retirement plan advisers and sponsors, some of whom pointed to the lack of access as a major miss in the passage of the SECURE 2.0 Act of 2022.

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One of the original three bills that later became SECURE 2.0 actually permitted 403(b)s to use CITs by amending the necessary tax and securities laws. This bill was known as the Securing a Strong Retirement Act and emerged from the House Committee on Ways and Means.

Ways and Means only had jurisdiction over the tax provisions, however, and when the House Committee on Financial Services, then controlled by Democrats, asserted jurisdiction over the securities provisions, the relevant amendments did not move forward. This resulted in a SECURE 2.0 that updated the required tax law to permit CITs in 403(b) plans, but not securities law.

A source knowledgeable of those negotiations, who declined to be named, noted that this was not an issue among Democrats on Ways and Means or in the Senate.

Since omitting the changes that would allow for 403(b) use of CITs is not considered a technical error, it cannot be fixed through a technical corrections bill, only through new legislation.

One such pending bill that would make the change is the Retirement Fairness for Charities and Educational Institutions Act, introduced by Representative Frank Lucas, R-Oklahoma. The bill was proposed in May 2023 and was voted through the House Financial Services Committee in December 2023. The bill would update the required securities laws to permit both CITs and insurance separate accounts in 403(b)s.

Representative Sylvia Garcia, D-California, offered one amendment to the bill at a mark-up hearing in May which highlighted the core objection to including CITs in 403(b) plans. Her amendment would have limited the use of CITs to 403(b)s that are subject to the Employee Retirement Income Security Act.

403(b) plans sponsored by a private entity, such as a charity, are typically subject to ERISA, but those that are sponsored by state or local governments or by churches are not required to follow ERISA, though they may opt into it.

Garcia argued that only ERISA-governed 403(b)s “have enough federal safeguards in place to keep their money safe,” noting that CITs lack the same “SEC investor protection framework” as traditional mutual funds, and this could leave non-ERISA 403(b) plans vulnerable, since they would lack SEC and ERISA oversight.

Though this amendment was defeated, the case had some currency among other Democrats on the committee, as it was defeated by a party-line vote of 26 to 21.

Lucas noted in defense of his bill that other non-ERISA plans, such as 457s, are permitted to use CITs, and non-ERISA 403(b) plans are still required, usually by state law, to screen investments.

The next opportunity to pass the Retirement Fairness for Charities and Educational Institutions Act is expected to be in early March, when the two continuing resolutions currently funding the government expire. No companion bill has yet been taken up by the Senate.

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