July CEO Sees Promise in the PEP Marketplace

While there is still a learning curve when it comes to advisers understanding their role in the pooled employer plan marketplace, providers entering the space say the future is bright.

It has now been nearly five months since the section of the Setting Every Community Up for Retirement Enhancement (SECURE) Act that established a new marketplace for pooled employer plans (PEPs) took effect.

Passed at the very end of 2019, the landmark retirement legislation set a start date of January 1 of this year for pooled plan providers (PPPs) to establish PEPs—subject to approval from the Department of Labor (DOL) and other regulatory stakeholders. In the time since, diverse PEP delivery models have already emerged, and more are coming online as the weeks and months go by.

There are nuances in each case, but, in general, the emerging PEPs are expected to allow small businesses and other types of employers to band together to offer more cost-effective and less administratively burdensome retirement benefits to their employees. Naturally, sources say advisers should expect more questions about PEPs as the year unfolds and this new marketplace develops. Furthermore, advisers have critical questions of their own to ask about what the development of the PEP marketplace could mean for their own business practices and prospects over the long term.

Talking about his firm’s forthcoming PEP launch, John Humphrey, president and CEO of July Business Services, says the internal and external expectations are high.

“This is a project we have been focused on for some time, and it was a big focus of ours even during the pandemic,” Humphrey tells PLANADVISER. “In fact, during 2020, we also closed on the acquisition of an affiliate 3(38) fiduciary services provider that is now being baked into our PEP offering. It was really a dynamic year, and we are excited about what is coming next.”

The 3(38) provider July acquired was Summit Benefit Solutions, which was led by President Sheri Baker, who is now a partner and the chief financial officer (CFO) at July. 

“Sheri’s enterprise came along with a registered investment adviser [RIA] component as well, and so we have leveraged that entity as part of our PEP strategy moving forward,” Humphrey explains. “What this means in practice is that advisers can partner with our solution and they can rely on our 3(38) fiduciary management services, or they can plug their own 3(38) services into our solution.”

Humphrey says he expects the PEP solution will eventually prove to be attractive for both generalist advisers and those who have been closely focused on serving the retirement plan marketplace for years. However, in his view, there remains a relatively steep learning curve when it comes to advisers understanding their role in the PEP marketplace—and how they can work with PPPs effectively, efficiently and profitably.

“We feel the smaller plan segment, which is still very commonly intermediated by advisers, will remain our focus, and we believe that we can effectively partner with and support advisers in this space,” Humphrey says. “They can use the PEP solution as one way to more effectively serve the small-plan space. I really think this can be a win-win-win for the provider, the adviser and the client. Working together, we can deliver a better product for the small-plan marketplace.”

Humphrey says he is proud of the work his firm has done to get ready to launch its PEP, and he looks forward to engaging with the adviser community to help get more people invested in high-quality workplace savings solutions. He points to the firm’s recently redesigned digital enrollment experience as another success.

“At the end of the day, it has to be easy to enroll in a plan, and we know that we can use our technology expertise to make it easy and intuitive,” Humphrey says. “We have created new quick-enroll packages that allow people to easily identify and enter the right solution. They can customize their enrollment with tailored tips and support. It’s really a great solution that helps them get the most out of their plan.”

Data about the existing multiple employer plan (MEP) market collected as part of the 2020 PLANADVISER Recordkeeper Services Survey offers some context for Humphrey’s  projections. Though MEPs and PEPs have some key differences, sources say interest in MEPs is a reasonable proxy for forecasting the kind of early interest providers could see for PEPs. 

The PLANADVISER data shows responding recordkeepers (who collectively work with the vast majority of U.S. retirement plans), currently operate more than 3,600 MEPs, run on behalf of nearly 30,000 employers and 1.4 million participants. Looking at the asset sizes of the individual adopting employers is an eye-opening exercise, showing that interest seems strongest in the sub-$1 million and sub-$5 million categories. But there are quite a few employers in all asset ranges that are in these MEPs, and, in fact, the data shows something of a barbell distribution, with several thousand large employers participating in MEPs today.

Sources says the idea that PEPs could be cheaper than traditional single-employer retirement plans is appealing to many small plan sponsors. Additionally, at least in his experience, Humphrey says a significant share of demand for PEPs is going to come from plan sponsors that simply want to offload the responsibility of running and monitoring the retirement plan.