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Products & Services April 10, 2024
PEP Pros and Cons
A panel of advisers and providers who use PEPs discuss the benefits and potential pitfalls for clients and advisory firms.
Reported by Alex Ortolani
Pooled employer plans, introduced in 2019 with the passage of the Setting Every Community Up for Retirement Enhancement Act, are still relatively new to the marketplace.
Because of that, some advisers may not yet offer them to plan sponsors as part of their practice. Should they be doing so? Or is there a risk of putting unnecessary time and effort into the latest “product of the day”?
The answer, according to a panel of retirement plan advisers and providers who use PEPs, is that an advisory may be at risk if they aren’t at least conversant in the PEP space, and depending on its client pool, have an option on offer.
Phillip Senderowitz, managing director, Strategic Retirement Partners, said PEPs, multi-employer plans, and group of plans are all useful tools in serving smaller plans at scale. The three services, he said, “have been key in marketing more toward the smaller market space.”
Senderowitz noted that, when he initially started working on small plan options, the PEP emerged as a good “turnkey” approach for smaller employers prioritizing ease of use over numerous options.
“When we talked to smaller companies on the startup or small plan side, we say, ‘hey, this is a way you can have a retirement plan without being in the retirement plan business,’” he said.
Even so, the adviser noted that there are many other options for startups and small plans, so group plans should be considered carefully both for the client, and the advisory, particularly in terms of the expected number of adopted plans.
Fiduciary Hand-Off
John Jurik, U.S. practice leader at Gallagher, said the simplicity of a PEP offering, including having in place the recordkeeper, investment lineup, and fiduciary backing, can help a smaller plan sponsor to free up time and resources elsewhere. He noted one client that Gallagher moved into a PEP saved about $30,000 annually, which it then used on a financial wellness option for employees.
“I think it is an opportunity for those plan sponsors to more broadly evaluate their HR strategies,” he said.
Jurik did note that a PEP should not just be sold for cost, but as a way to consider different plan options and provider services as a whole.
Ted Schmelzle, second vice president, retirement plan services at The Standard, agreed that a PEP’s key advantages are not just price point, even though that may have been an early assumption of the product. The real focus on the product in the market today is its ability to provide fiduciary capabilities and administration with one option—as opposed to separate outsourced responsibilities.
“The employers don’t want to be ERISA experts,” he said. “Nobody said, ‘Dave, I’m going to have a qualified retirement plan and the reason is I really want to know the intricacies of ERISA and the pitfalls and all that fun stuff.’”
Different Flavors
The panelists noted that an advisory can offer different “flavors” of PEPs. There can be an option provided through a third-party pooled plan provider, or a PEP setup in-house by an advisory—which may take more time, setup, and learnings.
“It’s important to think about your block of business and what’s the value proposition relative to those employers,” Schmelzle said. “Also, do you have enough scale in order to make it viable? There are a couple of lenses to look at that through, whether it’s the provider that is going to be working with you on the PEP, or whether it’s reaching scale to justify your own cost—those are important questions.”
Senderowitz noted that if an advisory creates a PEP, but cannot populate it with adopting employees, then the pricing advantage will be lost in working with the provider.
“If you cannot populate the PEP, then there’s no point to putting in the time and energy on the front end to set it up,” he said.
Jurik said that, at Gallagher, its leadership team took time to consider whether to include PEPs in their practice after the legislation passed. Once they chose to use PEPs, they didn’t put any mandates around advisers selling them, and there is no special compensation program around them.
The greater advantage to having a PEP, he said, is being able to play “both offense and defense” in this new marketplace.
“As our industry evolves, if you are strictly going to be anti-PEP, then you are doing a disservice to your clients,” he said. “It’s going to be the right fit for some organizations, and it’s not going to be right for others …. But either way, you can be the expert as a true retirement adviser, and you want to take those ideas to your clients before somebody else does.”
