How Advisers, TPAs Can Thrive With PEPs

Jeff Atwell

When pooled employer plans launched in 2021, they were designed to help small and midsize businesses that offer retirement savings plans. However, plans that require audits have also found the PEP structure very attractive. PEPs’ popularity has exploded in the past five years, reaching an estimated $21 billion in assets in 339 plans, according to research firm Cerulli.

I’ve seen this success after registering more than 90 PEPs in the past five years through my role at FiduciaryxChange, an AmericanTCS solution that services plan sponsors, advisers and administrators. While PEPs are still relatively new retirement solutions, they are evolving. This presents a rich environment for financial advisers and third-party administrators to grow their businesses.

Collaboration Leads to Opportunity

PEPs are about collaboration, not replacing advisers or third-party administrators. The best ones I have seen are built with flexible structures that embrace adviser and TPA involvement.

In PEPs, advisers remain the trusted connection between the employer, adopting employer and the pooled plan provider. They provide education and provide plan and investment reviews with adopting employers, in addition to providing ongoing wealth management services. PEPs provide advisers with a high level of governance and plan management that is not available with most stand-alone plans.

Advisers bear the brunt of service responsibility under a stand-alone plan. PEPs alleviate that pressure by providing the support needed to tackle any questions or problems that may arise. Centralizing governance enables advisers to serve more plans efficiently without increasing their workloads.

In addition, utilizing a PEP helps an adviser reduce the potential of losing a plan sponsor client to a 401(k) specialist. I know from experience. As a former 401(k) specialist, I successfully secured the wealth management business of plan sponsors and replaced financial advisers who had had that business for at least a decade.

As an example, say a business owner who happens to have a $2 million individual investment account is looking for an adviser to manage the company’s 401(k) retirement plan. An adviser who successfully manages the company retirement plan may end up winning the owner’s account, too. A stand-alone plan introduces risk into any wealth management relationship.

Working with a PEP also leaves many financial advisers poised to capture rollovers, as in traditional single-employer plans. In addition, advisers are freed to focus on client strategy and outcomes because governance shifts to the PPP and 3(38) fiduciaries.

The TPA Advantage

For TPAs, each PEP is a consulting opportunity to define their role and demonstrate value by focusing on compliance and plan design. TPAs can utilize a properly structured PEP to retain clients and obtain new business. TPAs may risk losing a client to a PEP if they are unable to provide that as an option.

PEPs are efficient for TPAs because the TPA administration team is working with a PPP who knows the regulations and what must be completed to maintain compliance. Questions are bound to arise that may require knowledge about compliance, investment allocation or administrative issues. In the stand-alone plan scenario, the plan sponsor is likely to field those requests, may be slow to respond, and may not understand why the TPA is asking it to take a specific action. With a PEP, the PPP can assist in resolving those [requests and] issues in a timely and accurate manner.

In a properly structured PEP, TPAs can play an active consulting role, using their expertise to help employers navigate plan design, compliance nuances and the transition to the PEP.

Fiduciary Risk for Employers Is Reduced

Within a PEP structure, the plan sponsor is required to prudently select and monitor the PPP, making careful due diligence essential. However, once the right PPP is in place, much of the governance burden shifts to experienced fiduciaries who provide consistent, professional oversight and management of the plan.

A properly structured PEP will provide plan sponsors with the maximum level of fiduciary governance allowed by the regulations. The plan sponsor can therefore manage their business, rather than spending valuable time managing the retirement plan.

DOL Scrutiny Growing

The Department of Labor is signaling a more stringent approach to oversight of PEPs, tightening guidance on both conflicts of interest and on fiduciary duties. The sharper scrutiny on conflicts of interest emphasize that fiduciary independence will be closely evaluated by the DOL moving forward. Organizations should prepare for heightened enforcement and adapt their governance practices accordingly.

PEPs deliver efficiency, potentially lower costs and reduced risk. They free up advisers, TPAs and employers to focus on what really matters—achieving better outcomes for plan sponsors and participants.