April 18, 2020

Changing Directions

When we planned this issue, we were prepared to cover the SECURE Act and its sweeping developments. Since then, we've changed course.

Reported by Judy Faust Hartnett

Art by Alessandro Gottardo

As we began planning this issue, aspects of the SECURE [Setting Every Community Up for Retirement Enhancement] Act were top of mind. Among the potentially sweeping changes the act has brought to bear is the authorization of pooled employer plans—or PEPs.

Come next January, PEPs will offer a new way for unrelated employers, particularly small employers, to collectively participate in a 401(k) plan. According to the Department of Labor (DOL), about 38 million working Americans do not have access to an employer-sponsored plan.

Richard Rausser, senior vice president at Pentegra, said, “Everyone we talk to—financial advisers, 3(38) fiduciaries, 3(16) fiduciaries, recordkeepers, mutual fund families, investment houses, trustees—everybody is clamoring to participate in PEPs. They’re all thinking they need, and want, to be a part of this.” We cover various approaches to these plans in “Pooled Strength.”

“Hazard Prevention” focuses on how advisers can help 403(b) clients stave off lawsuits by improving plan governance policies. These lawsuits, filed on behalf of participants, claim excessive investment and plan administration fees, unnecessary expense due to 403(b) plans’ multiple-recordkeeper model, and the confusing number of investment options the plans frequently offer. But David Levine a principal with Groom Law Group, Chartered, in Washington, D.C., reminds advisers that 403(b) plans are different from 401(k) plans and it’s important for advisers to recognize this. Columnist, and attorney, David Kaleda zeros in on the growing trend of suing small defined contribution (DC) plans in “On Small Plans and Large: Any size plan could be a target for fee litigation.”

Our Investment-Oriented department this issue discusses “The Risks of DC Investing.” Taking a lead from a J.P. Morgan Asset Management white paper, the article examines how some risks are “outgoing” and result from a participant’s own lapses. “Incoming” risks represent situations beyond a participant’s control such as the current volatility in stock prices resulting from COVID-19. Besides rebalancing and diversifying investments when appropriate, to increase savings overall is key, experts say.

As this issue went into production, we changed direction and began to report on the steps taken to address the coronavirus impact, and we touch on it in Trends. Our website, PLANADVISER.com, updates daily with analysis of market movement, business challenges and legislative and regulatory actions related to the pandemic; it’s a great resource.

Let us know if we can be of any help to you with your practice or clients during these times of change. We may be able to help, or we can direct you to the resource that can.