KeyBank Advisory Division Launches PEP

KeyCorp’s institional advisory division is getting into the pooled employer plan space.

KeyBank Institutional Advisors announced on Tuesday that the Key 401(k) Pooled Employer Plan will be live January 1, 2024, with the goal of offering unrelated employers a single, customizable defined contribution retirement plan.

“We are excited to launch the PEP to KeyBank’s commercial clients which will significantly reduce administrative tasks while providing many benefits such as fiduciary oversight, compliance, recordkeeping, cost efficiencies, reporting, investment management and a seamless participant user experience,” Craig Greenwald, national director of pension solutions at KeyBank Institutional Advisors, said via email. “Our strategy is to work with our internal advisors and relationship managers to bring this offering to our clients, while working with teams at both Transamerica and Pentegra.”

KeyBank IA will serve as the 3(38)-investment manager that selects the fund menu lineup and perform ongoing monitoring of investment performance and manager selection.  

KeyBank IA likely launched the PEP, because not offering one might put the bank at a competitive disadvantage, says Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP. “Not participating in the PEP arena leaves them vulnerable to loss of current adviser business as well as the lost marketing opportunity of not having a viable PEP option for their adviser team,” Smith says.

Smith’s firm—which assists registered investment advisers, benefits brokers, service providers and employers in the PEP market—is experiencing increasing interest in managed retirement plan types, including multiple employer plans, PEPs and group plans. 

“All three MRP classifications are growing in popularity but PEPs are leading the pack,” Smith says.   

RIA firms and plan providers had been reluctant to join a MRP, Smith adds, but no longer. 

“Many are now confident that MRPs, particularly PEPs, are here to stay and that they offer a significant viable option for many of their plan sponsor clientele,” he says. “We are seeing growing interest in PEPs from all segments of the plan sponsor market from startups and small plans to mid-size and large-plan markets.”

There were slightly more than 400 PEPs and approximately 150 pooled plan providers registered with the Department of Labor, in 2023, says Smith—who tracks PEP registration on the DOL’s EFAST website—compared to 170 at the end of 2021 and about 300 at the end of 2022, Smith says.

Pooled employer plans were created by the 2019 Setting Every Community Up for Retirement Act to allow unrelated employers to convene to participate in a single 401(k) defined contribution plan sponsored by a registered pooled plan provider. The goal of provisions in the bill was to encourage employers that didn’t provide retirement plans to participants to offer one.

The SECURE 2.0 Act of 2022 expanded PEPs, permitting the creation of PEP 403(b) plans. 

In a February report published in the Federal Register, the IRS and Department of Labor clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold some interpreted in the SECURE Act of 2019. Instead, regulators kept consistent across single-employer plans and PEPs the rule requiring and audit for plans with 100 or more participants.

Morningstar Inc.’s retirement investing division together with recordkeeper Plan Administrators Inc.; Voya Financial and retirement advisory WTW all launched separate PEPs, earlier this year. 

Key Institutional Advisors had more than $70 billion in assets under administration as of September 30, 2023.

A KeyBank IA representative did not return a request for additional comment.