Retirement Advisers Increasingly Want PEP Option in Toolbox

Pooled employer plans are still a nascent offering in the retirement market, but an increasing number of advisers want them available as an option and discussion point—even if they’re not recommending them.


Pooled employer plans, which are nearing the three-year anniversary of availability, may not be actively used by many retirement advisers, but they have reached the status of being necessary for “the toolbox,” according to some industry experts.

PEPs, made possible when the Setting Every Community Up for Retirement Act passed in late 2019, have had relatively minimal uptake despite a goal of drawing more small businesses to offer retirement benefits. But PEPs are back in the spotlight as the so-called SECURE 2.0 retirement legislation pending in Congress may make them available for non-profit 403(b) plans, a sector that has previously been familiar with shared-employer benefits through multiple employer plans.

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As of late 2022, there are about 100 pooled plan providers listed with the U.S. Department of Labor and about 300 PEPs registered by these plan providers, according to research done by Robb Smith, president of RS Fiduciary Solutions and one of the founders of PEP-Hub, which provides PEP training and certification for RIA firms and plan advisers. At the beginning of November, 2021, there were 80 registered pooled plan providers and 170 registered PEPs, according to the DOL’s EFAST site.

It has been difficult, Smith says, to get exact numbers for the size of this relatively new market from pooled-plan providers.

“We know that the PEP market is alive and well,” Smith says. “We know it has been successful for both start-up plans and, somewhat more surprisingly, many midsize and large plans who are sick and tired of trying to keep up with fiduciary and administrative obligations.”

PEPs had originally been intended to get more small businesses to offer retirement benefits through a shared, less-laborious and ultimately risk-mitigating platform. But as the years have passed, the tool has drawn interest from midsize and large businesses who may be converting over from a MEP or getting out of their single employer plan offering, experts say. This October, provider AON reported its PEP had drawn more than $1 billion in assets and commitments from a diverse array of businesses.

Despite recent movement in PEPs, it has been a relatively slow sales process, says Ary Rosenbaum, an ERISA and retirement plan attorney with New York-based Rosenbaum Law Firm. Rosenbaum, who is bullish on PEPs in the long run, says the most common action he has seen is the conversion of MEPs to PEPs, which have management benefits and lower costs.

A major factor that has hurt PEP uptake, Rosenbaum says, is the pandemic’s impact not just on businesses, but on DOL guidance.

“The law changed in 2019 and then came online on January 1, 2021,” he says. “There was little guidance by the DOL, and it was hard for them to come out with regulations during the rest of that year.”

But does Mikey Like It?

Smith of Space Coast, Florida-based PEP-Hub says much of the hesitancy for retirement advisers to start pushing PEPs has been first-mover status. He equates it to the “Mikey Likes It” Life cereal commercials made popular in the 1970s and 1980s.

“People are watching to see if someone else gets involved in the market,” Smith says. “They want to know if Mikey likes it before offering it themselves.”

He says that with successes such as AON’s being promoted to the market, he is seeing more advisers and advisory firms who want the option to discuss and at least offer a PEP so they are not behind the market.

“Advisers see it as an arrow in their quiver,” Smith says. “Whether they do their own PEP or go through a PPP, they see that they need it so as not to lose business.”

This extends to wealth management firms, Smith says, who can partner with a PEP to have a “turnkey” retirement plan offering as the retirement and asset management industries grow closer.

Have It, May Not Use It

Joe DeBello, a managing consultant with retirement and benefits provider OneDigital, says his experience with PEPs in the marketplace, especially among the small businesses it targets, has been limited. He attributes this lack of uptake in part due to small businesses being concerned first with cost, then to a lesser extent—if at all—with fiduciary considerations. Since there are many options cheaper than PEPs in the marketplace, motivation to pursue them is limited.

“When you look at the type of plan sponsor that finds this structure appealing, which is usually smaller businesses, they’re not being kept up at night for the fiduciary concerns,” DeBello says. “For your 50-employee plumbing business, the key concern is cost.”

DeBello, who has access to offer a PEP via Atlanta-based OneDigital, says he likes to have the PEP available to offer and discuss, but has rarely recommended it to clients because it’s often not the right fit for their specific needs.

“It is absolutely something that we want to be able to have the conversation on and be able to keep them up to speed on what’s available,” he says. “But ultimately, it’s the plan sponsor’s decision, and as an adviser in the space, you find yourself having to play a little defense. … You don’t know the type of conversations that some people are having out there with advisers who don’t really understand the pros and cons of a PEP structure. You want to provide transparency.”

DeBello says, for now, the market is immature, and that quality PEPs will rise to the surface over time. He is particularly interested to see if the three bills that make up SECURE 2.0 will pass, thereby expanding PEPs to the 403(b) market.

John Scott, the director of The Pew Charitable Trusts’ retirement savings project, says small businesses continue to face multiple obstacles to adding workplace benefit plans, ranging from cost to administer to simply being able to focus on it amid other hats they wear running their business. PEPs have promise, Scott says, but their success will depend on their structure and cost savings.

I think there are some questions about whether it is actually cheaper,” Scott says. “You still have to do a lot of the same things you do with the larger plans, without the assets. PEPs in their early days will be used for somewhat larger employers and ultimately trickle down to the smaller employers. … [A larger PEP market is] possible, but it’s really up to the providers and how they design it and market it.”

For Smith of PEP-Hub, whether a business chooses a PEP does not matter, but it is important that advisory firms can intelligently show them the option.

“If you’re not talking PEPs, your client will be at a disadvantage,” Smith says. “We don’t care if the employer does a PEP or stays with a single-employer plan; we only care that they go through a good process before making a decision.”


Betterment, Vanguard Find Workers Tapped Retirement Savings in 2022

Workers are increasingly dipping into savings to cover costs that are increasing due to inflation, creating a moment for advisers to work with plan sponsors on their financial benefit programs.


About a quarter of full-time workers have gone into their retirement savings to pay for short-term expenses this year, according to a national survey by Betterment at Work.

Betterment, a 401(k) and financial benefits provider, reported last week that 28% of 1,000 workers surveyed say they tapped retirement savings amid record levels of inflation and prolonged market volatility. The New York-based firm said worker confidence in their own financially stability has dropped since 2021, with 40% now saying they are financially stable, a 9% drop compared to last year.

“Many workers are struggling with new challenges and financial anxiety, meaning financial wellness benefits have become more important than ever,” Kristen Carlisle, vice president and general manager of Betterment at Work, said in a press release.

The Betterment research follows a report from Vanguard in November that the share of workers taking cash from their employer retirement plans is rising for loans, non-hardship withdrawals and hardship withdrawals. Hardship withdrawals, which are subject to income taxes and a possible 10% early-withdrawal penalty, hit their highest level since Vanguard began tracking them in 2004.

Workers’ decisions to tap into their retirement savings are a concrete sign of the financial anxiety felt by America’s workforce due to high inflation, market volatility and talk of recession, according to Betterment. The benefits provider said the majority (71%) of employees are anxious about their finances, and another 54% say this anxiety has made it difficult to focus at work.

Employees are looking for support, with 68% saying financial wellness benefits are more important to them now than they were a year ago. Coveted benefits include a health savings account, an employer-sponsored emergency fund and student loan offers, according to the research.

A Benefits Arms Race

These types of financial benefits are particularly important for smaller employers, says Edward Gottfried, Betterment’s director of product management, because fewer small businesses offer 401(k) savings plans and wellness tools. The silver lining, he says, is that there has been “a bit of a healthy arms race” leading to the creation of affordable and accessible financial benefit programs during the Great Resignation.

“The last couple years have been a little bit crazy in terms of growth of offerings [among small employers],” Gottfried told PLANADVISER. “There has been a realization from small employers that they needed to offer benefits to be competitive with their peers.”

There has been competition for workers both in specialized jobs and for entry-level positions, Gottfried says. Retirement plan and financial advisers have an opportunity to make sure employers are aware of the full range of retirement and wellness benefits available to them.

He says Betterment’s differentiation in the marketplace is an employee offering with one-stop shopping, including retirement planning, student loan payment advice and safe ways to start up emergency savings.

An emergency savings plan may help some of the rising number of Americans who report being more financially risk averse than last year. In surveying in early December, insurance provider F&G found that 78% of Americans said they have become more financially risk averse, up from 69% in 2021. The Des Moines, Iowa-based insurer said that of 1,691 people surveyed, 67% feel like their financial safety net has been taken away from them in 2022, up from 47% of people who said so one year ago.

Not all findings, however, have been dour. In other December research, Bank of America found that among its clients, median household savings and checking balances remain well above pre-pandemic 2019 levels across all income levels. While the bank found an increase in “buffers” being drawn upon due to high inflation and housing costs, most consumers are not spending more on credit relative to debit card use in 2019.

Whether workers are financially strapped or not, advisers may have more room to speak with businesses about their retirement and financial benefits. Slightly less than half (45%) of workers feel their employer is committed to supporting their financial wellness, according to the Betterment survey.

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