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Who will be first with a pooled employer plan? - Pensions & Investments

As firms jostle for position in anticipation of the new market for pooled employer plans, one is racing ahead to try to gain an important distinction — that of being the nation's first provider of the plans.

Terrance Power, the president and self-described "PEP master" at The Platinum 401k Inc., the marketing arm of American Pension Services LLC — a $450 million Clearwater, Fla.-based third-party administration firm that Mr. Power founded — has already teamed up with Strategic Capital Advisers LLC, a $200 million retirement plan adviser firm in Springfield, Ohio, to launch a pooled employer plan on Jan. 1, 2021. The Platinum 401k team will serve as the pooled plan provider, or "P3," as well as the 3(16) plan administrator to the private-labeled PEP, Mr. Power said.

Large record keepers are also seen as well-positioned to offer a pooled employer plan, particularly those that already have multiple employer plan offerings. But so far, many of the largest aren't disclosing their plans.

"I would think that record keepers that already have that infrastructure — that would be a logical next step where they might see it as a good fit for their business," said Anastasia Krymkowski, associate director with Cerulli Associates' retirement practice in Boston.

In a survey of 23 record keepers last year, including eight of the top 10 largest firms, Cerulli found that 19% of the respondents viewed open multiple employer plans as a "high opportunity," with one-third seeing it as "somewhat of an opportunity." Some 38% saw it as a "low opportunity" and 10% said it was not applicable to them.

Fidelity, which has $2.4 trillion in assets under administration on its workplace retirement savings plan platform, says it plans to offer a "solution" by early 2021 but declined to provide additional details.

As Mr. Power tells it, the Strategic Capital Advisers pooled employer plan will serve as a model for other PEPs that he plans to replicate in the name of adviser firms across the country. In addition to Strategic Capital Advisers, Mr. Power said he has a dozen or so other advisers queued up to have a similar program established for their firms.

"Our phones have literally been ringing off the wall since Christmas with folks that want information," Mr. Power said, adding that he expects to have commitments from 40 to 50 firms by year-end.


The interest comes following passage of the SECURE Act, which made it more attractive for employers in unrelated businesses to join so-called "open" multiple employer plans for their workforces. Employers were previously discouraged from doing so as they would each still have to file separate Form 5500s and conduct separate annual audits, requirements that were eliminated with the new legislation.

Since the SECURE Act was signed into law on Dec. 20, record keepers and other service providers to defined contribution plans have been scrambling to figure out how to position themselves to serve the new generation of multiple employer plans that the new legislation refers to as "pooled employer plans," according to industry observers.

The list of possible organizations likely to enter the PEP market include financial institutions such as banks and insurance companies, record keepers, large broker-dealer and registered investment adviser firms, payroll providers and local chambers of commerce, all of which may be early movers in the market, observers say.

"I think most providers are still evaluating options," said Michael Kreps, a principal at Groom Law Group in Washington, adding that "it is hard to predict how everything will shake out."

While industry observers say it's too early to say which entities will be first to market, some believe that TPA firms like American Pension Services have a natural advantage given the administrative work PEPs will require.

"Financial institutions that have experience administering retirement plans have a bit of head start in creating PEPs," Mr. Kreps said.


Mr. Power certainly thinks so. He is building on his three decades of experience serving MEP clients to get a clear running start and snag the distinction of being among the first, if not the first, P3. While there are still some pending regulatory questions, including guidance from the Department of Labor regarding which administrative duties a P3 must perform, Mr. Power does not foresee any major hurdles. He plans to register his firm as a P3 as soon as the Department of Labor releases its criteria for registration, which he expects in late summer.

American Pension Services serves nearly 500 corporate plan sponsor clients and 15 multiple employer plans ranging from a few million dollars in assets to more than $100 million.

Mr. Power's model PEP is aimed primarily at advisers with 10 to 20 or more 401(k) plan clients where he says "it makes sense to have their own branded 401(k) pooled employer plan." Ideal candidates for the PEP would be plans with between 120 to 2,500 employees and assets between $2 million and $50 million.

"This is the low-hanging fruit for advisers in the pooled employer plan arena," Mr. Power said.


Philip Scott, founder and owner of Strategic Capital Advisers, is looking to make the PEP available to his 401(k) clients as well as those of seven advisers that he works with around the country. He said he is talking to advisers about the coming PEP and "fully expects them to support" it.

Mr. Scott serves 13 stand-alone 401(k) plan sponsors with about $75 million in assets and two multiple employer plans with about $125 million. He anticipates that some of his clients will move to the new PEP.

In combination with business from advisers in other locations, Mr. Scott sees the PEP growing large enough to secure better administrative and participant pricing.

Mr. Scott says there are plenty of reasons for employers to join the PEP. In addition to outsourcing their duties as a plan sponsor and much of their fiduciary responsibility, they will no longer have to file Form 5500s or conduct annual audits as that will now be done universally at the PEP level, a relief for plan sponsors.

"You've reduced your fiduciary liability of running your plan by a significant amount and you've turned it over to experts," he said.

The PEP could also reduce their plan costs due to greater economies of scale. Based on his experience, plan sponsors with assets in the $500,000 range could expect to save anywhere from 25 to 50 basis points at the participant level, Mr. Scott said.

Jeffrey Levi, a Darien, Conn.-based principal at Casey Quirk, a practice of Deloitte Consulting LLP, was skeptical of the TPA's model PEP for advisers, saying that it might not gain the scale needed to negotiate better fees. Specific breakpoints are difficult to provide because they will vary from firm to firm, he said.

While he said many different types of service providers have the potential to emerge as pooled plan providers, he sees record keepers as having a possible edge.

"I can see record keepers play in this space given the know-how and the assets that they have, but I'm not sure the economics of the pooled plan are clear enough yet to lure some of these players in this early in the process," he said.

Cerulli's Ms. Krymkowski also has reservations, noting that not all record keepers will go after the business. "For some, this might be an area of focus," she said. "For other record keepers, it might be too much effort to build out this new part of the business at least in the short-term."

Ascensus, Vanguard Group and Empower Retirement declined to comment or did not respond on whether they were looking to offer a pooled employer plan.

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