The ever-changing marketplace of retirement plan design is driving some plan sponsors to seek alternatives to traditional retirement programs. To ease compliance challenges and administrative complexity, nonprofit organizations are increasingly considering multiple employer plans (MEPs), while small to mid-sized businesses are diving into pooled employer plans (PEPs).
With the enormity of fiduciary breach lawsuits over retirement plan excessive fees or misuse of forfeiture funds over the last few years, many employers are wanting to offer competitive retirement benefits and looking to transfer risk are opting for a MEP or PEP to potentially benefit from lower cost investment options and maximized investment returns.
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Though PEPs have been in existence for over half a century, moves toward collective trust combined with SECURE 2.0 provisions and the pricing power of pooled structures is prompting more organizations to seek out MEP or PEP structures instead of 403(b)s or 401(k)s. Typically MEPs have a common nexus of geography or share a common industry (sometimes offered by an association), whereas a PEP does not need to share commonality with other organizations in the pool. A PEP or MEP structure also offers flexible plan design, customization, and scalability.
In light of the recent case in which 26,000 bank employees were awarded $38 million in million in Pentegra’s multiemployer 401(k) excessive fee lawsuit, we wanted to know best strategies for employers when choosing a PEP or MEP. We talked with Vin Smith, Nonprofit Defined Contribution Practice Leader, at Fiducient Advisors, an investment consulting firm with $345 billion in assets under advisement.
Q: Why are some employers wanting to offer competitive retirement benefits and looking to transfer risk opting for a MEP or PEP?
Vin Smith: When discussing the importance of retirement plan benefits with an organization’s leadership, the consistent themes are that a competitive retirement plan increases the ability to attract top talent within a respective industry. To retain employees, and as a result decrease the costs associated with turnover and improve overall employee financial wellness, can lead to improved productivity as well as provide a boost to overall morale and workplace culture.
Employers are attracted to MEPs and PEPs because they offer the potential to decrease costs and improve service offerings for both the plan sponsor and plan participant. An additional benefit of MEPs and PEPs is they often also allow for greater administrative efficiencies and the opportunity to transfer significant compliance and fiduciary risk to the service providers.
Q: In light of the recent Pentegra lawsuit settlement, what recommendations would you give employers to choose the best multiemployer plan?
A: Evaluating a MEP or PEP offering, as well as deciding whether or not to join a MEP or PEP, is a fiduciary decision and should be completed by a comprehensive and well-documented process that evaluates fees, services, technology, and participant experience. Plan sponsors that decide to join a MEP or PEP should be sure they can provide evidence of the evaluation process should their decision be challenged.
Related: Pooled employer plans: Expanding access to 401(k) plans, but low employer buy-in persists
Q: Since PEPs do not need to share commonality with other organizations in the pool, what type of employer is best suited for a PEP?
A: Since PEPs offer a variety of potential benefits from competitive pricing to outsourcing of administration to transference of risk, essentially any type of employer could benefit. That said, our historical experience suggests that employers with small- to mid-sized plans or those with limited staffing and/or expertise with plan management tend to be positioned to benefit the most in the immediate term.
Q: What are the advantages of a PEP or MEP structure in terms of flexible plan design, customization, and scalability?
A: As PEPs and MEPs have gained significant adoption, the product offerings have improved and can allow employers the opportunity to customize plan design, including vesting, contribution schedule, and investments. These types of programs are designed to create economies of scale that increase efficiency and ultimately lead to less work, less cost, less risk, and improved participant outcomes.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
