Small 401k Plans in 2021 — What’s In Store for the Marketplace

There continues to be a huge shift in how retirement plans are sold and serviced in 2017. I think I have a pretty good idea on how the smaller end of the marketplace will be operating in just a few years after Congress gets involved. And it’s a real game changer. But first, a little background…..

Before the Department of Labor’s Advisory Opinion 2012–04a was issued, Multiple Employer Plans were poised to start dominating the small to medium-sized case market in the U.S. By asset size, we’re discussing everything from a start-up 401k plan up to a plan as large as $50,000,000. The economies of scale, the pricing efficiencies, and the liability transfer from the employer to professionals who acknowledge their status as plan fiduciaries made these types of programs a winning proposition for both plan sponsors and plan participants.

While the DOL Advisory Opinion curtailed much of the expected dramatic growth by limiting some of the benefits associated with Multiple Employer Plans (one Form 5500, one global Annual Plan Audit, elimination of Trustee’ level liability, etc.), they continued to grow in popularity within their target market. That pattern of growth continues to this day.

The continued popularity of these types of programs has not gone unnoticed by Congress, either.

Expanding Multiple Employer Plans has unanimous bipartisan support from the U.S. Senate Finance Committee (who were very close to getting their bill approved by Congress in December 2016) and numerous Congressmen in the U.S. House of Representatives. At this point, it’s simply a matter of time before the expanded Multiple Employer Plan features — soon to be referred to as Pooled Employer Plans — become a reality. We expect this to happen as early as this year under the new tax bill that is moving through Congress. We shall see.

Where does that leave advisers and investment providers? Potentially in a great position to dominate the marketplace if they understand the opportunity.

A Pooled Employer Plan — a PEP — will allow otherwise unaffiliated employers to come together under a single plan that will have one Form 5500 and — once the PEP hits 1,000 participants in most cases — a single plan audit. The PEP will have a set structure, features, and protections in place to assure that the plan is operating in the best interests of plan participants.

Who will run these PEP’s? Pooled Plan Providers (P3's), of course! Who can be a Pooled Plan Provider? It appears that it could be anyone who is otherwise not specifically excluded from serving as a plan fiduciary. It will require registration with the Department of Labor, likely a background check, and a few more hurdles.

Who will choose to become a Pooled Plan Provider? Here’s where it gets really interesting.

Advisers who have a large block of clients (think 10–20 plans as a minimum) may wish to establish their own personally branded Pooled Employer Plan for their own clients. They could serve as the 3(38) Investment Manager on the block or outsource that work to an independent fiduciary. They would control their clients and provide custom service for all them while being able to extend the many benefits of a Pooled Employer Plan to their clients. Read More