Forge new paths to business growth and protect your practice with MEP to PEP conversions

Image: Forge new paths to business growth and protect your practice with MEP to PEP conversions

Multiple employer plans (MEPs) and pooled employer plans (PEPs) are increasing in popularity, and advisors are finding that by recommending these solutions, they can open new avenues of growth for their practices.

Recent research validates the growing interest from employers, especially in PEPs. In fact, more than half of smaller employers surveyed by LIMRA that are considering a defined contribution plan are interested in learning more about PEPs, regardless of whether they have a retirement plan currently in place.1

With that in mind, there are multiple strategies you can consider—not only to target employers who haven’t yet adopted a retirement plan, but also to transition existing retirement plan clients into a PEP. Or even to convert existing MEPs to PEPs.

The business case for moving a MEP to a PEP

A PEP has specific advantages that can make it highly desirable, especially from the perspective of a MEP’s lead employer/sponsor. Consider the following:

In a MEP In a PEP
The lead employer/sponsor is the 402(a) named fiduciary The pooled plan provider (PPP) is the 402(a) named fiduciary

The 402(a) named fiduciary is the fiduciary that is responsible for the overall operation and administration of the plan. It also takes on discretionary authority for nearly all traditional plan sponsor responsibilities. In short, the 402(a) named fiduciary assumes a lot of work and significant responsibility. Moving from a MEP to a PEP shifts this fiduciary responsibility from the lead employer/sponsor to the PEP’s PPP.
Unless the MEP is a bona fide professional employer organization (PEO) plan or an association retirement plan, the lead employer’s employees must be included The lead employer does not have to include its own employees in the PEP
If you are working with an association or a chamber of commerce that sponsors a MEP, there are scenarios where it might not want to join a PEP, but it recognizes the advantages for other employers in its MEP. The lead employer can move all the adopting employers from the MEP into a PEP they establish and sponsor without moving its own plan.
The lead employer/sponsor is typically the plan administrator, with fiduciary responsibility for many administrative tasks The PPP is the plan administrator with the fiduciary responsibility for administrative tasks
Since the PPP is the 3(16) administrative fiduciary, it alleviates a large part of the administrative burden and simplifies the experience for the lead employer/sponsor. The 3(16) fiduciary:
  • tracks eligibility
  • approves plan distributions
  • distributes notices and disclosures
  • manages plan documents
  • maintains required plan information, data, and reports
  • signs and files the Form 5500

Shifting these responsibilities—and ensuring they are professionally managed—keeps the lead employer/sponsor focused on its business.

A 3(38) investment fiduciary isn’t mandated

 A 3(38) investment fiduciary is almost always included, and is often selected and monitored by the PPP
Moving to a PEP can be appealing to a lead employer/sponsor in a MEP because it effectively offloads its fiduciary responsibilities related to investments and is no longer on point for making fund lineup decisions, managing the investment menu, and monitoring ongoing appropriateness of investment choices.

Let’s look at a recent example from Ascensus to show the potential in a MEP to PEP conversion—and why you should also be considering a PEP to protect your existing business as an incumbent advisor.

The problem

A lead employer in a MEP (45 plans, approximately 1,000 participants, roughly $50 million in assets under management) was unhappy with the level of service the MEP and its participants were receiving. They had growing concerns about the significant number of duties they had to perform, including their audit responsibilities.

The lead employer’s business owner mentioned these challenges both to their incumbent retirement plan advisor as well as to the business owner’s personal wealth advisor, who suggested a PEP solution could be a good fit.

The solution

As the wealth advisor was proposing a PEP, the incumbent retirement advisor was responsive to issues their client was raising. They knew they had to jump into action to retain the business.

The incumbent advisor approached Ascensus to discuss converting the MEP to a bundled PEP solution, where the advisor would assume 3(38) investment management responsibilities. This would effectively remove much of the administrative burden the client was facing while significantly reducing the client’s overall fiduciary risk related to plan administration, operations, and investments.

Better yet, from the client’s standpoint, plan costs were essentially the same in the PEP solution. In other words, converting to the PEP solution through Ascensus meant better service, less responsibility, and less risk—all at the same price point.

The results

When discussing the advantages of the PEP with the lead employer, it was a light-bulb moment.

The lead employer could see how a PEP would alleviate many of its responsibilities, including plan audit duties that would be handled by the PPP. As an organization that took risk mitigation seriously in other parts of its business, the lead employer quickly realized the PEP arrangement was a no-brainer for offloading fiduciary risks it didn’t fully understand in its current MEP solution.

The MEP to PEP conversion is currently in process with each of the 45 participating employers and their participants transitioning through a seamless, comprehensive process coordinated through Ascensus and the advisor. All plans are scheduled to be converted within 45 days.

Advisor takeaways

  • If the incumbent advisor hadn’t been proactive about offering a PEP solution to protect their business, they would have lost a sizeable client. By converting the client from a MEP to a PEP, they’ve:
    • ensured a better ongoing experience for the lead employer, other employers, and participants
    • reduced the administrative burden for the previous lead employer
    • reduced fiduciary risk for the previous lead employer
    • increased client satisfaction
    • ensured long-term retention of a key client

  • Although the wealth advisor didn’t win the business, they had a significant opportunity to do so by recommending a MEP to PEP conversion. With approximately 4,600 existing MEP arrangements in the market today, it’s an area of untapped growth for advisors to explore together with the right partner.

 

Plug into our MEP and PEP resources for new ways to grow your business.
We have additional support and information for you on our MEP and PEP solution page, including our new audio series, PEPCAST, covering timely PEP topics you and your clients don’t want to miss.
When you’re ready to start selling, contact our team of experts to discuss our pooled plan offerings.

1Nevin E. Adams, JD. "(How) Are Advisors Using Pooled Employer Plans (PEPs)?" National Association of Plan Advisors. August 21, 2023. Accessed September 13, 2023. https://www.napa-net.org/news-info/daily-news/how-are-advisors-using-pooled-employer-plans-pep.