With the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the climate changed for multiple employer plans (MEPs) and pooled employer plans (PEPs). A Nov. 2 session of ASPPA All Access discussed factors facing service providers concerning these arrangements.
The session, Service Offering Considerations on MEPs & PEPs, featured the insights of Theresa Conti, President of Sunwest Pensions, and Pete Swisher, President of Waypoint Fiduciary.
There is movement toward MEPs and PEPs, Conti and Swisher noted. “When the entire marketplace aims its salespeople to go out with the message—whatever that message might be—and employers hear that message from lots of different directions, people start to pay attention,” said Swisher, continuing, “I think that’s what’s going on with multiple employer plans and association retirement plans.”
“I think we’re just at the beginning of people hearing from the salesforces of industry vendors that MEPs are a good idea. That’s going to make a difference and change the marketplace,” said Swisher, adding, “clearly, the marketplace is moving toward adopting these structures.”
Embracing MEPS and PEPs
One of the reasons service providers are embracing the new structures, Conti said, is the “showcase effect” —they are a fresh opportunity to package, or showcase, one of their best ideas.
Conti also said that service providers are drawn to MEPs and PEPs because they play to the service providers’ strengths. “It really does play to our strengths,” she said. “That is one of the reasons I like working with them—because we can be very efficient, we can be very effective, very out front with that,” Conti shared.
Swisher stressed the attractiveness of something that is considered likely to be a major force. “Anything that moves 20% of the market is going to be a big deal,” he said.
Wait a Minute
Still, there can be some reticence to offer a MEP, Conti indicated, remarking that she is “reluctant to roll something out until we have really firm guidance.” She said that she is “going to wait a little bit longer to see what happens with all the rules.” This is important to her, she said, “so I know what I’m supposed to be doing from a practical standpoint and from a process standpoint.”
“There are lots of unanswered questions,” said Conti. “The TPA community, I think, is pretty conservative,” she remarked, “so not having regulations and having unanswered questions is a problem.”
Swisher regards big picture clarity as especially important. “I don’t think we’re waiting on much regulatory clarity other than big regulatory clarity,” he said, citing prohibited transactions as one such area. “You do have a fundamental issue that a plan sponsor is not able to be paid under the interpretation of ERISA that has stood for decades,” he said, noting, however, that “it is clear” that under the SECURE Act, a provider can be paid. “I think it’s actually very clear that the legislative intent was that plan sponsors can get paid and that the legal mechanism for that is the provision in the law that says that the PPP and any other named fiduciary are appointed by the participating employers,” Swisher said.
“What we are really waiting on is for the Department of Labor to say specifically what the regulatory mechanism is that you are to use—a proprietary fund or an affiliate,” Swisher said.
Not knowing how to make money from the new structures is another source of concern. For instance, the suspicion that MEPs will be less expensive—and therefore, less lucrative—suggests that it may not be worth a service provider’s time to work with them, which is an impediment to some providers.
But a service provider need not charge less for services rendered to clients that are part of such arrangements, Conti and Swisher indicated. “As a service provider, as a TPA, I have to provide all the same services, all the same processes to these types of clients as I do my single employer clients,” said Conti. Swisher was more forceful, remarking that the marketplace is “very clearly telling us that what they want is all the goodies that a MEP promises” without the responsibilities that entails, and they also want it to cost less. “That’s not fair to us,” said Swisher, adding that “A TPA does have to do the same work to a large extent” when working with MEPs.
Risk, too, is an impediment, Conti says. “What type of risk am I putting myself in if I’m a pooled plan provider? Now I’m a fiduciary, now I definitely have responsibilities. What type of risk am I putting myself, my practice, my firm in by being a PPP?” she asked.
Technology, fees and convergence of business are factors Swisher identified as MEP drivers. Conti suggested that additional regulatory clarity would increase interest in MEPs. “I think having more rules in mind is really going to drive this,” she said.
And Swisher added that there are ways to mitigate risk. He noted that the risks for administrators are very different from the risks of litigation over fees. The way to protect against risks connected with administration is to have “really well-written documents” and make sure ownership of data is properly defined, he said. “The combination of process and controls and insurance will take care of us,” Swisher said.
“At a minimum, the burden is on us to figure out the most effective way to deliver the best-governed plan,” said Swisher. “You’re not going to be successful with MEPs unless you offer services effectively, efficiently and to scale,” he added.