Challenges for 401k Plan Advisors: 2021

2020 is a bad disaster movie—one that drags. But it will end, eventually. So, with 2020 coming to a close, it’s important to look at some of the 2021 challenges for 401k plan advisors and providers.

No. 1: Further consolidation of 401(k) business

It’s a small world after all, and with industry consolidation, it keeps getting smaller. It seems like a plan provider purchase or merger every week. Since fee disclosure regulation was implemented in 2012, there has been tremendous consolidation, with many large plan providers cashing out.

I think consolidation will continue, and Empower’s purchase of MassMutual wasn’t announced that long ago. I expect many more for third party administrators (TPAs), broker-dealers, and registered investment advisors.

While the idea of larger and larger plan providers is scary, there’s enough of a niche to survive and thrive against larger competition. Larger providers will likely be more upmarket with larger plans and may decide to leave certain sectors to increase the higher revenue-generating business lines.

The sad part is that many good employees are let go. If you’re looking for good people, there are plenty to hire in this work environment because good, solid retirement plan professionals are hard to find.

No. 2: COVID is still a thing

When COVID arrived in the United States, I naively thought it would be over by May.

Goalposts then shifted and crisis resolution was pushed back. COVID doesn’t seem to be going away. The problem is that there may be lockdowns that will negatively affect our business and that of our clients.

New York has recently managed the pandemic better, but there are clusters of neighborhoods where non-emergency businesses are still closed. Restaurants in New York City are still at only 25% capacity. Plan terminations and partial terminations will still occur, which doesn’t help us in terms of our revenue.

Returning to lockdowns may require us to go back to full-time work at home (which doesn’t impact me as I have worked from home for 10 years now).

With the election behind us (sort of), we may eventually get more COIVD relief, as well as possible legislation dealing with more COVID distributions. As this pandemic continues, it will still possibly negatively impact our business.

No. 3: Lasting effects

While COVID will eventually phase out through a vaccine and/or virus mutation, there will still be permanent effects on our business. I believe that attendance at in-person national conferences will suffer for some time.

Financial advisors and TPAs will decide that Zoom enrollment and investment education meetings are a far more effective use of time and cost, and traveling for in-person meetings will be diminished.

Plan providers will decide that work from home is a better option for work efficiency and cost, that expensive rental in mid-town or wherever else may be too costly of a space to maintain.

Time will tell, but expect some permanent changes to this business because of COVID.

No. 4: That PEP thing

Pooled Employer Plans (PEPs)will be available on January 1. As I’ve stated so many times, we’ve seen it before, and it was called Open Multiple Employer Plans (MEPs).

There are just way too many similarities between PEPs and MEPs, not only because there doesn’t have to be a commonality among adopting employers. The problem with PEPs is growing enough assets in one PEP to have any cost savings over single-employer plans.

PEPs have a fiduciary structure with pooled plan providers that offer more liability protection for adopting employers than Open MEPs. It’s somewhat murky regarding the kind of liability protection they could offer for those adopting employers.

Also, PEPs have a bigger plan audit exception than MEPs (no audit needed if there aren’t 1,000 participants and participating employer with 100 or more participants vs. 100 participants in a MEP).

As a plan provider, you need to assess if PEPs are right for your business. Many plan providers, especially TPAs, aren’t interested in PEPs because they fear assets won’t achieve the critical mass to be sustainable.

Also, many plan providers may pay significantly by pricing PEPs on the unanswered hope of substantial assets. It’s why there are so many larger bundled providers that won’t offer PEPs. They believe underpricing PEPs on hopes rather than reality will cannibalize their business.

It’s also important to remember that many plan providers already dominate the MEP marketplace, so they should have no issue dominating the PEP marketplace.

It isn’t to suggest that you should abandon the PEP marketplace but understand that distribution is key to whether a PEP succeeds or fails.

If you’re a registered investment advisor or broker, keep in mind that it would be easier to join an existing PEP than starting one on your own.

The best PEPs are those offered through multiple advisors because of the importance of distribution. PEPs are a niche business, but the most successful PEPs will be MEPs that converted over.

Also, stressing fiduciary protection is a more accurate selling point of PEPs than cost (if a PEP’s asset size isn’t voluminous). PEPs could also be an attractive selling point for employers that have Solo 401k plans and SIMPLE-IRAs. You need to determine whether pursuing PEPs is the right option for you.

With COVID still a pandemic, in-person conferences are still going to be put on hold. The “That 401(k) National Conference” in Disney World in March was probably the last 401(k) conference before the pandemic broke.

I left Disney World with my kids on Wednesday and it closed Sunday. Understanding that an in-person 2021 National Conference in March wasn’t going to be a great idea, I moved the national event to January and made it fully virtual on Zoom.

Since I don’t have to deal with the headaches of room reservations and catering, I also substantially decreased the cost of attending and sponsoring. If you want to attend, you can get the early bird rate of $20.21 (there are other tiered packages) before Thanksgiving. If you want to sponsor the event, you can present for as low as $1,500.

CHECK OUT THAT 401KSITE.COM FOR MORE INFORMATION

This virtual conference will be like an in-person event, just no food. Our special guest for day one is Hall of Famer and Knick legend Walt Frazier and the second-day guest is New York Mets great Dwight Gooden.

Autographs are available on the higher tier attendee packages. We will have two days of presentations from folks like Pension Assurance, Matrix/fi360, 401(k) Jake, PCS, Granite Group, MillenniuM Retirement, Sheri Fitts, Nationwide, FPS Trust, Mass Mutual, Value Point, Females & Finance, and many others to be announced.

It will be held January 21-22, 2021 and unlike a live event, you can get a video recording of any sessions you miss. Go to that401ksite.com to sign up today.

Ary Rosenbaum is an author and ERISA/retirement plan attorney for his firm, The Rosenbaum Law Firm P.C.