We wanted to talk about PEPs, but Deb Rubin corrected us, and for a good reason.
“When anybody asks to speak with me, I always say we’re talking about pooled plans because to me, the world is much bigger than PEPs in this space,” Rubin, Transamerica’s Vice President and Managing Director of TPA and Special Markets said before politely adding she’d address PEPs specifically if we’d like.
Happy to follow her lead, she explained recent regulatory changes in the pooled plan space and the growing interest as a result. It’s a long time coming, at least for Transamerica, now in its 20th year of offering pooled plans, a business it entered because no one else wanted to at the time.
“One of our oldest clients grew from a very small plan to a multibillion-dollar plan over the last 19 years,” Rubin noted. “We have grown along with them. Our MEP business is very healthy. We have about 300 of what we call motherships.”
Ten years ago, Transamerica teamed with Knoxville, Tenn.-based Tag Resources on an open MEP until the Department of Labor essentially closed the open MEP structure in 2012. Tag had to react—quickly—to the regulatory change for its clients.
“What was born by a group of very smart people is what we have called the retirement plan exchange for the last 11 years,” Rubin said. “It’s a collection of single-employer plans that pool together to effectively get the benefits of a pooled plan. In the early years, the take-up rate in the exchanges and in practice was modest.”
No longer, and its popularity has exploded. Emphasizing that it was only her opinion, Rubin argued that pooled plans are here to stay and will change the retirement plan landscape. However, there nonetheless will always be a need for single-employer plans.
Early days
Surprisingly, it was less about compliance challenges two decades ago and more about the intricacies of building a business to support the pooled plan model.
“We built a recordkeeping system specifically to support pooled plans. I would call it a smart system in that provisions that are very hard to navigate if you don’t have a system that does it, we actually have built-in.”
For example, she mentioned a worker in a MEP or PEP that might move from one employer to another under the pooled plan umbrella. Their eligibility, service, and vesting must follow them in the move. Without a recordkeeping system that ties the two businesses together, it would be challenging to do.
“That’s one example of the nuance [of the system]. We also see a lot of activity in the association space with chambers. If a chamber sponsors a plan, it a decentralized structure, so how do notices get sent out? How do mandatory disclosures get sent out? How is payroll addressed? All those kinds of things can be very challenging. We built a program for this business that we now use in our single employer business that can actually do those things for the client. So, for us, none of this is new. What’s new is the amount of activity, focus, press, and overall interest. It’s massive.”
When asked about pooled plan disadvantages, she mentioned some issues SECURE 2.0 would supposedly fix.
“A very big one was that 403(b)s got left out. If you think about what a pooled plan can do for an entity, it can just make it so much easier for adopters to opt into a program and more cost-competitive. That’s one thing. There are other little nuances. For example, the way that the SECURE Act was written, the startup credit applies for three years from the time the plan is created—or the effective date of the plan—not from the effective date of adopting. We know that’s included in the regs to change, and we’re also waiting for guidance on things like prohibited transactions.”
It’s that regulatory complexity that is delaying entities from establishing plans, she added, “because they want to understand more where the potential pitfalls might be.”
Whether that clarity will come remains to be seen, as Rubin noted the high number of other priorities with which Congress is currently grappling.
“We know that there are a number of congressional leaders who are very focused on expanding coverage and on reducing leakage in retirement plans, but we also know that Congress has so much to take care of,” she concluded. “SECURE was supported in a bipartisan way and look how long it took to pass it. If we can get some guidance while we wait for 2.0, that would be amazing, but I’ve been told that even getting guidance with everything DOL has in front of them could take a little while.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.