Tips and Traps for Advisors and Small Group Plans

For anyone who doubts the potential popularity of group plans, some back-of-the-envelope math from Jason Roberts will set them straight.

“EBRI projects that 50-plus percent of small employers are expected to join a group plans in seven years,” Roberts, CEO of the Pension Resource Institute and Managing Partner of Retirement Law Group, said at the outset of his presentation Monday afternoon at the Broadridge Fi360 Solutions Annual Conference 2021. “If 8% of existing plans overall change vendors annually, and 25% of them change to a MEP/PEP, 20% of today’s plans will be in MEPs/PEPs in 10 years. I think it’s even higher for start-up plans.”

Titled “Opportunity Analysis: Tips & Traps for Investment Professionals Serving Group Plans,” the session covered the various ways advisors and consultants can better serve their plans through new, aggregated group plan arrangements.

With group plans, Roberts referred to MEPs PEPs and now GOPs (Group of Plans), language included in the SECURE Act. He provided a helpful glossary for attendees who might have been unfamiliar:

• MEP = Multiple Employer Plan
• PEP = Pooled Employer Plan
• GoP = Group of Plans
• P3 = Pooled Plan Provider = PPP
• PE = Participating Employer = Adopting Employer
• ARP = Association Retirement Plan
• PEO = Professional Employer Organization

Advisors have three choices, Roberts argued; create their own group offering, partner with a provider that has a group offering, or sell against it. There are several pros and cons to consider when deciding whether to engage in one of the first two. They are:

Group plan pros

• The statistics he mentioned at the outset
• Consistency + repeatability + predictability = SCALE
• Differentiation & enhanced client retention
• Concentrated bargaining power

Group plan cons

• Potential increased liability
• Systemic risk affects multiple clients/lack of diversification
• Cost (legal) & knowledge barriers to entry
• Potential loss of “client control”
• Supervisory considerations (e.g., custody, OBA, etc.)

“If you drill down to the next level and decide to partner with someone, there are cost s to that as well,” Roberts explained. “What flavor of partnership do you mean? How influential are you in having a say over the final document? From a knowledge perspective, are you prepared to serve in an administrative fiduciary role?”

He then listed a few items of which advisors should be aware when looking for a partner.

“One extreme example is the partner, quote/unquote, hires you,” he warned. “If I’m an advisor, I’m not going to put myself in a position to get fired by the institution that I’m bringing my clients to. One of the questions to ask would be, if you have the relationship and you bring the business to a record keeper, how do you deal with that conflict of interest? They’re interested in hiring you to get your clients to their platform.”

Another involved pooled plan providers and technology.

“Some of the 3Ps involve the service provider building technology on top of recordkeeping technology,” he said. “One of the results of this new structure is supposedly that it’s going to be cheaper. Well, how can it be cheaper if you’re putting building technology on top of existing technology and you’re asking one of those firms to stand in the shoes of an administrative solution?”

He concluded by noting that cost will not be the biggest driver of adoption.

“In some examples, once the scale is there, they’re on par or cheaper [than single plans], but out of the gates, I don’t think you’re going to see cost as the biggest driver. From an advisor perspective, it will be scale and from a client perspective, the PEP is the maximum amount of risk-shifting that they can ever conceivably get.”