The majority of business owners recognize that a robust, competitive retirement plan offering is key to attracting and retaining top talent. However, small to mid-sized employers are often deterred by the hassle and expense of setting up and administering a new retirement plan, particularly if they are also looking to scale and add employees to support their growing organization.

Recent regulatory shifts have taken aim at helping smaller employers offer retirement savings opportunities for greater numbers of employees while making retirement plan benefits easier to establish and administer. To wit, approximately 55 million American workers don’t have access to retirement plans at work. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in December 2019, was designed to help close the retirement savings coverage gap. One of the provisions introduced by the legislation allows for Pooled Employer Plans (PEPs). That provision goes into effect this month. 

PEPs have been making headlines as hype built around their ability to make retirement plan savings available to more workers. However, for many small to mid-sized employers, PEPs may be a “look before you leap” proposition. In other words, while they sound good in theory, in practice, PEPs may not be the panacea policymakers intended them to be. In fact, PEPs may actually better serve the best interests of the providers who offer them rather than the employers and employees who choose to participate in them. To that end, an industry-focused multiple employer plan (MEP), like the WTIA tech MEP, may be a better option for employers to consider as they scale and implement a retirement plan benefit to serve their growing workforce.

What’s a PEP?

In short, it’s a new type of retirement plan that permits a group of employers to adopt a single retirement savings plan for their employees. The new PEPs differ from traditional multiple employer plans (MEPs) in that they no longer require employers to share a common economic and industry interest. 

Proponents of PEPs believe they allow more small employers to offer retirement savings benefits for their employees by reducing two primary barriers: plan expenses and fiduciary risks. The idea is that pooling plan assets provides economies of scale for employers, thereby reducing investment and administrative expenses. Having a single plan document, form 5500 filing and plan audit further streamlines fees. In addition, PEPs are designed to minimize employers’ fiduciary risk because the law requires that they be sponsored by a Pooled Plan Provider (PPP).

However, that is where PEPs enter murky territory. Under the new regulations, the PPP must “be a named fiduciary of the PEP, must be responsible as the plan administrator, and must register with the DOL/IRS.” While all of that sounds like it provides fiduciary protection for the employer, the PPP’s role may be more like the fox guarding the hen house than the knight guarding the castle.

In other words, there are numerous potential conflicts of interest that could arise, especially if a financial professional or institution that establishes or serves a PEP is affiliated with the investments being selected, or if they are acting as the plan’s fiduciary and helping to select investments and they are paid from plan assets. 

Initially, PEPs will roll out in a Wild West environment, as the Department of Labor has not yet issued final rules on fiduciary standards for financial professionals. The DOL issued a request for information in July 2020, and is separately considering PEP-related prohibited transaction exemptions for the providers that serve them. That potentially opens employers up to outsized risks that providers may peddle products that are not necessarily in their best interests — or those of their employees.

WTIA Tech MEP: For Members, By Members

So, how do employers know that their retirement plan provider is acting in their best interest? That’s where the WTIA tech MEP is different. In addition to pricing transparency, simplified administration and built-in flexibility, the plan is governed and managed by WTIA members, for members. That means the governing board are beneficiaries of the plan, which ensures the highest level of integrity. It also ensures that when the governing board acts as a fiduciary to member plans, it serves with their best interests in mind.

And instead of investing in just one financial institution’s funds, the WTIA tech MEP includes a diverse lineup of best-on-class fund families, such as Vanguard’s target date series, Oppenheimer and the American Funds. The MEP governance committee meets quarterly with the plan’s advisor to review fund performance and other key criteria for the plan, and keeps all members apprised by sending out detailed meeting minutes and documentation. 

In short, everyone benefits by participating in a plan that’s governed by members for members. There is total transparency and accountability, and the plan’s structure offers member employers the ability to allocate a lot of their fiduciary and administration duties to a trusted third party while enjoying flexibility and the peace of mind that their plan provider is looking out for their best interests. 

What’s more, WTIA believes that an industry-specific MEP is the wave of the future for tech employers who are looking to scale. This structure allows employers to outsource the management, administrative and governance of their retirement plan while focusing on what they do best — running and growing their business. 

“That’s why WTIA is in the business of offering a MEP — we play a unique role in that we have deep roots in an association model that serves a community whose best interest it is to grow, develop and scale their organizations,” said Mike Monroe, President, WTIA Benefits Program. “This is our philosophical mandate. It’s built into the fabric of who we are and what we’re trying to accomplish in the state of Washington.”

To learn more about the WTIA tech MEP, visit https://www.washingtontechnology.org/services/401k/, or contact Mike Monroe at mmonroe@washingtontechnology.org.