Institutional Advisory Division of KeyBank Launches PEP

KeyBank Institutional Advisors has launched a pooled employer plan for 401(k) plans to facilitate unrelated employers’ participation in a single plan, effective January 1, 2024.

KeyBank designed the PEP to provide businesses with a consolidated defined contribution plan option, offering lower administrative burden and fiduciary risks for employers while offering potential economies of scale and access to professional plan management, the institutional investment management division of KeyCorp announced in a press release.

KeyBank will serve as the pooled plan provider of the PEP that offers a retirement plan product to businesses without a retirement plan, “that will make it simpler for organizations to provide retirement benefits to help employees save for a better future,” Craig Greenwald, national director of pension solutions at KeyBank Institutional Advisors, said in the press release.

KeyBank IA will serve as the 3(38)-investment manager that selects the fund menu lineup and perform ongoing monitoring of investment performance and manager selection.  

KeyBank IA likely launched the PEP, because not offering one might put the bank at a competitive disadvantage. “Not participating in the PEP arena leaves them vulnerable to loss of current adviser business as well as the lost marketing opportunity of not having a viable PEP option for their adviser team,” says Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP. 

Smith’s firm—which assists registered investment advisers, benefits brokers, service providers and employers in the PEP market—is experiencing increasing interest in managed retirement plan types, including multiple employer plans, PEPs and group plans. 

“All three MRP classifications are growing in popularity but PEPs are leading the pack,” Smith says.   

RIA firms and plan providers had been reluctant to join a MRP, Smith adds, but no longer. 

“Many are now confident that MRPs, particularly PEPs, are here to stay and that they offer a significant viable option for many of their plan sponsor clientele,” he says. “We are seeing growing interest in PEPs from all segments of the plan sponsor market from startups and small plans to mid-size and large-plan markets.”

There were slightly more than 400 PEPs and approximately 150 pooled plan providers registered with the Department of Labor, in 2023, says Smith—who tracks PEP registration on the DOL’s EFAST website—compared to 170 at the end of 2021 and about 300 at the end of 2022, Smith says.

Pooled employer plans were created by the 2019 Setting Every Community Up for Retirement Act to allow unrelated employers to convene to participate in a single 401(k) defined contribution plan sponsored by a registered pooled plan provider. The goal of provisions in the bill was to encourage employers that didn’t provide retirement plans to participants to offer one.

The SECURE 2.0 Act of 2022 expanded PEPs, permitting the creation of PEP 403(b) plans. 

In a February report published in the Federal Register, the IRS and Department of Labor clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold some interpreted in the SECURE Act of 2019. Instead, regulators kept consistent across single-employer plans and PEPs the rule requiring and audit for plans with 100 or more participants.

Morningstar Inc.’s retirement investing division together with recordkeeper Plan Administrators Inc.; Voya Financial and retirement advisory WTW all launched separate PEPs, earlier this year. 

KeyCorp is the parent company of regional retail banking company KeyBank.

Key Institutional Advisors had more than $70 billion in assets under administration as of September 30, 2023.

A KeyBank IA representative did not return a request for additional comment.