Small, Midsize Employers Express Positive Experience Offering Pooled Plans

Pooled plan arrangements are expanding access to retirement savings for employees at nonprofits and small businesses, according to a new survey by Transamerica.

After surveying employers that have adopted its pooled plan solutions, Transamerica found that 47% of adopters are offering a retirement plan for the first time. In addition, nearly half of employers converting to a pooled plan with Transamerica from another retirement plan offering said the pooled plan is a better fit than their old plan.

Transamerica’s analysis is based on 436 completed online surveys, conducted in January, from 10,976 emailed invitations to adopting employers of Transamerica pooled plans. The net response rate of about 4.5% is typical for this type of study, according to Transamerica. Many respondents to the survey were small or midsize organizations and startups.

The arrangements, formally known as pooled employer plans, were created by the Setting Every Community Up for Retirement Enhancement Act and became available on January 1, 2021. The arrangements generally offer 401(k) or 403(b) plans to unrelated businesses that participate in one plan managed by a pooled plan provider and often face lower administrative burdens.

Darren Zino, managing director and head of U.S. retirement sales at Transamerica, says the reduced fiduciary burden that comes with offering a pooled plan is attracting more employers to the arrangement.

“In today’s retirement plan world, there’s a lot of things [a plan sponsor] has to do from a fiduciary standpoint,” Zino says. “[They] have to monitor payroll, make sure contributions are going in on time, pick the investment lineup … and there’s different people that can help you offer these services, but for a small employer, most of the time, the HR person is also the payroll person [and] the administrator.”

Because employees at small plan sponsors are often wearing multiple hats, Zino argues it is often more efficient for them to pursue a bundled solution, like a pooled plan, that provides some fiduciary protection and benefits from scale.

In addition, the most common reasons that led the adopting plan sponsors to offer a pooled plan was the benefit of attracting employees, offering a good service for participants and ease of administration. In particular, 59% of startups offering pooled plans reported they started offering the pooled plan to attract new employees. For those employers converting from another plan, the majority cited ease of administration as the reason for adopting the PEP.

While some have argued that pooled plans may offer some cost savings to employers, Zino says this is not usually employers’ top priority. However, because Transamerica has a large practice and its pooled plan arrangements continue to grow, he argues that adopting employers are benefiting from economies of scale.

Zino adds that the “psychology of the American buyer” plays into this interest in pooled plans as well. As people tend to buy bundled streaming services or bundled auto insurance packages, Zino argues that the scales are tilting toward these sorts of arrangements, as opposed to an employer going out and piecing together all the services needed to offer a retirement plan by themselves.

“We have a retirement crisis in this country,” Zino says. “We don’t have enough people participating, so anything that’s going to make it easier for a small employer to get involved, and get their people involved, [is worthwhile].”

Transamerica’s survey also found that 72% of startups and 61% of organizations converting to a pooled solution said the pooled plan improved retirement planning for employees.

Zino predicts that pooled plan solutions will continue to grow and, along with the state-mandated auto-IRA programs, will help close the retirement access gap.