Products February 23, 2023

WTW Launches Its First Pooled Employer Plan

Retirement advisory WTW launches LifeSight PEP with Transamerica as recordkeeper.

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Willis Towers Watson has entered the U.S. market for pooled employer plans on a bet that outsourcing of retirement plan management and administration will increase for small-to-medium sized plan sponsors.

WTW announced its LifeSight PEP on Thursday with a goal of providing an offering that simplifies 401(k) plan sponsorship for employers at a lower plan cost and reduced operational and fiduciary burden. Transamerica, which has background in providing multiple employer plan solutions, will be overseeing the administration and recordkeeping for the PEP.

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“We have decades of experience in retirement programs here in the U.S. and globally, and in talking with our clients and our colleagues, we wanted to bring the best of WTW across what a defined contribution plan can deliver,” says Michele Brennan, LifeSight U.S. business leader for WTW.

WTW, headquartered in London, is running the PEP through Lifesight, its defined contribution multi-employer pension trust. Brennan says the firm is launching the PEP in part due to the trend toward outsourced retirement plans globally, ranging from superannuation pension benefit funds in Australia, master trusts in the U.K., and outsourced chief investment officer services in the U.S.

“This is now the continuation of fully outsourcing, and an employer is able to do that now,” she says.

SECURE Act to SECURE 2.0

PEP’s received fanfare in the initial SECURE Act as a way for small businesses to offer workplace retirement plans with the cost-saving and administrative advantages of a larger plan. But the pandemic hit shortly after passage at the end of 2019, which some industry watchers say stalled PEP growth.

The offering has since begun to gain traction in 2022 and into 2023, according Robb Smith, president of RS Fiduciary Solutions and one of the founders of PEP-HUB and PEP-RFP.com. As of early 2023, there are more than 100 pooled plan providers listed with the U.S. Department of Labor and over 300 PEPs registered by these plan providers, according to Smith’s analysis. That compares to 80 registered pooled plan providers and 170 registered PEPs in late 2021.

PEPs got another push from SECURE 2.0 legislation at the end of last year, which now allows them to be used by nonprofit 403(b) retirement plan sponsors. PEPs  are also, however, competing in a small retirement plan market with a number of firms championing relatively cheap 401(k) plan offerings with fiduciary coverage and ease of use, as well as programs like the Starter 401(k) plan, created by SECURE 2.0, that offers two new plan design options for employers that have no retirement plan.

Small Plan Competition

Those small plan firms, such as Ubiquity, Vestwell, and Icon Savings Plan, have recently reported strong growth due to small plan demand. Just this week, a new competitor called Arnie launched its business touting cheap plans and ease of implementation.

Smith, whose Fiduciary Solutions also provides compliance and monitoring services for employers, this week launched a tracking service for PEP-adopting employers called the PEP Surveillance Report. The service provides quarterly data for an employer to monitor their PEP and PEP provider.

The new WTW PEP will leverage the firm’s advice and implementation of retirement plans for employers, including overall plan design, governance, investments, outsourced chief investment officer, administration and employee engagement.

“I do feel that the defined contribution plan being outsourced will provide a meaningful difference for employers of all sizes,” Brennan says.

Compliance February 22, 2023

Overturned DOL Rollover Rule Likely to Be Appealed, Attorney Says

The DOL is expected to appeal a district court’s decision, which could result in the rule being re-instated.

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The District Court for the Middle District of Florida ruled against the Department of Labor on February 13 and struck down their interpretative guidance from April 2021 for Prohibited Transaction Exemption 2020-02, concerning the five-prong test for determining when a financial adviser is a fiduciary in relation to a retirement account.

The DOL was responding to inquiries concerning when a solicitation to rollover plan assets into an individual retirement account was considered on a “regular basis,” one of the five prongs of the fiduciary test. The DOL answered that a “single, discrete instance” could not be on a “regular basis,” but if the solicitation was part of an ongoing relationship or the beginning of an intended future relationship than it would trigger fiduciary duties under ERISA.

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The Court agreed with DOL that the guidance was an “interpretative rule” and not a “legislative rule.” But it still struck the rule down because it was not consistent with the text of The Employee Retirement Income Security Act, as assets kept in an IRA are no longer workplace plan assets. Despite the court ruling, legal experts caution retirement plan advisers and plan sponsors from abandoning compliance mechanisms as it relates to this DOL interpretation.

Jason Berkowitz, the chief legal and regulatory affairs officer at the Insured Retirement Institute, says advisers should still “wait and see how things play out” before making any changes in their compliance procedures. He says that there is a “good likelihood” that the DOL will appeal this decision which could result in a favorable outcome for the DOL.

The DOL views the decision to rollover into an IRA as a “very consequential decision” for retirement savers, and feels an obligation to see that rollover transactions are properly regulated.

Though the legal arguments for overturning the rule are solid and other courts have ruled similarly, there are many variables in play, according to Berkowitz. A higher court could still rule in the DOL’s favor and the DOL might issue a new rule which accounts for the court’s reasoning, but which has similar consequences for advisers.

He adds that if IRA rollovers are not regulated by DOL through ERISA that does not mean they are not regulated at all. The SEC and state-level regulatory agencies still oversee advisers in the context of IRA management.

 

 

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