Pooled Employer Plans (PEPs) are the result of over a decade of discussions and deliberations over the future of the American retirement system. They are a part of a broader debate on the regulation and reform of the retirement industry in the US. The idea behind PEPs emerged from the pressing need to close the coverage gap and get all employers to opt for some retirement plan or the other so that a large part of the workforce has significant savings for the future.
While organizations have dabbled in Multiple Employer Plan (MEPs) in the past, there is still some uncertainty surrounding both MEPs and PEPs concerning rising admin costs and decision-making. The key is to ensure a cost-effective option that will not force organizations to take cheap decisions but allow them to make decisions that benefit participants.
The primary difference between MEPs and PEPs is that MEPs are primarily confined to affiliated employers and associated employers in the same industry or professional employer organization. PEPs have wider coverage than that: completely unrelated employers (i.e., those without any ‘commonality’) can come together, under certain conditions, to participate in a single retirement plan.
Will PEPs address the coverage gap in totality? The general consensus among stakeholders and industry players is that PEPs are an interesting proposition that will help shrink the coverage gap. However, we are still some way away from knowing if it will close it or not.
While they may not solve all problems, PEPs are sure to create an impact in the coming months by helping small employers and small businesses pool their resources and ensuring that all employees have retirement plans to secure their future. Though they are not the only answers, PEPs will make a meaningful difference for various reasons — business opportunities being one.
How can businesses leverage PEPs?
The strategy of wrapping all the best ideas into one offering presents many prospects for different stakeholders—plan sponsors, TPAs, financial advisors, and employers. This blog discusses the five significant ways in which businesses can leverage PEPs.
- Convergence and consolidation
Pete Swisher, Founder of Waypoint Fiduciary, views PEPs as a “prism” that ushers in change energy that will lead to compression, consolidation, and convergence in the retirement industry.
The Secure Act has created a wonderful window for plan sponsors of smaller plans to come together to create a larger and superior PEP with better benefits. This could potentially lower fees and boost service for small employers participating in the plan.
There will be a convergence of business models and lines that will diversify revenue streams. A convergence of value propositions is also on the cards. For example, financial advisors could offer new services such as managed accounts, health and welfare and financial plans, and financial wellness programs.
- Technology will be the driver
At the end of the day, the nature of how PEPs play out will be driven by technology. In particular, meaningful, actionable technology tools are needed to make PEP sponsors efficient. The need of the hour is cost-effective automation solutions with adequate controls in place.
These are some solutions that could drive change in the retirement industry, especially in the pooled plan space, among small companies.
- Technology can solve problems around payroll maintenance and monitoring. Automated alerts and proactive dashboards can be adopted to let sponsors know ahead of time when they should be getting ready to submit a payroll file. The dashboard could come with an easy interface that allows a walkthrough of the process of submitting data, with a ‘near no-touch’ and ‘set-it-and-forget-it’ option. This would allow small employers to send data in any format.
- Automation of processing: Plan sponsors will be encouraged to embrace ACH, which will sort out many funding issues.
- AI and machine learning can be utilized by plan providers, plan sponsors, TPAs, and service providers to aid error correction and anticipate correct answers based on the data collected for a long period. Technology can also be used to propose solutions or auto-populate responses.
- Self-service portal: Self-service portals have the dual advantage of empowering sponsors and participants and significantly reducing the burden on time, cost and resources in more ways than one. A solution that offers a friendly, intuitive and convenient experience to users will boost the adoption of self-service platforms in the retirement industry.
All these provide a huge business opportunity for tech providers to make life easier for the plan sponsor and the plan provider. Of course, no one technology solution will solve all problems. A few pieces of tech solutions are required to build controls into the solutions.
- Expansion of roles around data integration and management
Data integration and management could open up several roles for people, as every need cannot be served with automation and self-service tools. It is a challenge to balance service with automation, but a viable business model offers organizations efficient technology backed with prompt human service. Service providers who can do this well will be in the race for the long term.
- Diversity of solutions
There will be a diversity of solutions once PEPs roll out. A variety of players and tech firms will come forward to solve the various problems surrounding payroll, processing, and data management, even those who weren’t traditionally part of the retirement marketplace. This will spark innovation, spawn creativity, and create a level playing field.
All this will not happen overnight and will be a phased implementation. But firms are serious about getting into the space and are aligning themselves with the right set of skillset and mindset – to offer the right experience for everyone.
- Role of security
As more and more organizations of all sizes and shapes embrace PEPs, the need for protecting the valuable client data comes to the fore. This presents an excellent business proposition for firms engaged in cybersecurity and penetration testing.
Post the Covid-19 crisis, small companies, micro employers, and start-ups will seek retirement plans for their employees. This will throw open a plethora of prospects for all kinds of businesses and service providers. However, they need to bear in mind here is that this is not a battle for cannibalization.
Capitalizing on the business opportunities that PEPs offer requires a sustained partnership between sponsors, plan providers, recordkeepers, and service providers to make sure data flows the way it needs to—so that Americans retire with dignity and in a meaningful way.