More companies planning PEPs, with big potential in auto-IRA states – InvestmentNews

Another financial services firm is aiming for business in the new PEPs market, adding to a roster of dozens of companies that are registering as providers.

The new entrant, July, is planning to launch its pooled employer plan early next year, the 401(k) service company announced on Wednesday. The company was not yet listed as a pooled plan provider with the Department of Labor.

Its forthcoming PEP, Launch401k, will be designed for small businesses and will use its affiliated RIA, Expand Financial, as the 3(38) investment fiduciary.

“By making plans simpler, less expensive, and easier to set up and manage, Launch401k PEP helps improve client retention and reduces the advisor’s workload,” the firm said in its announcement. The plan will include “an array of target date funds, risk-based managed portfolios, and / or participant-level managed accounts.”

The announcement from that firm followed one several days earlier by RIA and tech provider AssetMark that it has added a PEP option for clients. That plan is designed for small and medium-sized employers, or those with less than $25 million in plan assets, particularly those that have not sponsored a plan because of administrative and fiduciary responsibilities, the company noted.


Companies that are interested in the PEPs business have a big reason to be: state automatic IRA programs. States such as California, Oregon and Illinois are requiring small businesses to either provide their own 401(k)s or sign up for the state program — and that is a massive opportunity for startup plans.

That topic, as well as expanding retirement plan coverage to small businesses in general, was discussed widely at the RPA Convergence Record Keeper Roundtable and Think Tank events this week.

Since the DOL began allowing companies to register last year as pooled plan providers, dozens have signed up, although not as many have launched PEPs. One alternative the industry has been waiting for is the so-called group of plans model, which is potentially more attractive to plan providers, as it does not require the same level of fiduciary responsibility. However, a recent proposed regulatory change by the DOL indicated that such plans may not have a single annual audit, with one potentially being required for every participating employer.

One PEPs provider that launched its plan Jan. 1, Paychex, has added more than 5,000 clients to the plan to date, and more than half of its new retirement plan customers are opting for the PEP.

“We knew the PEP was going to be big. I don’t think we knew how big, but we knew it was going to be a major evolution of the 401(k) business,” said Michael Majors, senior director of national retirement sales at Paychex. “The reception has far exceeded what we thought it was going to be.”

Employers are facing more pressure to offer retirement plans to workers, even without government mandates, Majors said. Its viewed as all but necessary in attracting talented workers, and PEPs provide an easy answer for employers who do not want to handle the administrative and fiduciary responsibilities of their own 401(k).

“The conditions in the marketplace are requiring them to do it,” he said. “It’s the best of times in the startup 401(k) business.”

The company works with employers of all sizes, and those signing up for the PEP range from employer-only businesses to those with more than 1,000 workers, he said.

A federal auto IRA program, which is currently being considered in Congress, could vastly expand the potent for PEPs, he said.

The company with perhaps is the highest profile entry to the PEPs space – Fidelity Investments – launched its plan in the spring, with a focus on small businesses that have not offered plans previously.

“We have seen a steady stream of clients joining our Fidelity Advantage 401(k) platform since we launched in the spring. New clients represent a wide variety of industries, including grocery stores, auto shops, animal hospitals and landscaping companies,” a company spokesperson said in an email. “[W]e are specifically targeting companies that don’t currently offer any type of retirement plan – we feel this is the best way to close the ‘retirement gap,’ by providing a retirement savings option to a population of workers who may not have had one in the past.”