Almost a year after passage of the SECURE Act, the U.S. retirement plan market is preparing for what could be the biggest change to employer-provided retirement benefits since the launch of the 401(k) plan.
The SECURE Act permits creation of pooled employer plans, so-called PEPs, offered by pooled plan providers, known as PPPs, which enable U.S. employers to outsource their retirement plans to third-party providers starting in 2021.
If the PEPs are widely adopted, and that remains to be seen, the benefits available to participants in larger plans — lower fees, a wider, more sophisticated array of investment and retirement income offerings — could be available to many more workers.
And employers could focus on the work of their businesses, while other companies focus on providing retirement plans. The potential to benefit participants and employers is tremendous.
Pooled plans are taking off in the U.K. and Europe. And as with many other trends in retirement, like LDI-focused investing and pension risk transfers, the idea of pooled retirement plans is moving west across the Atlantic.
A study by data provider Broadridge Financial Solutions Inc., commissioned by Willis Towers Watson and published in July, found that defined contribution assets in U.K. master trusts (as these pooled plans are known there) are projected to increase to £425 billion ($549 billion) by 2028 from £38.5 billion in combined assets at the end of 2019 and £29 billion a year earlier.
This month, Smart, a large London-based online record keeper and master trust provider, set up operations in the U.S. to take advantage of opportunities from the SECURE Act, in record-keeping services for pooled employer plans and with technology it said will facilitate providing retirement income.
Record keepers, third-party administrators, consultants and trade groups for plan sponsors, money managers and broker-dealers have commented on the U.S. Department of Labor's plans for PEPs and PPPs, and there will clearly be growing pains getting a new system off the ground while ensuring the protections of ERISA are available to pooled plan participants.
But overall, if this new system gives more American workers access to retirement plans offering the kind of investments, low fees and plan design features only currently available to those in the largest plans, it will benefit many and have a significant impact in helping ensure that more American workers are prepared for retirement.