As pooled employer plans hit the market, advisers increasingly are putting them on their radar as potential options for their plan sponsor clients.
Matthew Hoesch, a retirement plan consultant with registered investment adviser firm Lockton Investment Advisors LLC in Washington, sees the new pooled plans as a "silver bullet" for many of his clients. They're a great fit, he says, for employers that "have a lot of other things they need to do than deal with the administration of a 401(k)."
Mr. Hoesch has helped three employers with stand-alone 401(k) plans ranging from $3 million to $10 million move into a pooled employer plan called (k)Praetorian, one of three PEPs his firm advises as the 3(38) investment manager, the fiduciary overseeing plan investment lineups. Mr. Hoesch declined to name the firms, saying only that they're in the consulting and technology industries.
In addition to the three companies, he has a half-dozen other plan sponsors that he says are considering joining (k)Praetorian to "get administrative work off their plates," offload most of their fiduciary responsibility and avoid having to conduct and pay for an audit.
"It's a huge time and cost saver," he says. Mr. Hoesch estimates plan sponsors can save an average of 15% to 25% in costs depending on plan size and other factors. Most plan sponsors, though, "value the outsourcing above any savings," he says.
Mr. Hoesch joins other Lockton retirement plan advisers that have been educating plan sponsor clients about Lockton's three PEPs and about the benefits of pooled plans in general. In addition to (k)Praetorian, Lockton offers the EZ(k) Flex Pooled Employer Plan, which like (k)Praetorian is designed for sponsors of midsize plans with up to $500 million in assets, as well as the Lockton Pooled Retirement Plan designed for sponsors of startup and micro plans. Lockton serves all three in a 3(38) fiduciary capacity.
Lockton, an RIA firm with $102 billion in assets under management, is among a handful of firms that are delving into the pooled employer plan market as 3(38) investment managers, a move they say will give them a head start in a business they see as promising. RIA OneDigital Investment Advisors, for instance, is acting as the 3(38) investment manager for the OneDigital Pooled Employer Plan it launched in July. PlanMember Financial Corp. also rolled out a pooled employer plan in April in which its RIA firm, PlanMember Securities Corp., serves as the 3(38).
The firms anticipate that the new pooled 401(k) plans will resonate with a wide swath of employers looking to offload plan administrative duties and lower plan costs through greater economies of scale.
The new plans, which started rolling out Jan. 1 under the SECURE Act, give employers in unrelated businesses a big incentive to pool their assets as they no longer need to file separate Form 5500s and conduct separate annual audits as they were previously required to do. They also allow plan sponsors to outsource their day-to-day administrative work and the bulk of their fiduciary responsibilities to third-party service providers, such as 3(38) investment managers that take over the selection and management of investment lineups.