As the Department of Labor issues a request for information in preparation for its report to Congress on the state of pooled employer plans after SECURE 1.0 allowed financial service providers to act as the pooled plan provider, the question is whether PEPs are the Wild West, with programs popping up like frogs during a monsoon.
There are 557 PEPs as of 6/30/25, not all active, and 176 PPPs, which seems like a lot, yet there are 806,000 single DC plans, thousands of compliance-only TPAs, almost 12,000 RPAs and another 60,000 advisors with significant DC assets under management and 40 national record keepers, and another estimated 160 regionals. The DOL RFI implies that the growth of PEPs has fallen short of expectations, with fees higher than expected, though assets have grown from $9.4 billion in 2023 to an estimated $25 billion by the end of 2025, which is just .2% of DC assets.
PEP’s value propositions are compelling, promising:
With the explosion of plan formation due primarily to state mandates, helped by tax credits in SECURE 2.0, PEPs seem to be a great solution.
Yet plan sponsors’ demand is tepid, maybe out of ignorance, with some calling PEPs a solution in search of a problem. Each adopting employer must be sold one at a time, sometimes requiring firing their current record keeper, TPA and advisor, which is not an easy lift, especially during economic uncertainty.
Allowing service providers, investment managers, advisors and consultants to act as PPPs can create conflicts, while their experience can vary wildly. “It is the Wild West,” stated Pete Swisher, co-founder and managing partner at Group Plan Systems. “PPPs are largely unregulated, allowing ‘1,000 flowers’ to bloom with some using existing paperwork for single plans.”
CEFEX has a PEP certification like the ones for record keepers and TPAs with 23 recommended practices using the ISO 900 Quality Management System standard, which includes:
Like PEPs themselves, the certification is in early days.
Jeff Atwell, SVP at FiduciaryxChange, with 75 PEPs filed and three pending, noted the PPP should be independent of the service providers and ready to fire any of them if there are issues, even if they are the main source of distribution.
Heath Miller, co-founder of Access Retirement Solutions, stressed the need for the PPP to be independent, with his firm acting as the retirement committee that hires (and fires) the PPP. Miller noted that many larger plan sponsors are not properly equipped and educated, needing the help of third-party consultants. At the same time, the small and mid-sized employers are overwhelmed, with Miller calling the current single plan market the real Wild West, not PEPs. The recent JP Morgan plan sponsor survey is telling, with 55% indicating that they are not fiduciaries or are unsure, up from 47% in 2015.
AON is perhaps the largest PPP, with close to $5 billion and 130 participating employers, with an average of 800 eligible employees. No one expected larger plans to be the first adopters, yet Jones touts PEPs’ buying power, which lowers investment fees, which he claims are 55% below average. He also touts outsourced administration and compliance work, especially audits, which saves 50% to 70% of senior management time.
Seventy percent of plans sold by Paychex are within their PEP, while ADP does not offer one yet, maybe because they can cost more due to 3(16) services. Many major record keepers like Empower, Principal, Ascensus and Fidelity are offering clients PEPs. Most fintechs have eschewed PEPs, though Vestwell has partnered with Commonwealth on theirs. Hub has partnered with Sallus, Creative Panning with Ascensus while OneDigital uses multiple PPPs. Most of the major broker/dealers are taking a wait-and-see approach, with some of their advisors reluctant to use them in case they want to switch affiliation.
If PEPs do proliferate, they could bring great value to all markets, especially larger plans concerned about litigation, smaller plans who want to outsource work and liability, and wealth advisors who do not want to become specialists yet need to help business owner clients.
Though some plan design-like investment menus, hardship withdrawals and loans are hardwired, according to Jones, adopting employers have flexibility with matches, vesting and auto features as well as ancillary features like student loans.
Increased plans in PEPs run by more sophisticated PPPs could help the adoption of retirement income and private market investments as they might be willing to take on more risk because they have a deeper understanding.
Yet the downsides of PEPs are real.
They are not the field of dreams—distribution rules like the rest of the DC market. Having the PEP completely independent is ideal, but it might be interesting to be in the room when firms like FiduciaryXchange fire the record keeper or advisor who brought them the adopting plan sponsors, especially since they are owned by AmericanTCS, which includes record keeper and advisory divisions. Access Retirement appears to be independent, but they depend on Alerus, which acts as the PPP and record keeper, as well as MassMutual, which is the 3(38) for distribution.
While AON has its own distribution, which could expand after acquiring NFP, it is also the consultant or advisor for the PEP and offers its own CIT investments, claiming not to receive more compensation than with other funds.
The reality is no one is pure or 100% independent like current sponsors of single plans, which lack the sophistication and scale offered by a PEP and often blindly rely on their advisor or service provider. Which is better is open for debate, but the more independent the PPP or the outsourced committee is, the better, as well as those with high levels of knowledge, experience and efficiencies along with scale.
Proliferation of plans and assets in PEPs could accelerate investment manager consolidation, fueling the race to lower cost funds as well as fewer record keepers, TPAs and advisors benefiting those that lean into the PEP market.
Though in early stages and not as robust as the DOL had expected, PEPs have the potential to bring greater clarity and resources to plan sponsors to help improve participants’ outcomes. But first, someone has to tell them about it and then convince them to adopt PEPs, just like with retirement income, private markets and ancillary services like student loans, because they are not clamoring for any of them right now.
Brian Brashaw, AVP at Osaic, summed it up well:
“PEPs are a necessary tool to have on the product shelf. I do recommend them for situations where it fits. But I am also steadfast in my belief that they were initially sold as something they aren’t. There is a flood of new 401(k) business coming, and advisors, recordkeepers, industry professionals, home offices and RIAs need a way to scale that business to ensure we can service them. I get it. I believe the industry is fixing the narrative and that we are on our way to creating something that can be very good for many businesses.
I am not here to discourage … anyone in the industry from offering a PEP or recommending them to your clients. If you don’t, someone else will and you may lose the opportunity. Some PEPs are wildly successful. Have the conversation. Ensure they understand the pros and cons and make the right decision in the best interests of your client. That’s all.
There’s two questions I always ask myself when I’m at industry events and new product is being marketed:
Who is asking for it?
Is it being sold or bought?”
Well said Brian.
#Wild #West #Retirement #Savings