Vestwell files as PEPs provider

Vestwell is considering its options in the pooled employer plan market, filing last Thursday with the Department of Labor to become a registered provider.

But the New York-based fintech, which has about 5,000 retirement plans and 150,000 participants on its digital record-keeping system, isn’t totally sold on the idea of PEPs, said the firm’s general counsel and chief privacy officer, Allison Brecher.

That’s partially because the DOL has yet to weigh in on potential conflicts of interest in such plans — including whether a single company can provide plan administration and fiduciary services.

“We’re waiting to see how the market unfolds,” Brecher said. How the DOL could address potential conflicts will help determine whether Vestwell launches a PEP and if so, what that plan looks like, she said.

Because the company hasn’t drawn a firm line on how it will participate in the marketplace, it does not have information on pricing and plan design for a potential Vestwell PEP. The qualified default investment options used in PEPs also present a question of whether many disparate types of businesses in the same plan are best served with a target-date fund or a more personalized managed-account option, she said.

Last week, Vestwell announced plans to add its first managed-account service, which will use Franklin Templeton’s Goals Optimization Engine.

And how competitive the first PEPs are on price could be somewhat irrelevant, as small businesses and some larger employers will likely be drawn to the plan type to help reduce their fiduciary liability.

“Given the way litigation has gone this past year, that’s not a bad thing,” Brecher said.

Further, “if cost is the primary driver of the decision making, I’m still not convinced that a MEP or PEP is always in the best in of small plan sponsors,” she said. “Our platform [already] does a great job of levering technology, combined with index funds, ETFs and [other] low-cost investments.”

Some very small plans that Vestwell serves, for example, do not have to undergo plan audits. But that could change if they become part of a larger plan, through a Vestwell PEP, she said.

“It still remains to be seen whether PEPs become this end-all be-all solution for plan sponsors,” she said.

At the recent InvestmentNews RPA Convergence Record Keeper Roundtable and Think Tank, leaders at several plan providers said PEPs are promising for their businesses, but that the plan type could also erode margins and threaten relationships with third-party administrators.

About three dozen firms have filed initial applications to be pooled plan providers with the DOL since the regulator opened registration late last year, with Jan. 1, 2021 representing the first possible date at which providers could launch their plans.

There will likely be more registrations coming in before Feb. 1, because filers registering before that deadline are not subject to the usual 30-day waiting period before their PEPs can go live, Brecher said.

But some, even if they are eager to break into the PEPs business, see more opportunity in 2022, when a less-restrictive “group of plans” structure is permissible. Under that arrangement, plan providers could give the same plan design to numerous employers, without a formal PEP. As long as the plan design, trustee, fiduciaries and administrator are the same, there would only have to be a single Form 5500 filing.

Group of plans “might be the utopia that everyone is looking for,” Brecher said.

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