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January 09, 2020

Fred Reish Provides Insight into Key Questions Associated with the SECURE Act

The SECURE Act, which some are saying is the most significant retirement law since 2006, could reduce the costs and risks of running a retirement plan, while getting more workers enrolled. In the article “3 Key Questions Now that the SECURE Act is on the Books,” Law360 asks three of the most pressing questions about the law’s plans. The industry publication spoke with Employee Benefits and Executive Compensation partner Fred Reish for insight into the law.

One of the key issues on which many industry leaders are speculating is the question of who will sponsor the plans. Pooled employer plans (PEPs) belong to a family of retirement savings vehicles known as “multiple employer plans,” (MEPs) which are usually sponsored by companies whose sole purpose is to administer benefits.

But Law360 reports this new type of MEP, a single plan administered by a single entity consisting of multiple unrelated employers, will probably be run by large financial institutions like banks, insurers and recordkeepers such as Fidelity, T. Rowe Price and Vanguard, attorneys say.

Reish told the publication that “the word on the street now is that large financial institutions may be coming in to sponsor these.”

“Why would a financial institution want to be in this if they can’t use their mutual funds? The answer is: They might not,” Reish said.

In order to sponsor PEPs, financial institutions will likely seek an exemption from the Employee Retirement Income Security Act’s prohibited transaction rules so they’ll be able to both administer the plan and offer their own products in the plan’s investment lineup, attorneys say.

If an exemption isn’t given, and a financial institution can’t administer a plan with its own mutual funds in the investment lineup without it being considered an impermissible conflict of interest, PEPs may become the province of smaller benefits administrators, like their predecessor MEPs.

Another key question Law360 raises is if there will be a cost savings for employers.

Though the reduced administrative burden may save employers some money, whether PEPs will be cheaper to participate in remains an open question whose answer depends on the size of the PEP, Reish said.

If large financial institutions sponsor pooled employer plans — which are much less exclusive than other types of MEPs, and therefore can be marketed and sold to more companies — these plans have the potential to be quite large, he added.

“Whoever can grow to a critical mass of combined plan assets will be able to offer a less expensive plan,” Reish said.

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