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Transamerica Measures Small Employers' Interest in Pooled Employer Plans

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What You Need to Know

  • General interest in the idea of multiple employer plans looks strong.
  • Even some small employers still sponsor defined benefit pension plans.
  • Small employers and other employers have different ideas about the importance of offering retirement benefits.

For now, small U.S. employers may be much more likely to set up a traditional retirement plan than to try to offer one of the new “pooled employer plans”, or PEPs.

The Transamerica Institute and the Transamerica Center for Retirement Studies have included data supporting that assessment in a new summary of a survey, of about 1,900 employers, that was conducted in late 2020.

The researchers who conducted the survey classified any employer with fewer than 100 employees as a small employer.

About 6% of the small employers surveyed said they were very likely to begin sponsoring a 401(k) plan or similar plan within the next two years. Only 1% said they were very likely to considering joining a multiple employer plan or a PEP.

The survey managers found evidence that employers could eventually warm up to pooled employer plans: about 31% of the small employers said they were “somewhat likely” to set up traditional retirement plans in the near future, and 29% said they were somewhat likely to join a multiple employer plan or PEP.

The answers imply that small employers are almost as likely to have some interest in the new PEPs as in traditional plans.

Pooled Employer Plans

The Setting Every Community Up for Retirement Enhancement Act of 2019, or Secure Act, encourages small employers to offer retirement plans, by creating a framework for PEPs. Pooled employer plans are multiple employer retirement plans that are registered with the U.S. Department of Labor and comply with Secure Act rules.

Both investment advisors and broker-dealers can serve as PEP providers. Many financial services companies, including Transamerica, have been developing PEP programs.

Retirement Benefits Data

The small employers that participated in the survey were less likely to offer retirement benefits than larger employers surveyed, but many have been offering retirement benefits, and a sizable percentage still have defined benefit pension plans.

Here’s how small employers’ responses, for some retirement plan offerings and retirement benefits views, compare with the responses from employers with 500 or more employees:

Offer No Retirement Benefits Small Employers: 50% Midsize Employers: 4% Large Employers: 1%

Offer a 401(k) Plan or Other Partially or Wholly Employee Funded Plan Small Employers: 44% Midsize Employers: 83% Large Employers: 90%

Offer a Defined Benefit Pension Plan Small Employers: 12% Midsize Employers: 37% Large Employers: 42%

Sees Offering Retirement Benefits As Very Important to Hiring and Keeping Employees Small Employers: 30% Midsize Employers: 59% Large Employers: 55%

What It Means

Many financial professionals with roots in the life insurance agency business have focused on individual life insurance and annuity sales in recent years. Many have left retirement plan sales to benefits brokers, investment advisory firms and other types of companies.

But the birth of PEPs could give outsiders a way back into the small retirement plan market. Talking to small employers about PEPs, through seminars or other means, also may be a way for financial professionals to build an executive benefits practice.

Just 7% of the small employers surveyed now have separate retirement programs for select executives or senior managers. That means small employers are even less likely to offer executive benefits programs than they are to be sponsoring defined benefit pension plans.

(Image: Bram Janssens/Thinkstock)