Group of Plan Arrangements Offer Cost Savings | Pension Plans

‘Group of Plan’ Arrangements Offer Cost Savings for 401(k) Sponsors

401k Cost Savings | Pension Plans | Rea CPA

Cost Savings, Risk Mitigation and Flexibility

Many 401(k) pooled plan solutions are available to retirement plan sponsors today, and most plan sponsors are familiar with solutions like multiple employer plans (MEPs) and pooled employer plans (PEPs). But one of the least well-known plans may be the most effective solution for plan sponsors who are looking to cut costs and maintain local service and plan design flexibility – the “group of plans” arrangement.

Group plan arrangements have been around in some form for about 20 years, usually offered by specific providers under proprietary names. But the SECURE Act of 2019, which created tax credits and other incentives to encourage small businesses to set up retirement plans, codified the concept and called it a “group of plans” arrangement – GOP.

Economies of Scale

Under a GOP, several plan sponsors can achieve economies of scale by joining together and sharing a record-keeping platform, third-party administrator (TPA), and investment fund menu. By aggregating their plans on a single platform, the sponsors achieve savings through group buying opportunities. This drives down the costs to the plan sponsor as well as the fees that participants pay. Any costs that are billed to the sponsor are also typically lower than for a comparable single-employer plan.

Plan sponsors may wonder what they give up for these benefits, and the answer is practically nothing. Plan sponsors who join GOPs:

  • Continue to maintain their own plans as written, with their own plan objectives and design;
  • May continue to work with their local investment advisor in many cases; and
  • Are free to join or leave a GOP platform as their needs evolve.

Unlike some other pooled plan arrangements, group of plan arrangements don’t require all plan sponsors to belong to the same industry or have any other type of commonality. Small plans, large plans and plans from different industries may all belong to the same GOP. And because members continue to sponsor their own plans and file their own 5500s, the audit requirement that applies to large plans (over 100 participants) within their GOP does not apply to small plans. 

Shared Resources

What they do have in common are the providers that typically are involved in a retirement plan – a recordkeeper, a third-party administrator (TPA), and the investment funds where the plans’ assets reside. 

For organizations considering joining a GOP arrangement, we recommend incorporating best practices from a fiduciary perspective. The TPA or recordkeeper should serve as a delegated ERISA 3(16) fiduciary plan administrator, so certain fiduciary responsibilities that would normally reside with the plan sponsor are delegated to the service provider. Additionally, an ERISA 3(38) fiduciary investment advisor should be involved, again relieving the plan sponsor of the fiduciary responsibility related to investment selection and monitoring. These two factors dramatically reduce the fiduciary and compliance risks of the plan.

Participating in a GOP can free a business owner from the many administrative responsibilities of sponsoring a retirement plan. And the cost savings can help smaller employers gain access to a sophisticated 401(k) plan solution that makes them more competitive in terms of recruiting.

In Summary

Group of plans arrangements offer simplicity and transparency for plan sponsors of all sizes, with the primary benefits being:

  • Cost savings
  • Risk mitigation
  • Flexibility of plan design

If you have questions about the advantages and disadvantages of any 401(k) pooled plan arrangement, send us an email. We’d be happy to talk with you.

By Paul McEwan, CPA, MTax, AIFA (New Philadelphia office)