Insurance Broker’s PEP Launches for Private Equity, Venture Portfolio Firms

Insurance broker Woodruff-Sawyer & Co. Inc. launched the firm’s first pooled employer retirement plan on February 6, focused on attracting private equity and venture capital portfolio companies.

Woodruff Sawyer is targeting startups because many technology companies experience high personal and ownership turnover, says Kristina Keck, vice president and practice leader of retirement plan services at the San Francisco-based insurance broker.

“We have a private equity and venture capital presence, and those resources bring a lot of startup plans to us, and they’re difficult to run [because] they don’t always [last],” due to high turnover of both employees and ownership, explains Keck. At some startup companies, “there’s a revolving door … for the CFO and for some of those fiduciaries because they’re all looking for [their next] opportunities.”

Pooled employer plans are retirement plans that allow unrelated businesses to all participate in one aggregated plan.

PEP Target Market: VC

Individuals who operate retirement plans at startup companies have many tasks to execute, as the firms often experience significant turnover, leaving little time to focus on fiduciary responsibility. For example, one technology company working with Woodruff has named three different chief financial officers in the last five years, she explains. Those plans may then suffer from inadequate fiduciary oversight, elevating the plan’s vulnerability to a lawsuit, says Keck.

“There’s not consistency of the fiduciary being involved in the plan, and so the PEP solves some of that problem, because we have the consistency with the pooled plan provider and with our team,” Keck says. Using a PEP “creates that consistency from a fiduciary perspective, because you’ve got people that are there fixed in place.”

In addition to supporting an employer to ensure its plan meets  Employee Retirement Income Security Act fiduciary responsibility, a PEP may offer practical advantages for private equity general partners in connection with transactions, according to a 2022 post from law firm Ropes & Gray.

For private equity plan sponsors on the buy side of a transaction, PEPs can: offer advantages in implementation time; provide a plan to employees who were joined to a firm and acquired by carveouts following a merger or acquisition; lower participant fees; use fewer internal benefit and HR resources; and serve as an alternative solution, instead of absorbing or purchasing an existing retirement plan with outstanding compliance or ligation concerns.

Price Concerns

Every plan sponsor considering joining the PEP is shown a custom price prior to joining, Keck says, who adds Woodruff’s “perfect” target market is sponsors with plan assets totaling less than $50 million.

When sponsors join a PEP, they delegate their named fiduciary role to a third-party pooled plan provider. “We wanted to be able to work with these smaller plans in a way that’s efficient for them from a cost perspective, and it’s efficient for us on an administrative perspective,” she says.

Nevertheless, the PEP pitch to clients is not concentrated on cost savings, according to Keck: Although some sponsors will be able to lower retirement plan costs with the PEP, not every sponsor will reduce its 401(k) expenses.

Brass Tacks

Woodruff Sawyer partnered with recordkeeper Empower to launch the PEP; third-party pensions consultant the Finway Group is the pooled plan provider. The plan is using Capital Group’s American Funds to offer a hybrid target-date fund and make available collective investment trusts.

For the PEP platform, Woodruff Sawyer will provide 3(38) investment manager fiduciary services and 3(21) coverage to sponsors; the Finway Group is the 3(16) third-party plan administrator.  

Woodruff has just started sharing the proposal with clients, according to a Woodruff representative, so it is still lining up the initial participants.

Pace of PEPs 

PEPs were introduced by the Setting Every Community Up for Retirement Enhancement Act of 2019 and expanded by the Secure 2.0 Act of 2022. 

PEPs allow business owners and employees to save up to the same amount per year, and earn the same tax advantages, as they would with a traditional retirement plan. As with a traditional employer-run plan, employees can earn matching contributions from their employer.

There were approximately 380 PEPs (up from 350 mid-year) and 130 pooled plan providers registered with the Department of Labor at the beginning of January, according to Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP.