Advisors face fiduciary blind spot as PEP adoption accelerates

The pooled employer plan market is expanding faster than employer understanding of what joining one actually means. For those advisors guiding small-business clients on retirement plan design, that gap is a liability issue.

According to Cerulli Associates, the number of pooled employer plans (PEPs) more than tripled between 2021 and 2024, driven largely by smaller employers who find the administrative and cost burden of a standalone 401(k) prohibitive. For advisors building out plan sponsor practices, PEPs have become a growth product. The problem, according to one Travelers fiduciary expert, is that many clients signing on don't fully understand what fiduciary exposure they're retaining.

Wendy Von Wald, assistant vice president and fiduciary product manager at Travelers in Hartford, Connecticut, has watched that misconception spread. "Promotional materials tend to highlight reduced fiduciary liability without equally emphasizing the responsibilities that remain with the employer," she said. "The gap between what is promoted and what the agreement actually requires is a consistent theme."

What the law actually says

The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act amendments to the Employee Retirement Income Security Act (ERISA) that enabled PEPs specify that individual employers still retain fiduciary responsibilities. Advisors who recommend PEP participation without communicating that clearly are leaving clients exposed.

Each participating employer retains fiduciary responsibility for selecting and monitoring the pooled plan provider (PPP) and any other named fiduciary, as the Department of Labor's proposed rules for pooled employer plans make clear under ERISA Section 3(43)(B)(iii)(I). Under Section 3(43)(B)(iii)(II), employers also retain responsibility for the investment and management of plan assets attributable to their own employees, unless that function has been formally delegated to another fiduciary by the PPP. The DOL's July 2025 guidance reinforced that prudently selecting and monitoring the PPP is an ongoing obligation, not a one-time check at sign-up.

What advisors need to document

For RIAs and financial planners advising employer clients on plan structure, a recommendation to join a PEP should be accompanied by a documented conversation about retained fiduciary duties and a written summary the client can reference later.

Von Wald's benchmark for adequate employer monitoring is instructive: benchmarking fees, reviewing investment option performance, identifying underperformers, and examining embedded fund expenses. "Employers should also be reviewing the management, overall performance, and cost structure of the PPP," she said. "The same types of allegations that have driven litigation against traditionally sponsored 401(k) plans - excessive fees, imprudent investment selection, and inadequate monitoring of service providers - apply equally in the PEP context, particularly when first joining."

A July 2025 Ropes & Gray analysis of the DOL's nine practical tips for small employers evaluating PEP participation offers a useful framework for advisors building that pre-enrollment checklist with clients, covering fee scrutiny, investment review, PPP qualification checks, and exit implications. Walking a client through each point before enrollment creates both a service record and a defensible paper trail.

Where liability lands

Von Wald is direct on indemnification. "Where liability lands depends heavily on the specific PEP agreement, so employers should read it in full before signing -- paying particular attention to any indemnification obligations they owe to the pooled plan provider, since those provisions can significantly affect where financial exposure ultimately lands if something goes wrong."

For RIAs with plan sponsor clients, reviewing those provisions, or flagging them for ERISA counsel, should be part of the engagement. On the prospect of a fiduciary safe harbor for PEP participants, Von Wald urges caution. "Safe harbors can be helpful, but only if their conditions are fully satisfied -- a safe harbor that is not carefully followed provides little real protection," she said. Following the Supreme Court's 2024 decision in Loper Bright Enterprises v. Raimondo, which curtailed judicial deference to agency rulemaking, any DOL-issued safe harbor could face a legal challenge. Historically, plaintiffs have also used safe harbor standards as a road map to argue a fiduciary fell short under ERISA.

Closing the gap

For advisors working with smaller employers new to ERISA obligations, the organizational dimension of PEP fiduciary risk is often the most overlooked. Von Wald points to a persistent accountability gap between who is named as a fiduciary and who is actually influencing plan decisions. "Fiduciary training is always a sound investment," she said. "It ensures that everyone involved understands their role, how their decisions and actions can give rise to liability, and what standards they are expected to meet."

Recommending fiduciary training for small employer clients joining a PEP, particularly HR and finance staff with no prior ERISA background, reduces claim risk for both client and advisor. The broader conversation about how retirement plan advisors are repositioning their value inside PEP arrangements is worth tracking as the market matures and plan sponsor expectations shift.

"Regardless of what a PEP agreement says, an employer cannot off-load all of its fiduciary duties to a PPP or any other service provider," Von Wald said. "The fiduciary duty to monitor is ongoing, and that obligation extends to any changes in the PEP agreement, including shifts in investment options, expenses, or services provided." In a market growing this quickly, advisors who have that conversation before a client signs will be adding value that no product brochure can replicate.