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@Peter Gulia identifies a generic issue, relevant to any relationship with a vendor. That is, does a plan sponsor want to take an administrative action that "binds" it (the sponsor/plan administrator) even if such "binding" is only slight? Obviously, the corollary is, "So what? We can change it later if needed." The answer(s) might be related to the sponsor/PA perception of risk tolerance and/or whether there is a potential fiduciary risk.

On the surface, of course there is no reason a plan would not want a zero-expense fund S&P 500 Index fund. But your question was is there any reason a plan would not want this zero-expense fund? This is another way of asking, cynically, what's the catch? From an AI point of view, "Essentially, the "free" thing is being offered in exchange for something valuable to the provider, usually your personal data or attention." Examples are free checking accounts, free shipping, free breakfast with an overnight stay... i.e., something that builds a recurring relationship. Empower is offering this as an "Institutional Separate Accounts" which their information says are "(also known as insurance company separate accounts are an insurance company version of a collective investment trust (CIT). Like a CIT, institutional separate accounts pool assets from more than one retirement plan to achieve economies of scale and pricing." https://docs.empower.com/empower-investments/pdf/isa/Institutional-Separate-Account-Platform-Brochure.pdf and https://docs.empower.com/empower-investments/pdf/isa/Institutional-Separate-Account-Platform-Brochure.pdf With this offering, Empower is one-upping Vanguard in a proverbial "race to the bottom" on plan administration and investment fund expenses. I applaud Empower for recognizing that investment fund fees are an irritant for many plans, and for coming up with a creative solution bolstered by great marketing. Plan fiduciaries and their advisors still need to do their due diligence and this includes considering the totality of the relationship. If their conclusion is Empower offers the best services for their plan, they should give this fund serious consideration.

khn, about the plan you describe: In the past, did the plan’s administrator ever deny a rollover contribution because the worker had not yet met an eligibility condition? In the past, did the plan’s administrator ever allow a rollover contribution of a worker who had not yet met the eligibility condition? Do the administrator’s decisions in the past suggest anything about what provision the plan’s sponsor might have truly intended? Is there any evidence—beyond the plan document itself—that shows the plan sponsor intended the plan not to accept a new employee’s rollover, but to allow a rollover contribution for only those who had completed three months of service? Is there any evidence showing whether the people who acted for the plan’s sponsor read, or didn’t read, the document before the plan sponsor adopted it? Following what the evidence turns up, might the plan’s sponsor reform or amend the document? Would reforming or amending the document harm any participant?

Frankly, I would allow rollovers to all employees since the service eligibility is so short.