Is a Pooled Employer Plan the Right Fit for Small Business Owners?

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The concept of employers banding together to create a group of retirement plans with shared plan administration and management, and potentially lower costs has existed for many years. What busy employer wouldn't be interested in sharing responsibilities and potentially offloading some administrative duties? However, these grouped plans required that the employers have a common nexus.

With the passage of the SECURE Act legislation, a number of updates have made starting a 401(k) more affordable and convenient. One important change is the new opportunity for unrelated employers to join a pooled employer plan (PEP), which became available for plan years beginning after December 31, 2020. A PEP, unlike traditional 401(k) plans or multiple employer plans (MEPs), is open to employers of any industry, association, or business size, and may be a good fit for employers looking for a simplified option that will lessen their administrative burdens and fiduciary liability.

A PEP comes with its own set of benefits and requirements, and several factors may determine if it's the right type of retirement plan for a small business owner. Understanding the basic benefits and goals of a PEP is the first step towards deciding if it's the right fit for your business and retirement savings goals.

Who is the pooled plan provider (PPP) of a PEP?

If business owners aren't responsible for plan administration, who is? Most of the time, a bank, 401(k) administrator, recordkeeper, third-party administrator (TPA), financial services company, trust company, or consulting firm will act as the pooled plan provider (PPP) for a PEP. Before sponsoring a PEP, a PPP must apply to be registered with the Treasury Department and Department of Labor (DOL), and in doing so, promises to fulfill the role of named fiduciary for the plan.

As the 3(16) plan administrator, the PPP is responsible for performing all the administrative work to ensure participating employers fulfill their obligations to the plan. The PPP is also required to assure that the plan is adequately covered by a fidelity bond and is brought back into alignment with regulatory requirements if or when a participating employer fails to comply with their obligations.

You might also be interested in: Pooled Employer Plan Benefits for Small Business Owners

How is a PEP different from a MEP?

While a PEP and MEP are very similar in nature, there are some key distinctions employers will want to be aware of when deciding which plan option may best suit their needs. Review the side-by-side comparison below, which highlights the differences between traditional 401(k) plans, MEPs, and PEPs:

  Traditional 401(k) Plan MEP PEP
Eligibility Single employers or groups of related employers Unrelated employers with sufficient commonality Unrelated employers
Named Plan Fiduciary Plan sponsor MEP sponsor Pooled Plan Provider (PPP)
Designed Plan Administrator Plan sponsor (can hire a third party to help) MEP sponsor/lead employer PPP
Plan Design Customization Can be customized to meet plan sponsor needs Can be customized to meet adopting employer needs Some customization available depending on PPP and plan size
Required Form 5500 Filed by employer Filed by lead employer Filed by PPP

Learn more about MEP and PEP arrangements and how they can help support overall business objectives and retirement plan goals.

Retirement plan options for small business owners

Retirement plan administrators who are officially registered as a PPP with the Treasury Department and DOL can start a PEP. Each PPP offering includes varying levels of plan provisions and investment lineup options. As a small business owner, you may be interested in the convenience and simplified administrative duties that come with joining a PEP. Employers looking for more customization in plan features and options may want to consider a different type of qualified plan, like a traditional 401(k) or SEP/SIMPLE IRA.

As the nation's largest independent retirement services provider, Ascensus offers a wide variety of retirement plan options to help you and your employees get there—however you choose to save. To learn more about how Ascensus can help you and your employees save more for the things that matter, contact our team at 800-345-6363.