What is a Pooled Employer Plan (PEP) and How Do They Benefit Employers?
As of Jan. 1, 2021, pooled employer plans (PEPs) are now available options for employers. Established by the SECURE Act, PEPs operate as a new type of open multiple employer plan (MEP), changing the typical 401(k) and retirement plan landscape. What are PEPs and what do employers need to know about these retirement plans for their employees?
Defined: What is a Pooled Employer Plan (PEP)?
PEPs allow small employers the opportunity to pool their resources with other organizations to offer more robust 401(k) plans to their employees. They were established by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The law, which was passed by Congress in December 2019, is designed to encourage employees to invest in and have access to retirement savings.
Employers that use PEPs work with pooled plan providers (PPP), which are the retirement plan administrators and named fiduciaries for PEPs. In other words, PPPs handle most of the administrative tasks associated with the plan (instead of the employer). PPPs are required to be registered with the IRS and DOL and must meet certain criteria to be eligible providers.
Pooled Employer Plans vs. Multiemployer Plans
HR leaders may be familiar with multiple employer plans (MEPs). And while PEPs are technically MEPs, the main difference between the two is accessibility.
According to SHRM, PEPs were created as “a new, more widely available type of 401(k) multiple employer plan (MEP)” that can be used by employers of every size and from a much more varied collection of industries. Now, with PEPs, businesses don’t need to fulfill a commonality requirement—meaning the participating employers are related by industry—to pool retirement resources.
What Are the Possible Benefits of a Pooled Employer Plan (PEP)?
While PEPs offer key retirement advantages for all employers, smaller employers in particular stand to benefit the most. According to Lockton, which launched region-specific PEPs at the beginning of 2021, outsourcing is a key improvement over the traditional model. Here’s what to know about PEP benefits:
- Outsourced and Streamlined Administration: HR can spend less time on the day-to-day administrative tasks required under traditional plan sponsorship, including investment selection and monitoring, auditing annual plans, Form 5500 filings, participant notices, and more.
- Shifted Legal Obligations: Adopting a PEP means that employers designate the PPP as the plan administrator and named fiduciary, providing more protection than traditional retirement models.
- Potential for Cost Savings and More Options: Employers generally earn better pricing when their retirement plan assets are higher. By pooling assets, PEP participants increase their chances of accessing improved pricing, services, and a wider range of investment products.
What Are the Possible Downsides of a Pooled Employer Plan (PEP)?
PEPs likely won’t be the perfect solution for every employer. Two factors that should be considered when evaluating if they’re the right fit for your organization include:
- PEPs Are Still New: While many in the business see PEPs as transformational, they’re still finding their footing in the retirement industry. Simply put, it may take time before PEPs reach their full potential.
- Possible Client Flexibility Limitations: Some other grouped employer plans may offer better flexibility for clients when selecting industry-specific benefits and customizing their retirement plans.
What Else Should Employers and HR Know About Pooled Employer Plans (PEP)?
As HR begins to navigate this new option, first evaluate the organization’s current retirement plan pain points and opportunities for improvement. For example, if the administration process takes too long or is too expensive, HR professionals should include these factors in their decision-making process.
If you’ve determined that a PEP is right for your team—or, more simply, if a change is needed—reach out to your retirement plan brokerage to learn more about PEP options available to your organization.
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