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PEP vs. 401(k): Which Is Right for Your Small Business?

Pooled Employer Plans (PEP) were designed to make it easier to offer a retirement plan to your employees. But is it the right savings vehicle for your small business?

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A Pooled Employer Plan (PEP) differs from a traditional 401(k) by allowing multiple employers to participate in a single plan.

By splitting the plan’s administrative and other costs among many participants, the PEP was designed to be an affordable option for small businesses that otherwise would not be able to take on the cost of offering a retirement savings plan to their employees.

For many small businesses, however, starting a traditional, stand-alone 401(k) with a low-cost, full-service provider like Ubiquity can match the PEP when it comes to affordability and the flexibility to offload administrative duties. So which choice is better for your small business? Read on for a detailed assessment of PEP vs. 401(k).

What are the potential benefits of a Pooled Employer Plan?

The Pooled Employer Plan (PEP) was created by the 2019 SECURE Act as a “new and improved” version of the Multi-Employer Plan (MEP). The PEP is geared toward lowering fees and increasing liability protection for small businesses in particular.

 You might want to consider a PEP if:

  • You want a 401(k) for your employees but are daunted by the administration aspect.

    PEPs shift much of the administrative burden off the employer. Instead, the Pooled Plan Provider is responsible for sending out notices to plan participants, managing contributions, rollovers, loans, and filing the annual Form 5500. (Keep in mind that many traditional 401(k) providers will only prepare IRS paperwork on your behalf.) You still bear some fiduciary responsibility in choosing and monitoring the Pooled Plan Provider, but your liability is relatively limited.

  • You want to pay less for audits.

    If you have more than 120 plan participants, you’ll need to pay for auditing each year to be sure you’ll pass the nondiscrimination tests required by the IRS and DOL. With a PEP, the cost of auditing the plan is spread out over multiple employers, so the cost is less for each participant as compared to a single-employer 401(k). Furthermore, the insurance provided by a PEP will be more comprehensive than what you could obtain on your own.

  • You like simplicity.

    Unlike traditional 401(k)s, PEPs are not as customizable and generally offer similar design and investment options to all participants. If you’re looking for a set-it-and-forget-it approach to retirement savings, a PEP might work for you.

What are the benefits of a traditional 401(k)?

You might want a traditional, stand-alone 401(k), also known as a Single Employer Plan, if:

  • You want control over your plan.

    Single employer plans can be modified as often as you wish, whereas PEPs are as not customizable. There is no limit to the types of investments you can add to your lineup when you’re the one authoring the plan. With a full-service 401(k) provider, you can choose to offload much of the fiduciary responsibility.

  • You want predictable administration fees.

    Services and fees associated with PEPs are likely to evolve over the next few years, making administrative costs somewhat unpredictable.

  • You want to avoid the hassle of audits.

    PEPs are much more likely to be audited than single-employer plans.

PEP vs. Stand-alone 401(k) – Which is right for you?

Stand-alone 401(k)


Named fiduciary


Pooled Plan Provider

Responsible for the day-to-day administration of the plan


Pooled Plan Provider, with limited tasks by employer

Responsible for filing annual government forms


Pooled Plan Provider

Ability to customize investments


Limited customization

Customizable eligibility and vesting schedules



Flexible matching schedules



Bond coverage obtainment


Pooled Plan Provider

Hiring and managing annual audits of the plan


Pooled Plan Provider

No matter which type of retirement plan you choose for you and your employees, exercise due diligence in hiring the right provider.

  • Ubiquity offers administration for one transparent, low monthly fee, while others may charge based on “per participant” or a percentage of “assets under management” on top of everything.
  • You’ll want a provider with a high level of experience catering to your market. Ubiquity has focused on the small business crowd since 1999.
  • The best small business 401(k) providers offer educational tools and support to both employers and employees as needed. We have portals for both sides.
  • If you’re a busy small business owner looking to limit fiduciary responsibilities and paperwork, consider working with Ubiquity. Some of our plans include built-in assurance that you’ll meet federal investment fiduciary standards.
Schedule a consultation with a retirement expert to learn how you can easily choose a turnkey or customized retirement plan for your employees.
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44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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© 2021 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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