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).
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:
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.
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.
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.
You might want a traditional, stand-alone 401(k), also known as a Single Employer Plan, if:
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.
Services and fees associated with PEPs are likely to evolve over the next few years, making administrative costs somewhat unpredictable.
PEPs are much more likely to be audited than single-employer plans.
Stand-alone 401(k)
PEP
Named fiduciary
Employer
Pooled Plan Provider
Responsible for the day-to-day administration of the plan
Employer
Pooled Plan Provider, with limited tasks by employer
Responsible for filing annual government forms
Employer
Pooled Plan Provider
Ability to customize investments
Yes
Limited customization
Customizable eligibility and vesting schedules
Yes
No
Flexible matching schedules
Yes
Limited
Bond coverage obtainment
Employer
Pooled Plan Provider
Hiring and managing annual audits of the plan
Employer
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.
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44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357
© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357