A Pooled Employer Plan is an affordable way for small businesses to offer a retirement savings plan to employee–with fewer administrative hassles than a traditional, stand-alone 401(k).
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The SECURE Act of 2019 introduced a number of changes making it easier to start a small business 401(k). One of these changes was the allowance of pooled employer plans — or “PEP 401(k)” for short. This new retirement plan option lets multiple employers join together with one retirement plan document and one central administrator. Plan participants potentially benefit from lower overhead fees and lower investment fees.
In a nutshell, PEP 401(k) plans are about bringing large-plan best practices and economies of scale to small business employers.
Multiple Employer Plans (MEPs) have been around since the Taft-Harley Act in 1947. The law allowed labor unions to create agreements that applied to entire industries, across multiple employers. A Pooled Employer Plan operates very similarly to a MEP, but there are no restrictions on who can join. Different industries can be part of the same PEP 401(k) plan.
A Pooled Employer Plan takes a lot of administration off a small business owner’s plate, notably:
The Pooled Plan Provider acts as the sponsor, rather than the employer. By passing off on these administrative duties, the small business owner doesn’t have to worry about the risk of fiduciary responsibility. Plan insurance rates will likely be much cheaper than one could afford going solo.
Once an employer has selected a provider and set up the plan, the employer will be responsible for paying a service fee, maintaining records of plan participants, submitting payroll information, and participating in occasional audits.
While there is less administrative burden and less risk, a PEP may not be your best choice.
With a PEP 401(k), the employer is beholden to the group’s central plan document. This means there is less flexibility in plan design and investment choices with a PEP. Employers who like to make frequent changes to the plan or like vast investment selection options may find a PEP too restrictive.
Joining a PEP can be more expensive if the third-party administrator charges extra fees. While a low-cost administrator like Ubiquity only charges a flat rate, others charge Assets Under Management fees and per person fees that grow with your 401(k) retirement plan.
Small businesses with fewer than 120 participants won’t need an IRS audit. However, it may become necessary if the PEP is larger, as the IRS treats the conglomeration of different employers as one plan. The cost is shared by employers, but an independent audit would be necessary each year.
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
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San Francisco, CA 94104
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© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357