Understanding Pooled Employer Plans (PEPs)
December 13, 2023
Unlocking the Benefits: Understanding Pooled Employer Plans (PEPs)

Pooled Employer Plans (PEPs) have emerged as a game-changer in the retirement savings landscape, offering businesses and employees a streamlined and cost-effective approach to retirement planning. This article aims to demystify the concept of PEPs, exploring their structure, advantages, and the potential impact they can have on the retirement readiness of employees.


What is a Pooled Employer Plan?

A Pooled Employer Plan is a type of retirement savings arrangement established by the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. The SECURE Act introduced PEPs to encourage more small and medium-sized businesses to offer retirement benefits to their employees. PEPs enable unrelated employers to join a single retirement plan, sharing the administrative and fiduciary responsibilities, which can lead to significant cost savings.


Key Features

  1. Multiple Employers, One Plan: PEPs allow unrelated employers to participate in a single retirement plan. This consolidation of resources is designed to make retirement benefits more accessible to a broader range of businesses.
  2. Administrative Efficiencies: By pooling resources, employers in a PEP can achieve economies of scale. This means shared administrative costs and responsibilities, reducing the burden on individual businesses and potentially lowering overall plan costs.
  3. Fiduciary Oversight: A PEP typically designates a pooled plan provider, responsible for assuming the role of the named fiduciary. This provider takes on certain administrative and fiduciary responsibilities, relieving employers of some of the legal obligations associated with offering a retirement plan.


Benefits for Employers

  1. Cost Savings: PEPs offer the advantage of reduced administrative and operational costs. Sharing these expenses among multiple employers can result in considerable savings compared to maintaining individual retirement plans.
  2. Reduced Administrative Burden: Employers participating in a PEP can offload much of the day-to-day administrative tasks to the pooled plan provider. This allows businesses to focus on their core operations while ensuring employees receive valuable retirement benefits.
  3. Access to Expertise: PEPs are often managed by experienced professionals, providing a level of expertise that might be challenging for individual small businesses to secure. This can enhance the overall quality of the retirement plan.


Benefits for Employees

  1. Enhanced Investment Options: PEPs, with their larger asset pools, may offer a more diverse range of investment options for participants. This can empower employees to tailor their investment strategy based on their individual preferences and risk tolerance.
  2. Increased Portability: As employees move between employers participating in the same PEP, they can maintain continuity in their retirement savings. This portability is especially beneficial in today's dynamic job market.
  3. Simplified Decision-Making: With the administrative aspects managed by the pooled plan provider, employees can enjoy a simplified and user-friendly experience when it comes to enrolling, managing contributions, and accessing information about their retirement plan.


PEPs versus Traditional 401(k)/403(b)

Compared to traditional 401(k) or 403(b) plans, PEPs offer a distinct advantage by consolidating administrative tasks. Traditional plans for individual employers often come with higher administrative burdens and costs, making them less feasible for smaller businesses. PEPs, with their shared responsibilities and reduced costs, level the playing field, allowing a broader spectrum of businesses to provide robust retirement benefits.


Another notable difference lies in fiduciary responsibilities. In a PEP, a pooled plan provider assumes many fiduciary duties, alleviating individual employers from some of the legal obligations associated with managing a retirement plan. This shift in responsibility can be particularly advantageous for businesses with limited resources or expertise in retirement plan administration.


In essence, while traditional plans continue to be a staple in the retirement benefits landscape, PEPs introduce a modern, collaborative approach that addresses the evolving needs of both employers and employees. The decision between a PEP and a traditional plan hinges on the specific requirements and circumstances of each employer, emphasizing the importance of a tailored approach to retirement planning.


Contact Simco today for more information.

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