What Is a Pooled Employer Plan (PEP) and Is It Right for Your Business’s 401(k)?

In Brief:

• A PEP lets unrelated employers share one retirement plan. A Pooled Employer Plan is a qualified defined contribution plan, like a 401(k), that allows multiple unrelated businesses to participate together under a single plan structure, introduced by the SECURE Act in 2021.
• A Pooled Plan Provider (PPP) handles most administrative duties, but not all fiduciary responsibility. The PPP files Form 5500 and manages day-to-day compliance, yet employers still must select and monitor the provider, transmit accurate employee data, and remit contributions on time.
• PEPs can lower costs and administrative burden. Sharing a plan across employers can reduce fees and unlock investment options or services that would otherwise be too expensive for a single small business to access alone.

Offering a retirement plan can help organizations attract and retain employees, but managing one comes with administrative and compliance responsibilities. For some employers, those responsibilities have become increasingly difficult to manage as retirement plan rules continue to evolve. Pooled Employer Plans (PEP) give unrelated employers a way to join a single retirement plan and share many of the administrative functions. A PEP won’t be a fit for every organization, but for employers hoping to simplify plan administration, the structure is worth a closer look. To help clients, prospects, and others, JLK Rosenberger has summarized the key details below.

What Is a Pooled Employer Plan?

A Pooled Employer Plan is a qualified defined contribution retirement plan, such as a 401(k), that allows multiple unrelated employers to participate in the same retirement plan. The SECURE Act introduced PEPs in 2021, and they’ve grown in popularity over the past several years.

Every PEP is operated by a Pooled Plan Provider (PPP). The PPP serves as the plan administrator, and it is responsible for many of the administrative and fiduciary functions that would typically be handled by the employer. For example, the PPP generally files Form 5500 and helps ensure the plan complies with applicable requirements.

A PEP is not the same as simply hiring a third-party administrator for an existing 401(k) plan. While the PPP assumes significant responsibilities, each participating employer continues to have fiduciary obligations. Employers are responsible for selecting and monitoring the Pooled Plan Provider, accurately transmitting employee information, remitting contributions, and carrying out other responsibilities assigned to them under the plan.

For employees, a PEP looks and feels like any other employer 401(k). They enroll, defer part of each paycheck, and pick from the available investment options. The differences are only behind the scenes in how the plan is administered.

Potential Benefits of a PEP

Simplified Administration — This is usually the first benefit discussed. The Pooled Plan Provider absorbs a lot of the compliance and administrative work, freeing up time that would otherwise spend on filings and day-to-day plan management. Some fiduciary duties stay with the employer, but the routine work gets centralized.

Potential Cost Savings — Sharing a plan with other employers can bring down administrative costs. It may also open doors to services, investment options, or expertise that would be too costly to access alone. Costs still vary by provider, so organizations should compare fees and services closely before joining a PPP.

A Competitive Benefit — A retirement plan helps organizations compete for and retain talent. For smaller employers who’ve held off on sponsoring a plan because of the administrative burden, a PEP offers another path.

Tax Incentives for New Plans — First-time small plan sponsors may qualify for the IRC §45E retirement plan startup-cost credit. Eligible employers with 50 or fewer employees may receive a credit of up to 100% of qualified startup costs, while eligible employers with 51–100 employees generally receive a 50% credit. The credit is available for the first three credit years and is subject to an annual limit generally equal to the greater of $500 or the lesser of $250 per eligible non-highly compensated employee or $5,000.

Other Considerations

There are other considerations, and a PEP is not suited for every employer. Because participating employers share one retirement plan, there is generally less flexibility with plan features than with a standalone 401(k). Employers should also remember that joining a PEP does not eliminate all fiduciary responsibilities. They are still responsible for selecting a qualified PPP and monitoring performance.

A PEP is often a good fit for small and midsize organizations that want to offer a competitive retirement benefit and need a way to reduce the traditional administrative workload that comes with it. It may also appeal to employers starting up a first plan because of the potential tax savings.

Before deciding whether to participate in a PEP, organizations will want to evaluate both the provider and the plan itself. Helpful questions include:

• What fiduciary responsibilities will remain with the organization?
• Which administrative and compliance services does the Pooled Plan Provider perform?
• How are fees structured, and what services are included?
• What investment options will employees have? How will they ask questions about the plan?
• How will payroll integration and general communication be handled?
• What is the process if the organization decides to leave the PEP in the future?

The answers to these questions can help organizations compare providers and determine whether a PEP aligns with operational needs and other goals.

We’re Here to Help

There are more options than ever for employers looking to establish a retirement plan for employees. Carefully comparing options, including PEPs, is an important part of the evaluation process. If you have questions about the information outlined above or need assistance with another tax or accounting issue, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.