As a small business owner with valuable employees, you know the importance of providing a competitive benefits package. A high-quality retirement plan can both attract and retain top talent, ensuring your company’s long-term success.
But if the idea of setting up and maintaining a traditional 401(k) plan keeps you from offering this critical benefit, you’re not alone. The costs, complexities and fiduciary responsibility of managing your own retirement plan can be daunting. If this sounds like you, then joining a Pooled Employer Plan may be the answer to your retirement plan benefit needs.
What’s a Pooled Employer Plan (PEP)?
A PEP is a retirement savings option that allows multiple employers to collectively offer a single, cost-effective retirement plan to their employees. First introduced under the SECURE Act (Setting Every Community Up for Retirement Enhancement) in 2019, PEPs aim to make retirement plans more accessible for all businesses.
In a PEP, a Pooled Plan Provider (PPP) oversees the parties that handle administrative duties for the retirement plan such as plan setup, compliance, recordkeeping and investment management. This way, you can focus on what you do well—your business—while the PEP service providers manage your employees’ retirement plan.
As you begin to explore PEPs, you may also encounter a similar term—Multiple Employer Plans, or MEPs. MEPs preceded PEPs in the retirement planning marketplace and have been a staple retirement plan option for several years. However, while MEPs require businesses to have a similar business focus or relationship to join together to offer a retirement plan, PEPs have no such restriction. Employers of any type can join an existing PEP to take advantage of shared resources in administering a retirement plan.
What are the advantages of a PEP for small business?
Using a PEP will allow you to leverage the collective resources of your group of businesses, improving your negotiating power and potentially reducing fees and expenses. You’ll also be able to outsource the administration of the plan including paperwork and compliance tasks. Specifically, the value of a PEP can be broken down into three areas: Simplified administration, cost management and fiduciary protection.
1. Simplified administration
Ease of administration: Traditional 401(k) plans require significant administrative oversight, including compliance testing, record-keeping and filing annual reports like the Form 5500. By joining a PEP, small businesses can outsource these administrative tasks to the PEP service providers, reducing the burden on your own staff.
Expert management: Plan management is where the PEP really shines. By ensuring compliance with the Employee Retirement Income Security Act (ERISA) and other regulations, the PEP can help mitigate the risk of costly errors and penalties associated with non-compliance. Once again, you’re able to focus on your business, while the PEP service providers focus on managing your company’s retirement plan.
2. Cost efficiency
Reduced costs and lower fees: Small businesses often face higher costs per participant when establishing their own 401(k) plans due to lower economies of scale. Since PEPs pool together multiple employers, the retirement plan’s administrative costs are spread over a larger number of participants, thus lowering your costs. These lower costs can mean more funds may be available to grow employee retirement accounts.
3. Fiduciary protection
Shared fiduciary responsibility: The PPP assumes many of the fiduciary duties that would otherwise fall on you, as the employer. This can reduce your fiduciary risk, since you may not have the expertise to manage these responsibilities effectively. The PPP’s professional management ensures that fiduciary duties are met, which also reduces the likelihood of legal issues related to plan management.
Making the most of your PEP for small business
With the SECURE Act, first passed in December 2019 and updated in 2022, the federal government recognized the importance of providing retirement benefits—and made it easier for small businesses to do so with streamlined requirements and improved incentives. That said, working with an expert financial professional and trusted retirement plan provider is a must to ensure that you and your business take full advantage of your PEP’s features.
Depending on the PEP you choose, you may be able to select from various plan features and investment options, tailoring the plan to your preferences. In addition, many PEPs offer advanced features that help make the retirement planning process easier for you and your employees. These can include automatic enrollment, automatic escalation and a range of retirement planning tools and resources for employees. These features can significantly enhance the retirement readiness of your employees. This allows you not only to retain your current employee base, but to attract new top talent to your team.
Ameritas is proud of how many businesses we’ve helped to ensure the future security of their employees.
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