What is a Pooled Employer Plan?

Businesses face various issues when offering their employees a retirement plan. A traditional 401(k) may be too expensive, difficult to maintain and risky for many employers. That’s why a Pooled Employer Plan is attractive to many organizations. A PEP allows relief to employers who currently offer, or want to offer, their employees a retirement plan benefit but are wary of the fees and fiduciary liability that comes with it.

A PEP allows multiple employers to join a single plan managed by a pooled plan provider (PPP). Each employer that joins the PEP can differ both in size and industry.

A PEP retirement plan is easy to administer

The PPP is the PEP fiduciary and has discretion over plan administration and investments, which can reduce the administrative burden and risks for adopting employers. Leaving the retirement plan administration to experts allows employers to focus on growing their organizations, not on the stress of administering the plan. Employers have a long list of responsibilities that come with offering a qualified plan. But a PEP dramatically reduces their workload, with about 95% of administrative and fiduciary tasks outsourced.

A PEP minimizes fiduciary liability

The PPP handles selecting and monitoring any third-party vendors hired to deliver services for the PEP retirement plan. This includes trustees/custodians, recordkeepers, investment managers and external advisors such as plan auditors.

How important is it to hire experts? 66% of civil investigations by the DOL in 2022 closed in monetary results¹ for plans or other corrective actions. The DOL has increased their audit activity over the past several years.

A PEP is cost competitive

PEPs work for employers of all sizes, both large and small. Since the PEP allows adopting employers to pool their resources, hard dollar and soft dollar cost savings may be realized especially considering the administrative and fiduciary support provided.

Starting the conversation

Business owners and executives want to offer a retirement plan benefit to their employees. They care about the amount of work they’ll have to do, what responsibilities they’ll have to accept and how much they’ll have to pay.

Going to an employer decision-maker and saying, “Buy into this Pooled Retirement Plan” may not be the best strategy because the instinct is for them to respond, “What is a Pooled Employer Plan?” The PEP then becomes this program that needs defining and discussing, when instead you could just say, “Would you rather not be the go-to person who is legally responsible for your retirement plan?” or variations on that theme, to which the answer is usually, “Of course I’d rather not be responsible. Tell me more.”

A PEP helps your business too

The reality is that pooled employer plans can help you build your business and serve more clients. You can save time when it comes to selling and servicing plans with different provisions, investment menus and administrators by servicing 25, $1 million dollar plans inside a single PEP. Further, given the aftermath of the global pandemic, financial literacy has become a hot button for plan participants. This provides you with vast cross-selling opportunities.

Selling a PEP

Understanding the benefits of a PEP is paramount to the sales process. Remember the key features of pooled employer plans:

• Administrative reduction through outsourcing.
• Economies of scale through group buying power.
• Fiduciary risk mitigation and risk offset.
• Meaningful cost displacement and value when it comes to audit fees, participant notice distribution, compliance testing, and document preparation expenses, to name a few.
• The ability to have multiple fiduciaries and experts serving the plan [e.g., PPP, 3(16) fiduciaries, 3(21) or 3(38) fiduciaries, TPAs, etc.].
• Payroll integration to increase productivity and streamline manual efforts.

This will help you answer the question “what is a pooled employer plan” in a way that focuses on plan design rather than on a product.

Establishing targeting criteria can help you focus on certain markets. Some examples include:

• Existing assets: Find plans with existing assets with a certain minimum (e.g., $250,000, $1M or $10M.)
• Participant base: You may choose to focus on smaller companies or larger companies.
• Geography: Zip code targeting helps you concentrate the bulk of your clients in a tight geographic territory and can make servicing them efficient.
• Specific Industry Code (SIC): Targeting by SIC is helpful if you have special knowledge of firms such as law firms, physician groups or hardware firms.
• Plan problems: Target plans that may have a problem such as audit failures, high fees or plan design issues.
• SEP-IRAs and SIMPLE-IRAs: These plans can have downsides compared to a 401(k) plan including expense (e.g., immediate vesting requirements, etc.), lack of protection from creditors and flexibility of contributions. Conducting up-front research can help you home in on targets and perfect your time and selling effectiveness.
• If you do business in a state that has a state-mandated retirement program, the PEP is a great option for employers that have to start a plan but don’t want to be forced into the state plan. And they have the option to take advantage of the tax credits now offered to start-up plans!

Ameritas has vast resources to help you attract employers, including co-branded marketing materials, webinars to highlight the benefits of adopting under a group plan, and everything in between. Rely on your Ameritas sales team to support your efforts in the pooled employer plan market.

Interested in working with Ameritas? Connect with us today.

Sources and References:
¹EBSA Fact Sheet (dol.gov)