Pooled Employer Plans: A guide to the Pros and Cons
As the retirement landscape evolves, businesses are exploring innovative ways to offer competitive benefits while managing costs and administrative responsibilities. Enter the Pooled Employer Plan (PEP)—a relatively new solution gaining traction among small and medium-sized businesses.
But is a PEP the right fit for your company? In this guide, we’ll explore the advantages and disadvantages of adopting a Pooled Employer Plan and how it could impact your business and employees.
What is a Pooled Employer Plan (PEP)?
Introduced under the SECURE Act of 2019, a PEP is a type of multiple employer plan (MEP) that allows unrelated employers to participate in a single retirement plan, managed by a Pooled Plan Provider (PPP). This structure reduces costs, simplifies administration, and increases access to retirement savings options for smaller businesses.
While employers retain some fiduciary responsibilities, PEPs streamline plan management and provide cost-saving opportunities through shared resources.
The Pros of Pooled Employer Plans
1. Cost Savings
PEPs leverage economies of scale to lower the costs of administering a retirement plan. Sharing administrative expenses makes PEPs particularly attractive for small businesses with limited budgets.
2. Reduced Administrative Burden
Managing a retirement plan requires significant time and effort. With a PEP, the PPP handles many administrative tasks, such as:
- Annual filings (e.g., Form 5500).
- Participant disclosures.
- Compliance testing.
This allows business owners to focus on growth rather than regulatory details.
3. Enhanced Retirement Plan Access for Employees
Smaller businesses often struggle to offer competitive benefits due to cost constraints. PEPs lower this barrier, enabling more companies to provide retirement savings options, improving employee retention and satisfaction.
4. Simplified Fiduciary Responsibility
Employers can outsource much of their fiduciary responsibility to the PPP, reducing liability and ensuring professional oversight of the plan.
5. Attractiveness to Employees
In a competitive job market, retirement benefits are a top priority for employees. A well-managed PEP can demonstrate your company’s commitment to their financial future, helping you attract and retain top talent.
The Cons of Pooled Employer Plans
1. Limited Customization
PEPs are designed to accommodate multiple employers, which can limit customization options. Businesses with unique workforce demographics or specific benefit strategies may find standalone plans more suitable.
2. Shared Decision-Making
Employers participating in a PEP must align with decisions made by the PPP or other employers, potentially compromising on plan features or investment options.
3. Fiduciary Responsibility Isn’t Fully Eliminated
While the PPP handles much of the fiduciary burden, employers are still responsible for monitoring the provider’s performance to ensure the plan serves participants’ best interests.
4. Potential for Higher Costs in Some Cases
For businesses with larger employee bases, the cost savings of a PEP may be less significant. In some cases, standalone plans may offer more competitive pricing.
5. New Regulatory Landscape
As a relatively new solution, PEPs exist within a regulatory framework that is still developing. Employers must stay informed about changes that could affect their responsibilities or costs.
Is a PEP Right for Your Business?
PEPs are a compelling option for small and medium-sized businesses seeking cost-effective, easy-to-manage retirement benefits. However, they may not be the best fit for every organization. Consider these factors when evaluating your options:
- The size of your workforce.
- Your budget for employee benefits.
- The level of customization your business requires.
- Your comfort with shared fiduciary responsibilities.
Maxus Plan Solutions: Your Partner in Retirement Planning
Navigating the complexities of retirement plans doesn’t have to be overwhelming. At Maxus Plan Solutions, we specialize in designing and managing retirement plans aligning with your business’s unique needs.
Whether you’re considering a PEP or a standalone 401(k), we offer:
- Expert Guidance: Navigate compliance and fiduciary responsibilities with confidence.
- Cost-Effective Solutions: Maximize your benefits budget while minimizing administrative overhead.
- Comprehensive Plan Administration: Let us handle the details so you can focus on running your business.
Our goal is to help you create a retirement plan that supports employee satisfaction, attracts top talent, and drives long-term success.
Final thoughts
PEPs provide a valuable opportunity for businesses to offer competitive retirement benefits at a reduced cost. However, like any option, they come with trade-offs. By understanding the pros and cons, you can make an informed decision that aligns with your company’s goals.
Ready to explore your retirement plan options? Contact Maxus Plan Solutions today to learn how we can help your business thrive.