Managing employee-sponsored 401K plans is a responsibility you don't take lightly. Staying current on choices available, and the benefits and drawbacks of each help you make the best decision. Until 2021, companies could only benefit from pooling their plans if they belonged to the same industry or association, called a Multiple Employer Plan, or MEP. Under the SECURE Act, that rule has been relaxed, allowing Pooled Employee Plans, PEPs, for unrelated companies. Keep reading to learn all you need to know about PEPs.
MEPs vs PEPs
Multiple employer plans, or MEPs, have been around for some time. Created to make it easier for small businesses to provide retirement plans for their employees, MEPs spread the administrative and financial burden of maintaining tax-advantaged retirement accounts across multiple small businesses. They had a significant drawback that made them less appealing to many companies as they only are available to businesses that provide the same services or belong to the same industry.
The introduction of the SECURE Act, brought about significant changes to employer retirement plan options, allowing for pooled employer plans, or PEPs.
How PEPs Work
PEPs are an extension of MEPs and follow the same basic guideline. The main advantage of a PEP is that the companies involved do not need to be part of the same industry or association. Without this limitation in place, employers can buy into retirement plans as a larger pool.This allows employers to take advantage of lower costs and more options.
PEPs may seem like the clear winner, but they have a few drawbacks. They only offer 401(k) plans and they must be administered by a pooled plan advisor.
Pooled Plan Providers
The pooled plan provider that manages a PEP must register with both the Secretary of Labor and Treasury. They must also secure sponsorship from a financial services company.
The qualifications are more stringent for managing a PEP than a MEP, but that isn't necessarily bad. The larger pool lowers administrative costs and you can feel secure that your employees' retirements are in the hands of a qualified sponsor.
The Benefits of a PEP
A PEP gives companies greater buying power, allowing non-associated companies to join a single plan and the plan is administered by a professional provider. This brings considerable time and costs savings - time once required to manage a 401k plan - as well as the ability to achieve economies of scale in terms of access to investment products. There are also substantial benefits of outsourcing to a professional provider. You benefit from not only the expert knowledge and being relieved of running a retirement plan, but most importantly, the fiduciary and operational protection.
Looking for an effective approach for your employer-offered retirement plan? Contact us today. We can chat over the phone or set up a meeting to discuss options and answer questions with no obligation at 203-210-7814.