There are a number of types of 401k employee retirement plans available to businesses of every size. That number just got a little bigger with the addition of a new employer plan called a Pooled Employer Plan (PEP). The SECURE Act made it possible for any business to join a PEP 401k beginning in 2021.
With its introduction, PEP has become one of the newest ways to reduce employer time and responsibilities. That said, it is vital to assess a change in employee retirement plans. Switching from a single-employer (SEP) 401k to a PEP could be the solution you need.
So, what exactly is a PEP, and how is it better than a SEP 401k?
What is a PEP?
A PEP is a new type of multiple employer plan that operates similarly to a traditional MEP. Following other MEPs, a PEP is:
- Available to many different employers
- Overseen by an MEP organizer, who serves as fiduciary
The prime difference between a PEP and a MEP is that PEP contributors do not need any commonality, such as participating in the same trade and geographic area. This stipulation in a regular MEP is a considerable detractor and barrier for those who can potentially join. A PEP 401k dissolves this barrier and allows any employer to participate without having any commonality with other contributors.
A PEP must have a plan sponsor, called a Pooled Plan Provider (PPP). The PEP plan document designates the PPP as a fiduciary ERISA (Employee Retirement Income Security Act) plan administrator. These PPPs also make sure the PEP meets tax and ERISA requirements. They must also be fidelity bonded and ensure any others acting as fiduciary also hold a fidelity bond.
Before PEPs, small and medium-sized businesses who didn’t qualify for a MEP, often offered their employees a SEP. There are many benefits to choosing a PEP over a SEP. These benefits include decreasing workload, lowering fees and the cost of audits, providing more options and limiting liability with more personalized service.
PEPs offer more choices because they are not geographically restricted or industry-dependent. They reduce workload and liabilities by shifting responsibility from an employer to the PPP, benefiting the employer twofold; by providing 3(38) protection and relieving the employer of administrative duties involved with maintaining the plan.
Migrating From a SEP to a PEP
The benefits of moving from a SEP 401k to a PEP 401k are worth it. Especially with our professional experience and guidance through every step of the process. We deliver a complete cost analysis and discuss all fees with you upfront. In addition, we provide personalized allocation and investment education to all company employees without any additional fees via an award-winning online tool. For more info, give us a call today at (203) 210-7814 or contact us online.