What Is a Pooled Employer Plan and How Does It Work?

A Pooled Employer Plan (PEP) allows unrelated employers to participate in a single, comprehensive retirement plan. It emerged from the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which aimed to broaden access to employer-sponsored retirement benefits. PEPs became available in 2021, providing businesses a streamlined way to offer 401(k) plans. The primary goal of a PEP is to simplify administration and reduce fiduciary responsibilities typically associated with sponsoring a standalone retirement plan.

Defining a Pooled Employer Plan

A Pooled Employer Plan is a defined contribution retirement plan, typically a 401(k), that allows multiple, unrelated employers to join together under one plan. The concept of “pooled” refers to these employers combining their resources and employees into a single retirement plan overseen by a professional third party. Unlike traditional Multiple Employer Plans (MEPs), PEPs do not require participating employers to have a common business relationship, such as being in the same industry or association. This distinction makes PEPs accessible to a broader range of businesses.

A PEP is treated as a single plan under the Employee Retirement Income Security Act (ERISA) and Internal Revenue Service (IRS) rules. This means the entire plan operates under a single plan document and generally requires only one annual audit, rather than each participating employer needing a separate audit. This consolidation helps reduce administrative burdens and potentially lower costs for individual employers. The unified nature of a PEP simplifies compliance and oversight compared to managing individual retirement plans.

Key Participants and Their Roles

A Pooled Employer Plan relies on several distinct participants, each with specific responsibilities. Central to the PEP structure is the Pooled Plan Provider (PPP), who establishes and maintains the plan. The PPP acts as the named fiduciary for the PEP, taking on significant administrative duties, including ensuring tax-favored treatment and ERISA compliance. This entity is also responsible for selecting and monitoring other service providers.

Beyond the PPP, other fiduciaries play specialized roles within a PEP. An ERISA 3(16) fiduciary is responsible for the day-to-day administration of the plan, often including participant communications, processing contributions, and ensuring compliance with operational requirements. While the PPP frequently serves as the 3(16) fiduciary, this role can sometimes be delegated. The ERISA 3(38) investment fiduciary is tasked with the selection, monitoring, and replacement of the plan’s investment options. This role involves making decisions about the fund lineup, ensuring prudence and diversification.

Supporting these fiduciary roles are the recordkeeper and Third-Party Administrator (TPA). The recordkeeper maintains individual participant accounts, tracks contributions, investments, and distributions, and provides statements to employees. The TPA assists with administrative functions, such as compliance testing, preparing annual reports like Form 5500, and ensuring adherence to IRS and Department of Labor (DOL) regulations. The collaboration among these parties allows participating employers to offload many complex responsibilities of retirement plan management.

How Employers Join and Operate a PEP

Employers join a Pooled Employer Plan by signing an adoption agreement with the Pooled Plan Provider (PPP). This agreement outlines the employer’s participation terms and their limited responsibilities. A primary advantage for participating employers is the significant reduction in administrative and fiduciary burdens compared to a traditional single-employer plan. The PPP assumes most of the oversight, governance, and compliance tasks, which benefits smaller businesses lacking in-house resources or expertise.

While much responsibility shifts to the PPP, participating employers still retain certain obligations. They remain responsible for timely remitting employee and employer contributions. Employers must also provide accurate employee data to the PPP and other service providers. Employers also maintain a fiduciary responsibility to prudently select and monitor their PPP. This oversight ensures the PPP acts in the best interests of participants.

Regulatory Framework and Protections

The foundation for Pooled Employer Plans was established by the SECURE Act of 2019, which modified ERISA and the Internal Revenue Code to specifically authorize their creation. This legislation aimed to expand retirement plan coverage by making it easier for employers to offer benefits. A significant protection introduced by the SECURE Act for PEPs is the modification of the “one bad apple” rule. In traditional Multiple Employer Plans, one participating employer’s non-compliance could jeopardize the entire plan’s tax-qualified status.

For PEPs, the SECURE Act requires the PPP to have a process to remove a non-compliant employer from the plan, rather than disqualifying the entire arrangement. This rule provides a safeguard, protecting other participating employers from an unrelated entity’s actions. To operate a PEP, a Pooled Plan Provider must register with the Department of Labor (DOL) and the Department of the Treasury (IRS) before commencing operations. This registration ensures PPPs meet regulatory standards and are subject to federal oversight.

Oversight by regulatory bodies like the DOL and IRS ensures PEP integrity and security. PEPs with 100 or more participants are generally subject to an annual audit conducted at the plan level, not for each individual employer. This helps maintain financial transparency. This regulatory framework, including registration and audit requirements, protects plan participants and ensures PEPs operate in compliance with federal retirement laws.