What Is a Pooled Employer Plan (PEP) for Retirement?

For many employers, especially small and medium-sized businesses, offering a retirement savings plan can be a complex undertaking. The administrative burdens, compliance requirements, and inherent financial responsibilities often present significant barriers to establishing such benefits for employees. This situation has left a substantial portion of the workforce without access to a workplace retirement plan. Pooled Employer Plans (PEPs) represent a modern approach to addressing these challenges, designed to simplify the process and expand access to retirement savings for a broader range of American workers.

Defining Pooled Employer Plans

A Pooled Employer Plan (PEP) is a type of defined contribution retirement plan, similar to a 401(k), that allows multiple employers who are not otherwise related to participate in a single, shared plan. This structure enables unrelated businesses of any size to join forces, providing a unified retirement savings vehicle for their employees. PEPs were established by the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

A central component of a PEP is the Pooled Plan Provider (PPP), which acts as the lead fiduciary and administrator for the entire plan. The PPP is responsible for most of the administrative and compliance duties, including maintaining the single plan document that covers all participating employers. This arrangement allows the PPP to manage the overall plan, from investment selection to recordkeeping, on behalf of all employers.

PEPs leverage economies of scale; the combined assets and participant numbers from multiple employers lead to more streamlined administration and oversight. Unlike traditional multiple employer plans (MEPs) that often required employers to share a common industry or association, PEPs eliminate this “commonality” requirement.

PEPs also address the “one bad apple” rule for MEPs, where the compliance failure of one employer could jeopardize the entire plan. Under the SECURE Act, PEPs are structured to protect compliant employers from such risks, ensuring that the actions of one participating employer do not adversely affect others in the pool. This protective feature enhances the stability and attractiveness of PEPs for businesses seeking to offer retirement benefits.

Establishing a Pooled Employer Plan

Employers considering a Pooled Employer Plan begin by engaging with a prospective Pooled Plan Provider (PPP). This involves understanding the PPP’s services and how their PEP meets employer needs. Employers will need to gather and provide essential company details, including their legal name, tax identification number, and business address.

Accurate employee data is also a key requirement for the onboarding process. This information typically includes employee names, social security numbers, dates of hire, compensation details, and eligibility information for plan participation. The PPP uses this data to set up employee accounts within the master plan and ensure proper enrollment procedures are followed.

The employer’s role involves selecting a PEP that aligns with their organizational goals and workforce demographics. While the PPP handles the broader plan setup, the employer remains responsible for making informed decisions about the overall suitability of the PEP. This includes reviewing the PPP’s credentials, experience, and the scope of services provided.

Once the employer has selected a PPP and submitted the necessary information, the PPP integrates the employer’s specific plan design preferences into the overarching PEP framework. This preparatory work ensures that the employer’s employees are properly enrolled and that the plan is ready for ongoing operations.

Ongoing Administration and Compliance

After an employer joins a Pooled Employer Plan, the daily and annual responsibilities shift significantly, with the Pooled Plan Provider (PPP) taking on most of the administrative and compliance duties. The PPP is typically responsible for maintaining participant records, monitoring investments, and processing distributions and loans according to plan rules. This centralized management aims to streamline operations for all participating employers.

Participating employers retain specific, ongoing responsibilities, primarily focused on providing accurate and timely data to the PPP. This includes submitting payroll data, which is essential for calculating contributions and ensuring proper allocation to employee accounts. Employers must also communicate employee changes, such as new hires, terminations, or changes in eligibility status, to the PPP.

Annual reporting requirements, such as the Form 5500, are generally handled by the PPP for the entire pooled plan. Unlike single-employer plans where each employer files their own Form 5500, a PEP files a single, consolidated Form 5500 that covers all participating employers. This filing must include an attachment listing all employers within the plan and confirm the PPP’s registration with the Department of Labor (DOL).

Employers maintain an ongoing fiduciary responsibility to prudently monitor the PPP and the overall operation of the PEP. This includes periodically reviewing the fees charged, assessing the quality of services provided, and ensuring the PPP continues to act in the best interests of the plan participants. Regular oversight ensures the plan remains compliant with applicable regulations and effectively serves its purpose.