With the passing of 2020’s SECURE Act came the birth of the Pooled Employer Plan (PEP) and some significant relief to employers who either currently offer the employees a 401(k) or have been thinking about starting one. Here are 5 things to know about PEPs and why they might be right for your business.
- A PEP allows a business owner to transfer the fiduciary responsibility and liability that comes with administering a 401(k) plan to a professional fiduciary, known as a Pooled Plan Provider (PPP). The PPP becomes designated in the plan document as the sponsor, plan administrator, named fiduciary and person/entity responsible for performing all administrative duties (except payroll functions).
- By joining a pooled plan, smaller plans will now be able to participate in the competitive pricing previously only available to individual large 401(k) plans by creating scale.
- The PEP sponsor will file a single Form 5500 and submit a single plan audit. Audits will be required for PEPs with 1,000 participants or any participating employer with at least 100 participants.
- The SECURE Act created a 3-year tax credit of up to $5,000 per year to reimburse costs associated with starting a retirement plan. Employers can claim another $500 for adding an auto-enrollment feature to their 401(k) plan.
- Existing 401(k) plans can join a PEP and keep their plan design.
These are deliberate steps taken by Congress to help employers manage their organization’s retirement plans and help address the retirement preparedness crisis in the United States. It is still early in the age of PEPs but this could mark the beginning of a complete change in how employers think about and manage retirement plan benefits.