As a business owner, you shoulder a tremendous number of responsibilities to ensure you are offering a competitive benefits package to your employees. Now, thanks to a 401(k) alternative known as a “PEP” or “Pooled Employer Plan,” you can focus on your core business activities while shifting the responsibilities and liabilities of administering a plan to an outside fiduciary.

PEPs emerged from the SECURE Act enacted in December 2019, allowing unrelated businesses to join together in a single retirement plan, leveraging economies of scale to provide a robust, cost-efficient, and time-saving option for offering retirement benefits. Despite the pooled structure, each participating employer in a PEP can maintain individual plan provisions and conduct separate year-end compliance testing, similar to operating their own standalone 401(k) plan.

Here are a few potential advantages and disadvantages to consider:

Advantages

• Cost savings with additional benefits and services from economies of scale
• Reduced administrative burden — administrative duties are outsourced to the Pooled Plan Provider to offload administrative responsibilities like:
  • Determining eligibility and distributing required materials
  • Approving distributions and loans
  • Proactively do termination small balance force-out distributions
  • Signing plan documents and Form 5500
• Fiduciary support — a 3(16) plan administrator and 3(38) investment fiduciary are appointed to take the risk associated with the plan management and investment decisions for the plan
• Flexible plan design — RKL Private Wealth’s PEP has three levels of plan design flexibility
• Audit at the pooled employer plan level, no single employer audit which can be a significant cost savings for large plans
• Dedicated plan representative

Disadvantages

• Less control — employers have less control over the plan design and investment selection
• Limited plan design — some basic plan features need to be the same across all plans
• Lack of established track record — PEPs are relatively new, and some employers may be cautious about joining

PEPs offer a variety of options for a customized approach, versus “one-size-fits-all.” Complex plans are typically not a fit in a PEP program. As an organization’s needs change, employers have the option to opt out of a PEP or into a different PEP providing you the flexibility as your business needs change over time.

For employers that currently do not have a retirement plan in place, there are new tax credits available from the passage of the SECURE Act 2.0, which expanded on the first SECURE Act to help make starting up a 401(k) plan affordable. There are three different new tax credits depending on your plan design, including a start-up cost credit to offset the employers’ costs, an automatic enrollment credit, and an employer contribution credit. Learn more from the Internal Revenue Service.

Employers should evaluate their specific needs, goals for offering the retirement plan and the demographics of their workforce when considering a Pooled Employer Plan. Consulting a Retirement Plan advisor can help determine if a PEP is the right.

At RKL Private Wealth, our Pooled Employer Plan program is different than most with plan flexibility and a dedicated RKL representative. We’re also here for employer support and to help them save for retirement.

Contact RKL to discuss your organization’s retirement plan, PEP plans, or new tax credits.

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Deborah J. Lander is a Retirement Plan Advisor with RKL Wealth Management. She specializes in relationship management, product management, plan design, fiduciary duties, and investments for retirement plans.