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The Pooled Employer 401(k) Plan (PEP): 5 Big Benefits for Your Small Business

  • Employee Benefits
  • Article
  • 6 min. Read
  • Last Updated: 12/11/2023

employee reviewing their pep

Table of Contents

Many retirement experts are calling the Pooled Employer Plan (PEP) the most revolutionary change to retirement since the 401(k) was launched in the 1970s. The PEP has the potential to be a game changer for millions of Americans who currently don't have a way to save for retirement.

According to the U.S. Bureau of Labor Statistics, 94% of union workers in private industry have access to retirement benefits but the percentage is much lower for private-industry nonunion workers (68%)^. Businesses with under 100 employees are less likely to offer retirement plans than larger companies. The Department of Labor hopes to reverse this trend with the PEP. It levels the playing field by giving smaller businesses advantages that are typically reserved for large companies.

What is a Pooled Employer 401(k) Plan?

A Pooled Employer Plan is a multiple-employer plan designed to take many administrative burdens off employers' hands. Traditionally, businesses in multiple employer plans had to be related by industry or association (such as a trade group). This made it easier for them to share a single plan and not have to file separate forms or do individual audits. Now, under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, Pooled Employer Plans do not require participating employers to be related, and a professional Pooled Plan Provider (P3) takes on most administrative responsibilities. This alleviates the burden of plan management and decreases liability, making it more attractive to smaller businesses.

Who qualifies for a PEP?

In general, a PEP is two or more unrelated small businesses that have come together, regardless of where they operate in the U.S. or their trade (per the SECURE Act). This setup is particularly advantageous for small to mid-size businesses. Keep in mind that providers may have specific criteria and PEP eligibility requirements that businesses must meet to join the plan.

Can I customize my PEP?

Some PEP providers offer options for plan design features such as eligibility and vesting alternatives, optional matching contributions, a safe harbor provision, Roth and pretax contributions for participants, auto-enrollment and auto increase, and profit-sharing options. 

Why should I get a PEP for my business?

A Pooled Employer Plan is a great solution if you don't currently offer a retirement plan but have considered doing so, or have a plan and are looking to significantly reduce your involvement with plan administration. It's a professionally administered retirement plan that includes reduced liability, simplified plan administration for employers, and potential savings due to the pooling of resources. Additionally, you can integrate payroll with your retirement plan to achieve even higher levels of efficiency, accuracy, and cost savings with this employee benefit.

5 biggest benefits of a PEP

Small businesses stand to benefit significantly from a Pooled Employer Plan, particularly if they have previously experienced barriers to entry with establishing a traditional 401(k) plan in the past.

Potential administrative cost savings for employers

In a November 2023 article on, small businesses surveyed listed cost, complexity, and business stability as their main reasons for not offering a retirement plan to employees. Also, businesses with fewer than 50 employees said they were unaware of the key provisions in SECURE Act 2.0 that they could take advantage of. By pooling assets into a single, large plan, employers may save on administrative costs and achieve economies of scale.

Less fiduciary risk

Because the pooled plan provider (P3) assumes most fiduciary responsibilities, employers are not subject to the same level of liability. However, to be sure the plan is problem-free, it's important to choose a P3 that will maintain professional standards such as acting in the best interests of the participants, meeting plan deadlines, and carrying out general duties.

What the Pooled Plan Provider does for you

Many businesses don't have the time, technology, or infrastructure to carry out the duties of retirement administration. The Pew Charitable Trust study found that lack of administrative resources was the second biggest obstacle to offering employees a quality retirement plan.

The PEP directly addresses this challenge. The plan is a "do it for you" approach where the P3 manages administration, monitoring, and reporting. Employers don't have to worry about plan setup, coordinating with vendors, filing most forms, employee enrollment, or any of the many complexities of 401(k) plan management. Although the plan is managed by the P3, employers still have control over things like defining matching levels and contribution limits, and ensuring the plan is performing to meet employees' needs. Some employers may prefer more hands-on involvement, but for those who want a plan that can practically run itself, a PEP is ideal.

Tax credit opportunities

To offset startup costs, the SECURE Act provides that eligible employers may be able to receive up to $5,000 in tax credits annually, with an additional $500 tax credit available for using automatic enrollment in the plan, for the first three years that the plan is effective. While this can apply to any new 401(k), it is particularly powerful when applied to the already economical PEP.

Under SECURE Act 2.0, additional credits such as the employer contribution credit is available. This credit generally is a percentage of the amount contributed by the employer, up to $1,000 per employee. It is limited to employers with 50 or fewer employees and reduced for employers with between 51 and 100 employees.

Your employees will like the plan, too

Last but not least, the reason you're doing this in the first place — your employees. As a result of the COVID-19 pandemic, employees need stability and to feel that their future is secure. As their employer, you can help provide them with peace of mind by making a high-quality retirement plan such as the popular 401(k) more accessible and easy to afford.

Look for a P3 that provides your employees with tools to help them manage their plan. This may include online auto-enrollment, or an employee portal where they can check their retirement readiness and manage their account.

Financial advisors and CPAs will also enjoy the benefits of being able to recommend a simpler plan to clients of all sizes. The PEP is a win-win for employers, employees and their families, and professional advisors who want to help their clients set up a high-quality retirement plan.

What is the difference between a PEP and other 401(k) plans?

While a PEP maintains two or more businesses' 401(k) plans, there are distinct attributes between a Pooled Employer Plan and a 401(k) plan offered by a single employer. In general, a 401(k) gives you more control, but it can be more complex to administer and requires more work from you as the employer. Alternatively, a P3 administers the PEP, so you have less control but also reduced cost and liability. The table below provides some additional comparisons.

Pooled Employer Plan Single-employer 401(k): traditional 401(k) safe harbor 401(k), Roth 401(k), etc.
Reduced administrative burden May include recordkeeping, third-party administration (TPA), investment management, and other fees
Plan Setup  
The P3 contracts with vendors and investment managers, significantly reducing employer's plan setup responsibilities As plan sponsor, the employer handles plan design, choosing investments, and coordinating with vendors
Risk and Responsibilities  
As the plan sponsor, the P3 relieves the employer of significant fiduciary liability. Employer is still responsible for making certain decisions. Employer acts as plan sponsor, taking on more fiduciary risk and responsibilities
P3 assumes responsibility for audits Employer oversees and pays for audits
Tax Credits  
Eligible businesses may receive up to $16,500 in tax credits over 3 years for new plans that includes $500 per year for implementing auto-enrollment. There also is a potential employer contribution credit of $1,000 (maximum) per employee* Eligible businesses may receive up to $16,500 in tax credits over 3 years for new plans that includes $500 per year for implementing auto-enrollment. There also is a potential employer contribution credit of $1,000 (maximum) per employee*

*Up to $1,000 per year per employee with employer contributions for businesses with 50 or fewer employees. The additional employer contribution tax credit is reduced for employers with 51-100 employees.

With so many benefits of a PEP, it's a great time to set up a plan with a leading provider and take advantage of the opportunities for you and your employees. Learn more about the range of retirement services available today that are built specifically for small and mid-size businesses.

^- U.S. Bureau of Labor Statistics, Employee Benefits in the U.S., March 2023


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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