The Paychex Pooled Employer 401(k) Plan
The Pooled Employer 401(k) Plan (PEP) allows employers of any size to pool assets into a plan professionally administered by Paychex. The benefits? Simplified administration and enrollment, reduced liability, and the potential for savings.
How Does a Pooled Employer 401(k) Plan (PEP) Work?
Established under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the PEP is a multiple employer plan with a difference. Historically, businesses in this type of plan were required to be part of the same industry or association (such as a trade group). Now, unrelated employers can pool their assets into a single, larger plan administered by a Pooled Plan Provider. This makes it simpler to administer and reduces liability.
For more details about PEP, read our article.
Advantages of a Pooled Employer 401(k) Plan (PEP)
Paychex Makes It Simple
As the Pooled Plan Provider, Paychex oversees plan setup, implementation, monitoring, enrollment, and other duties. Some employers may prefer more hands-on involvement, but for those who want a simple 401(k) plan that requires little administration, the Paychex PEP is ideal.
Employers Have Less Risk
Because Paychex handles a significant amount of the plan responsibilities, PEP participating employers are not subject to the same level of liability. As the nation's number one 401(k) plan provider1, we maintain the highest professional standards in administering the plan.
Tax Credits and Potential Savings
By pooling assets into a single large plan, employers may be able to streamline administrative costs and take advantage of economies of scale. Plus, if you’re starting a new plan, your business may be eligible to have 100% of your startup costs covered by the SECURE Act 2.0 small business tax credits. That’s a savings of up to $16,500 over 3 years. There is also the possibility of up to an additional $1,000 credit/employee per year with employer contributions.2 While this can apply to any new 401(k) plan, it is particularly powerful when applied to the already economical PEP.
Attract and Retain Employees
Studies show that retirement benefits have a major influence on whether employees decide to join a new company or stay with their current one. According to one Paychex survey, 94% of employees expressed interest in 401(k) plans, second only to healthcare benefits.3
Support for You and Your Employees
Paychex has an array of apps and tools that allow you to check retirement services information in just a few clicks. We can provide you with online enrollment tools, an account management portal, and mobile apps where employees can check their progress. We also have a team of highly trained retirement specialists on call to help if you need it.
"If I went with the state program in (California), the amount of administrative work I would have had to figure out was huge because we have high turnover (in the restaurant business) .... With the Pooled Employer Plan, the cost was affordable and everything, every detail, was explained to me by Paychex."
Which Retirement Plan Fits Your Business Better?
Compare the highlights and features of the Pooled Employer 401(k) Plan vs. a traditional 401(k) plan. Each are excellent options for you and your employees to save for retirement and save on taxes. A traditional 401(k) with your choice of additional services gives you more flexibility and control, but it can be costlier and entail more work on your part. The PEP has its own plan administrator, so you can enjoy less effort and liability, but you’ll have a little less flexibility and control.
PEP or Traditional 401(k)
Pooled Employer 401(k) Plan
Less Work and Lower Cost
Traditional 401(k)
More Control
Potentially reduced administrative costs.
Economies of scale.
Potentially higher administration costs than a PEP.
The Pooled Plan Provider (P3) significantly reduces plan set-up responsibilities, including contracting with vendors and the investment manager.
As plan sponsor, the employer is involved in set-up such as plan design, choosing investments, and coordinating with vendors.
The P3 is the Plan Sponsor and relieves the employer of significant fiduciary liability.
The employer has more control but also more fiduciary risk.
The P3 assumes responsibility for audits, potentially saving employers $10,000-$20,000.
The employer of a large plan must oversee and pay for costly audits.
New plans may be eligible for up to $16,500 in tax credits per year for 3 years and the possibility of an additional $1,000/employee per year with employer matching2
New plans may be eligible for up to $16,500 in tax credits per year for 3 years and the possibility of an additional $1,000/employee per year with employer matching2
Maximize Savings With PEPs and the SECURE Act
To expand retirement access, the SECURE Act created PEPs to allow employers to participate in a single retirement plan. This allows for less risk, increased employee retention, and reduced administrative costs. Plus, there are potential tax credits to gain when starting a new plan.4
Let's See Your Potential SECURE Act Savings
You Could Be Eligible for in Savings Over 5 Years!
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Total SECURE Act Credits | $0 | $0 | $0 | $0 | $0 |
| Plan Start-up Credits | $0 | $0 | $0 | $0 | $0 |
| Auto-Enrollment Credits | $0 | $0 | $0 | $0 | $0 |
| Employer Contribution/Match Credits | $0 | $0 | $0 | $0 | $0 |
4The interactive estimator and other information on this website, including, without limitation, information derived from using the interactive estimator, are presented for general information purposes only and are not, and should not be considered, financial, legal, tax, accounting, or other advice. You should not consider the interactive estimator or any other information on this website to guarantee any particular outcome or as a substitute for financial, legal, tax, accounting, or other advice in which the facts and circumstances of your company’s particular situation can be considered. We encourage you to consult your own financial, legal, tax, accounting, or other advisors as it pertains to your company’s own unique situation and to obtain answers to any questions you may have. Paychex shall not be responsible or liable for any action, position, or reliance based on or in connection with the interactive estimator or any information contained herein.
Retirement Plan Resources
Which 401(k) Plan Meets Your Needs?
A Paychex representative can help you determine which 401(k) plan is the best fit for your business. Let's discuss your level of comfort with plan responsibilities, how much administration you want to take on, and how a PEP can potentially save your business money on administrative costs.
Frequently Asked Questions
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Is the Pooled Employer Plan (PEP) a good retirement plan for my business?
Is the Pooled Employer Plan (PEP) a good retirement plan for my business?
The PEP can be a great solution for small to mid-sized businesses that don't currently offer a retirement plan. 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. For those currently offering a retirement plan, this is a great solution that significantly reduces an employer's involvement with plan administration. The PEP also satisfies the retirement plan requirement in states that have this mandate.
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I’ve wanted to start a retirement plan for my business and employees, but it seems too complicated. How will the PEP be different?
I’ve wanted to start a retirement plan for my business and employees, but it seems too complicated. How will the PEP be different?
Owners are busy running their business, so they may find it hard to devote time and energy to the complexities of 401(k) compliance and plan administration. The Paychex PEP significantly relieves businesses of this burden by providing a professionally administered and cost-effective retirement plan. As the formal plan administrator, we bear the bulk of the fiduciary liability for administering the plan.
By integrating payroll with your retirement plan, Paychex helps employers achieve an even higher level of efficiency. Our integrated payroll and retirement solution simplifies administration, helps to reduce costs, and can increase reporting accuracy.
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Will my business be eligible for tax credits for adopting the PEP?
Will my business be eligible for tax credits for adopting the PEP?
If you’re starting a new plan, your business may be eligible to have 100% of your startup costs covered by SECURE Act small business tax credits. That’s a savings of up to $16,500 over three years. There is also the possibility of an additional $1,000 credit/employee per year over five years with employer contributions2.
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As the Pooled Plan Provider (P3), what will Paychex do for me compared to other retirement providers?
As the Pooled Plan Provider (P3), what will Paychex do for me compared to other retirement providers?
The PEP more fully approaches a "do-it-for-me" solution, relieving participating employers of many of the administrative tasks that are associated with most retirement plans. We will handle the hiring and monitoring of the 3(38) investment manager, complete the plan's independent financial audit, file the Form 5500, collect and store participant beneficiary information, deliver required participant notices, handle the loan, hardship, distribution, and QDRO (qualified domestic relations order) requests, and much more. Taking these tasks off your plate will help you focus more on your business and less on administering this valuable employee benefit.
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If I want to adopt the PEP as a participating employer, how long will it take?
If I want to adopt the PEP as a participating employer, how long will it take?
The onboarding process takes approximately 35 days to complete, depending on timing of information exchanges and payroll process.
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Will participating in a PEP be expensive or difficult?
Will participating in a PEP be expensive or difficult?
Participating in a PEP is particularly beneficial since it's a cost-effective way to offer a retirement plan to employees. For example, if you’re starting a new plan, your business may be eligible to have 100% of your startup costs covered by SECURE Act small business tax credits. That’s a savings of up to $16,500 over three years. There is also the possibility of an additional $1,000 credit/employee per year with employer contributions2. And with a Paychex PEP, we help make the process of establishing a plan as straightforward as possible. You will need to take some initial actions to enable us to administer the plan and meet certain legal requirements, but our trained retirement specialists are available every step of the way — from initial plan setup to onboarding and ongoing plan maintenance — to provide assistance.
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What is the difference between a MEP and a PEP?
What is the difference between a MEP and a PEP?
A Multiple Employer Plan (MEP) is similar to a PEP, but it requires businesses participating in the plan to be related by industry or professional association. If one employer in the plan does not comply with plan regulations, it can disqualify the plan and put the other employers at risk. By allowing unrelated businesses to participate, the PEP opens up the playing field for smaller businesses not associated by industry. And since the Pooled Plan Provider takes on most fiduciary responsibilities, it reduces the risk to individual participating employers.
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What businesses are eligible for pooled employer 401(k) plans?
What businesses are eligible for pooled employer 401(k) plans?
Any size business may be eligible to join a Pooled Employer 401(k) Plan. Providers may have their own criteria for being accepted into the plan.
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If my business doesn’t utilize Paychex for its payroll processing, can we still adopt the Paychex PEP?
If my business doesn’t utilize Paychex for its payroll processing, can we still adopt the Paychex PEP?
If a customer does not have Paychex payroll, they cannot participate in the PEP at this time. As plan administrator on the PEP, Paychex has more fiduciary liability and risk that is dependent on accurate employee and payroll data, which is achieved by integrating your payroll with our Paychex Flex® solution. Contact a Paychex representative if you are interested in learning more about our payroll services.
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Is the Paychex PEP customizable for my business and employees’ specific needs?
Is the Paychex PEP customizable for my business and employees’ specific needs?
Yes, the Paychex PEP has the flexibility to meet our customers’ unique needs by providing options for plan design features such as eligibility and vesting alternatives, optional matching contributions, safe harbor provision, Roth and pretax contributions for participants, auto-enrollment and auto increase, and profit-sharing options.
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How do I get more information on the Paychex PEP?
How do I get more information on the Paychex PEP?