A pooled employer plan (PEP) is a type of defined contribution retirement plan made possible by the SECURE Act. PEPs, which first became available in 2021, aim to build economies of scale and reduce fiduciary risk by allowing unrelated employers of any size to participate in a single defined contribution plan. Participating employers retain the flexibility to select the key contribution and other design features that align with their business needs.
Pooled employer plans (PEPs) are the latest expansion in defined contribution plan outsourcing in the U.S., however pooled plan arrangements are already available across the globe in countries such as Australia, Belgium, Germany, South Africa, and the United Kingdom. In the U.S., PEPs are expected to reshape the way retirement benefits are delivered. They are already available to employers eligible to sponsor 401(k) plans and thanks to the SECURE 2.0 Act passed in 2022, they will soon become available to tax-exempt employers eligible to sponsor 403(b) plans.
A PEP is sponsored by a pooled plan provider (PPP), which is the named fiduciary and entity responsible for management and administration of the PEP. Participating employers shift nearly all oversight and governance to the PPP, including fiduciary responsibility for investments and plan administration. Employers maintain responsibility for selecting and monitoring the PPP. The PPP selects and monitors other service providers.
A: A PEP is a defined contribution retirement plan that allows unrelated employers of any size to participate in a single plan, rather than each company sponsoring its own 401(k) plan. A PEP provides access to the benefits that come with scale while retaining the flexibility for participating employers to select the key contribution and other design features that align with their business needs.
In a traditional 401(k) plan, the employer is the plan sponsor, has fiduciary responsibility, and full control of the plan. The sponsor has fiduciary responsibility for investments, managing third party relationships and administrative decisions. In a PEP, the employer transfers most of the responsibility to the pooled plan provider (PPP) and retains responsibility to select and monitor the PPP. The employer transfers fiduciary risk to the PPP, receives potential savings due to economies of scale, reduces time and effort spent on plan management, and provides participants with service enhancements.
A: PEPs can bring value to employees and employers:
PEPs deliver what matters – they change the 401(k) experience to create value for employees and employers.
A: Employers of any size, in any industry or trade that can sponsor a 401(k) may be able to join a PEP. PEPs do not require employers to be related or have a common business interest.
PEPs bring value and opportunity to employees and sponsors of all sizes through scale and fiduciary risk sharing. When reviewing PEP providers, you should consider what design and investment structure best aligns with your needs.
With the passage of SECURE 2.0, 403(b) plans can now join a PEP.
A: Compared to a traditional 401(k) plan, PEPs can bring significant value to both employees and employers. For employees, PEPs can lower costs, enhance the employee experience, and expand access to innovation – all supporting improved retirement outcome potential. For many employers, PEPs provide a way to offer market leading retirement benefits to their workforce with reduced fiduciary risk, less effort, lower costs, and more strategic focus.
A: In a PEP, unrelated employers join a plan that is sponsored by a pooled plan provider (PPP). The PPP is the named fiduciary and entity responsible for management and administration of the PEP. Accordingly, participating employers shift nearly all oversight and governance to the PPP, including fiduciary responsibility for investments and plan administration. Employers can leverage the scale of a PEP to reduce plan costs and lessen governance and administrative burden, while relying on the PPP to assume fiduciary responsibility for most plan activities.
A: A PEP is a type of MEP. Both allow more than one employer to participate in a single retirement plan. However, traditional MEPs are less prevalent in the retirement industry because they require employers to have a common business relationship. MEPs are also subject to a “one-bad-apple” rule that enables one noncompliant employer to disqualify the entire plan. PEPs do not have these two restrictions, making PEPs more appealing to some employers.