Skip to content
Launch Recite Me assistive technology

What is a Pooled Employer Plan?

We all understand the importance of saving for retirement, so why is it that millions of Americans are still without access to a retirement plan? The primary reason for most employers without a plan is the issue of cost. It's only natural that business owners also want to save money, right? However, for some, it may not be just about the cost. They may fear the liability and the administrative burden that comes with managing a retirement plan, which can distract from their other business pursuits.

But what if there was a way to eliminate the financial and administrative burdens associated with retirement plans?

Enter the newest qualified plan on the block - the Pooled Employer Plan (PEP). It has only been around for about two years, but it's already making waves. So, what makes the PEP so great? Let's dive in and find out.

401(k), the familiar term.

You're probably already familiar with the concept of a 401(k) - a retirement savings plan provided by employers to their employees. It allows employees to set aside a portion of their income for their retirement, with the contributions being invested in a range of financial instruments such as stocks, bonds, and securities. These contributions grow tax-free until they are withdrawn, typically during retirement.

So who's the new player on the retirement plan scene? Allow me to introduce you to the Pooled Employer Plan (PEP). This innovative plan, introduced in 2021, is similar to a 401(k) in that it's a retirement savings option offered by employers. However, what sets the PEP apart is its ability to bring together multiple unrelated employers under the same investment manager and plan sponsor. This means that employees from different companies can participate in a unified retirement plan structure while still having the flexibility to make unique plan design decisions. The result? Lower administrative costs and access to better investment options. It's the perfect solution for businesses looking to provide their employees with a top-notch retirement plan without breaking the bank.

But what about the administrative burden that comes with retirement plans? Don't they add more stress and responsibility for employers?

With traditional 401(k) plans, employers and employees are burdened with fiduciary responsibility. This means that the company is held liable for investment management, ensuring timely notices to employees, regular plan reviews, and staying up-to-date with ever-changing retirement plan legislation.

However, Pooled Employer Plans (PEPs) offer a refreshing solution. In a PEP, the fiduciary burden is shifted to the Plan Sponsor and Investment Manager. This means that employers no longer need to worry about fiduciary training or forming committees. Notices are conveniently sent electronically to all participants, regardless of their employer. And to top it off, rules and regulations are automatically administered at the plan sponsor level, ensuring a seamless process for all adopting employers.

In other words, PEPs take the administrative hassle out of retirement plans, allowing employers to focus on what they do best - running their business.

Let's talk about contribution limits, because we all want to know how much we can save, right? In 2023, both a PEP and a 401(k) allow employees to contribute up to $22,500 towards their retirement. That's a significant amount that can help secure a comfortable future. And for those who are 50 years or older, there's even more good news. They can make an additional catch-up contribution of up to $7,500, giving them the opportunity to turbocharge their savings. But that's not all. Employers can also contribute to their employees' 401(k) plan, up to a certain amount. It's a win-win situation that encourages both employees and employers to invest in their future.

While traditional workplace plans like the 401(k) have had their time in the spotlight, there's a new contender on the scene - the Pooled Employer Plan (PEP). Designed specifically for small to medium-sized businesses, the PEP aims to be the champion of low cost and low burden retirement plans. If you already have a qualified plan but want to reduce your liability, the Pooled Employer Plan has got you covered. And if the cost of traditional plans seemed prohibitive, the PEP offers the most competitive option to enter the exciting world of retirement savings. So, whether you're shopping for a new plan or looking for ways to make your life easier, the Pooled Employer Plan is the answer you've been waiting for.