Last December before panic set in, Congress passed the SECURE Act. Beginning in 2021, banks, insurance companies, and other financial institutions may begin offering Pooled Employer Plans (PEPs). A PEP is a 401(k) or profit-sharing plan with multiple, unrelated employers. Assets are held by one institutional trustee and the plan has one fiduciary administrator. The noble idea behind PEPs is to expand retirement plan coverage by making it easier for small and mid-size employers to adopt 401(k) plans and providing some measure of fiduciary support and protection. Now is a good time to start thinking about whether a PEP is a good idea for your company. When all the details and requirements are considered, will a PEP meet your company’s retirement plan needs?
PEPs offer more limited options for plan design with fiduciary administration and a single Form 5500 filing for all participating employers. They may provide access to institutional-grade investments for smaller plans. For investment providers, PEPs may be an opportunity to roll up assets of many smaller retirement plans into one big investment pool. Plan sponsors still retain some fiduciary responsibility for retirement plans under the PEP model. It remains to be seen whether PEPs will offer the same level of customer service provided by a TPA and what fees will be charged to join a PEP.
Companies considering PEPs need to do their due diligence. PEPs may be a good fit for some companies, but there are many issues to consider ranging from the services provided and fees to investment options, oversight, and co-fiduciary responsibility. In upcoming articles, we will walk through the details and issues to give you the information you need to evaluate whether it makes sense for your company to join a PEP.