Pooled Employer Plans (PEPs) were created by the SECURE Act, enacted in 2019. This new plan setup is meant to address certain issues in the oversight and maintenance of Multiple Employer Plans (MEPs) and traditional single employer defined contribution plans. Unlike MEPs, PEPs permit unrelated companies with no business commonalities to partake in a single retirement plan. Instead of being sponsored by the employer, a PEP is sponsored by a third-party “pooled plan provider”, a new type of plan fiduciary created by the SECURE Act. PEPs also effectively eliminate the “one bad apple rule”, which meant that a MEP could previously be disqualified if one of the participating companies violated ERISA requirements. This is not the case with PEPs.

There are several benefits directly seen by participating employers and participants in PEPs. One major benefit is decreased risk for participating employers, as under a PEP, the employer shifts fiduciary duties to the pooled plan provider. As the named fiduciary of the plan, the pooled plan provider will take on administrative duties, file the participating employers’ Form 5500, and be responsible for plan compliance, including responding to DOL or IRS investigations. This shift of fiduciary duties helps to limit exposure to lawsuits, as a large amount of ERISA litigation is related to companies having insufficient plan oversight. PEPs will also generally have lower administrative costs, and may bundle multiple services (such as recordkeeping, custodian and advisor services) to offer economies of scale. The companies who participate in a PEP will retain certain responsibilities, including providing complete and correct plan information to the pooled plan provider, and remitting contributions timely. Finally, the SECURE Act offers certain tax incentives to employers to help offset the cost of starting up a PEP.

PEPs can be advantageous in eliminating some of the administrative burden put on plan sponsors and employers. However, they are not right for everyone. If you would like more information on PEPs, please contact your Dopkins representative.

For more information, please contact Chrissy Schmitt at cschmitt@dopkins.com.

About the Author

Christine D. Schmitt CPA

Chrissy performs audit and review services for industries ranging from Non for profit to manufacturing. She is a graduate of the Amherst Chamber of Commerce Emerging Business Leaders program.