Nowadays, many individuals look for a competitive retirement plan when deciding on employment. In very large companies, it is often easier to provide retirement incentives that can appeal to most workers. However, for small businesses, it can be more difficult to provide a compelling retirement plan. This is where a PEP or pooled employer plan comes into play.
A PEP is a retirement plan that enables multiple businesses to join a single plan that in turn is managed by a Pool Plan Provider or PPP. This type of plan is designed to appeal to small businesses who have 100 employees or fewer. The PEP essentially provides the same benefits as a typical 401k utilized by a larger company, but reduces the responsibility of the employer. This is accomplished by merging resources of multiple small businesses to access the same benefits that larger corporations enjoy.
What is the Difference Between a Standalone 401K and a PEP?
While a standalone 401k plan and a PEP have much in common, there are multiple differences that come down primarily to customizability and administrative burden. The following is not an exhaustive list of the differences between the types of plans, but provides a brief overview of some of the main distinctions between the two.
- Who is the Fiduciary? With a standalone 401k, the employer is the fiduciary. In a PEP, the Pooled Plan Provider acts as the fiduciary.
- Who is responsible for investment monitoring, selection, administration and filing of government forms? Again, the employer is responsible for all of the factors listed in a standalone 401k, while a PPP is responsible for these in a PEP. This is also true of the managing of annual plan audits and bond coverage obtainment.
- Can Investments, Eligibility, and Vesting Schedules be Customized? In a standalone 401k, all of these options can be customized. This is not the case with a PEP.
While customizability is clearly lacking with a PEP, this does not mean that it is an inferior option for a small business. PEPs provide numerous benefits to employers and employees alike.
Employers benefit from the decreased time and fiduciary responsibility with a PEP. Additionally, workers benefit from the ability to keep more money in the plan, the services/educational options available with a PEP, and the ease in adjusting financial goals as needed.
How Can I Better Understand the Options Available in a PEP?
If you’re still unsure if a PEP is the right option for your business, know that many plan providers are willing to help you and your company better understand the available options. These providers can also outline exactly how you can go about applying for a PEP, if this is the option you ultimately decide to pursue.
It is not an easy task to know exactly what option is going to be the best fit for you and your business. Luckily, if you decide to switch from a standalone 401k to a PEP, the Pooled Plan Provider can help you make the transition.