Pooled Employer Plan (PEP)
A PEP is a type of retirement plan that meets certain requirements (outlined below) and that is maintained to provide benefits to employees of two or more unrelated employers. A PEP may be either a qualified defined contribution plan under Section 401(a) of the Internal Revenue Code (the “Code”) or consist of individual retirement accounts described in Section 408 of the Code. The PPP responsible for maintaining a PEP may be one of the participating employers, or may be an unrelated entity, such as an insurer or financial institution, that meets certain requirements described below.
Pooled Employer Plan (PEP)
- Designed to benefit employees of two or more adopting employers, PEPs are qualified retirement plans that can be sponsored and offered only by a Pooled Plan Provider (PPP). Employers that adopt a PEP need not share a business nexus to form this group 401(k) Plan; thus PEPs are sometimes referred to as “open MEPs” and, as they increase in number, will likely be more readily available than MEPs.
- Defined by ERISA Section 3(43).
- PPPs must meet the requirements outlined in ERISA Section 3(43) as well as other requirements outlined by the US Treasury Department.
- In addition to the PPP, there is a centralized 3(21) Investment Advisor and/or 3(38) Investment Fiduciary, as well as a 3(16) Plan Administrator.
- A PPP must register with the US Secretary of Labor 30 days before beginning operations, using EBSA Form PR (Pooled Plan Provider Registration). Filing this form also satisfies the SECURE Act requirement that the PPP must register with the Treasury Department. Registration requirements may evolve as PEPs gain more traction in the marketplace.
- Auditable only if the PEP falls outside the audit exemption rules of no more than 1,000 eligible participants or no single adopting employer with more than 100 employees.
- Employers adopting a PEP plan for their 401(k) may have challenges combining the 401(k) with a DefinedBenefit or Cash Balance Plan, depending upon the flexibilities the PEP will permit.
- One Form 5500 is filed for the entire plan.
- Plan Document — retained by the PEP Sponsor.
- Adoption Agreement — Provides the provisions available in the PEP and retained by the PEP Sponsor.
- Participation Agreement — Created for and signed by each adopting member to include the specific provisions of their retirement offering.
- Fixed fund lineup — All adopting employers share one common fund lineup. Generally, the Plan Sponsor or Investment Fiduciary makes additions to or removals from the lineup; notification must be provided to all eligible individual participants.
- Audit possibility — Although PEPs have a more lenient policy on audit requirements than MEPs, a PEP could still combine enough small plans and eligible participants to become auditable in a short span of time, which would impact costs adversely.
- PPP fiduciary liability — Each adopting employer within a PEP retains fiduciary liability for the selection and monitoring of the PPP.
- Accessibility — Any adopting employers, service providers and fiduciaries with a PEP can be removed from the plan by the PPP.
Benefits Compared to Single-Employer Plans
- Significantly fewer administrative duties.
- Lower costs through greater plan asset totals.
- Mitigation of fiduciary responsibilities and liabilities.