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Reduce Overhead Costs with a Pooled Employer Plan

Pooled Employer Plans (PEPs) offer businesses a cost-effective way to provide retirement benefits to their employees.

With a PEP, multiple, unrelated employers participate in a single, collective retirement plan by “pooling” resources. PEPs reduce administrative burden and fiduciary responsibilities for the employers while leveraging economies of scale to lower costs.

They allow small and medium-sized businesses to enhance their benefits package by offering a retirement plan that the employer does not need to fully manage.

What is a Pooled Employer Plan?

A Pooled Employer Plan is a type of retirement plan that pools resources from multiple employers to provide a single, consolidated plan. Unlike traditional retirement plans, where each employer must establish and maintain their own plan, PEPs are managed by a Pooled Plan Provider (PPP) who oversees the administration, compliance, and some fiduciary responsibilities of the plan.

This structure allows businesses of all sizes to offer competitive retirement benefits without the high costs and administrative burdens typically associated with individual plans.

Pooled Plan Provider

The PPP takes on most of the administrative duties, simplifying the process for employers. The PPP is responsible for administering the retirement plan and making sure it complies with all regulatory requirements, including filing reports, handling compliance issues, and managing the day-to-day operations of the plan.

It also handles fiduciary duties for the plan, which can reduce the legal liability for participating employers. This means that the PPP is responsible for acting in the best interest of the plan participants.

When researching potential PPPs, consider ones that have the following:

  • Proven track record
  • Competitive fees
  • Customization options
  • Scalability
  • Customer support
  • Transition and implementation support

The success and effectiveness of the PEP largely depend on the capabilities and reliability of the PPP.

Benefits of a Pooled Employer Plan

PEPs offer many benefits which are detailed below.

1. Cost Savings

By pooling together multiple employers, PEPs can reduce administrative costs and investment management fees associated with managing a retirement plan. Economies of scale can lead to reduced costs not only to the employer but also to the employees.

2. Administrative Relief

The PPP handles most of the administrative tasks, including compliance, reporting, and day-to-day plan management. This reduces the administrative burden on participating employers. The PPP also ensures that the plan adheres to all regulatory requirements, helping employers avoid the complexities and potential pitfalls of compliance.

3. Fiduciary Protection

The PPP can take on many of the fiduciary responsibilities of the plan, which can reduce the legal and/or regulatory risks for employers. It is the responsibility of the PPP to ensure the plan complies with the Employee Retirement Income Security Act (ERISA) and other regulations, which can help employers avoid potential penalties. The PPP is responsible for managing the plan in the best interest of the participants.

4. Enhanced Employee Benefits

Offering a PEP can make employers more competitive in attracting and retaining skilled employees by providing valuable retirement benefits. PEPs also typically offer a wide range of investment options, allowing employees to choose investments that best suit their retirement goals.

5. Flexibility and Scalability

PEPs do offer some flexibility, allowing employers to customize certain aspects like contribution levels and vesting schedules. PEPs can also easily scale to accommodate the growth of participating employers, ensuring that the retirement plan continues to meet the needs of a growing workforce.

6. Streamlined Processes

The PPP facilitates a smooth onboarding process for new employers joining the PEP, minimizing disruptions to business operations. For employers switching from an existing retirement plan, the PPP can ensure a seamless transition to the PEP.

7. Regulatory and Compliance Benefits

Instead of individual audits for each employer’s plan, a PEP generally requires only one audit, reducing the complexity and cost of compliance. PEPs also consolidate regulatory filings, such as Form 5500, simplifying the compliance process for participating employers.

Disadvantages of a Pooled Employer Plan

While Pooled Employer Plans offer many benefits, there are also some potential drawbacks to keep in mind.

1. Limited Control

Employers may have limited control over certain aspects of the plan design and investment options since these are often standardized across the PEP. Customization may be restricted compared to a standalone plan.

2. Potential for Higher Costs

While PEPs can reduce overall costs through economies of scale, the specific fee structure should be carefully evaluated. In some instances, ongoing administrative or management fees might be higher than those of a well-negotiated standalone plan. Initial setup fees for some PEPs could also be higher than expected, particularly for smaller employers.

3. Uniform Benefits

Since the PEP must cater to multiple employers, the benefits and features may be more generic and less tailored to the unique culture or specific needs of an individual company’s workforce.

4. Complexity in Transition

Transitioning from an existing retirement plan to a PEP can be complex and time-consuming. Employers with existing plans might face challenges in aligning their current benefits with the new PEP structure, especially if there are significant differences in plan features or investment options.

5. Compliance and Regulatory Challenges

While the PPP assumes many fiduciary responsibilities, the employers still retain some level of fiduciary duty. Participating employers should still stay informed and involved to ensure all regulatory requirements are being met. Any compliance failures by the PPP can have repercussions for all participating employers.

Keep and Attract Talent with Benefits

If your business is looking to provide competitive retirement benefits while minimizing cost and administrative burden, a pooled employer plan is a solution worth considering. With the right partner, a PEP can be a valuable addition to your employee benefits strategy and help attract and retain talent.

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Biz Tip Topic Expert: Vanessa Conlin, CPA

Vanessa Conlin, CPA

Vanessa is a Principal at SVA Certified Public Accountants and is responsible for audits, reviews, and compilations of financial statements for clients in a wide variety of industries. She also assists with other agreed-upon procedure assurance engagements to address specific client issues. Vanessa is in charge of a large number of employee benefit plan audits at SVA. She prepares and oversees the preparation of audit fieldwork and required financial statements and supplemental schedules and assists clients with various other compliance-related issues with the plans.

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