PEPs Present Opportunities—For Employers and Advisors
Pooled employer plans, or PEPs, are getting a lot of attention lately. One thing seems sure: a well-executed PEP program can benefit both plan sponsors and service providers. Plan sponsors can potentially save money and focus more time on their business, and service providers can gain access to a new layer of prospective retirement plan clients.
How Does a Pooled Employer Plan Work?
Simply put, a PEP allows multiple employers to adopt a retirement plan that covers their employees under one overall plan. Rather than each employer establishing a separate retirement plan, they pool their resources by joining a PEP. A pooled plan provider (PPP), such as Pentegra, can assume many responsibilities within a PEP. The PPP normally acts as the plan administrator, taking care of the day-to-day responsibilities of running the plan. Such tasks may include:
- notifying employees (and enrolling them) when they are eligible
- making sure that elective deferrals are timely deposited
- performing nondiscrimination tests (e.g., for employer contributions)
- providing annual information returns to participants and to the IRS
- conducting an annual plan audit (for those with 100 or more participants with account balances at the start of the year)
- processing distributions and loan requests
The PPP may also select other parties, such as investment advisors and accountants, to provide essential services to the plan. Because the PPP reduces the administrative burdens for the employers who join the PEP, such plans are particularly attractive to smaller employers who may have hesitated to start a retirement plan. By taking responsibility for the sometimes tedious and complex daily tasks of plan administration, PEPs help employers focus on what they do best: running their business.
What’s In It for Employers?
Aside from the relief from daily administrative duties that PEPs provide, they can also benefit employers in other, sometimes related, ways.
Relief from fiduciary duties
Under a PEP, employers can delegate most of their fiduciary duties to a team of experts who agree to act in participants’ and beneficiaries’ best interests. For example, in a single employer plan, a business owner may have overall responsibility for providing an appropriate lineup of investment options for the plan. With a PEP, the employer may be insulated from liability.
Save time and money
PEPs can improve efficiency in plan administration. As a 3(16) fiduciary administrator, Pentegra can perform nearly all of the required duties of a plan sponsor. In addition, Pentegra works with service providers across the industry—recordkeepers, payroll providers, legal counsel, etc.—that are experts in their respective fields. This helps employers get the help they need without having to vet providers for themselves. And when employers end up fending for themselves, sometimes they get cut-rate vendors or end up overpaying for services. Without experience or reliable benchmarks, how would they know whether their plan expenses are reasonable?
Critical functions are performed better
One of the primary benefits of joining a PEP is gaining access to retirement plan experts. Pooled plan providers like Pentegra, which has been administering plans for over 80 years, bring expertise and efficiency that many employers would struggle to arrange themselves. According to a recent survey1, 80 percent of defined contribution consulting firms neither serve as PPPs nor plan to serve as a PPP anytime soon. Pentegra’s expertise with multiple employer plans (MEPs) dovetails well with the PEP service model. This unique industry competence allows Pentegra to perform critical PPP functions at the highest level.
How Can Pentegra’s PEP Model Help Advisors?
Pentegra’s core competency is as a fiduciary—in particular, serving as an ERISA 3(16) plan administrator. The PEP model lends itself to a strong alliance between the PPP (Pentegra) and other retirement plan service providers—recordkeepers and investment advisors—looking for an experienced PPP and fiduciary administration solution.
PEPs can help employers start a new plan or improve on their existing plan. As more advisors and employers become familiar with PEPs, they will want to partner with an experienced administrator. Contact Pentegra’s PEP experts to learn more about working together on effective PEP and other retirement plan solutions for your clients at solutions@pentegra.com or 855-549-6689.
1Cerulli Associates: The Cerulli Edge—U.S. Retirement Edition, 1Q 2024 (#70) p. 14.