KEY TAKEAWAYS
- A Pooled Employer Plan (PEP) administers an established retirement plan to multiple unrelated businesses.
- Under this new plan design, yearly audits, plan documentation, compliance, and other areas usually handled by employers, are handled by the plan sponsor at a reduced cost.
What is a Pooled Employer Plan?
A Pooled Employer Plan (PEP) has much of the same dependable features of a typical 401(k), including plan design flexibility options and different types of contributions (ex. pre-tax, Roth, after-tax, match, profit share).
What sets a PEP apart is its plan structure. While most plans are confined to a single company, a Pooled Employer Plan shelters multiple companies under the same plan, like an umbrella. The companies in a Pooled Employer Plan can vary in size and industry, making it accessible for almost any business.
Because of this unique plan structure, smaller businesses that have found 401(k) plans to be too expensive now can gain competitive business and employee benefits.
Here is a rundown of how Pooled Employer Plans save employers money.
Save Money on Audits
Single-employer Plans with 100 or more participants must complete a yearly audit. This involves hiring an independent, qualified public accountant to conduct a detailed review of financial statements, Form 5500s, schedules, internal control practices, and other information.
However, yearly audits under a Pooled Employer Plan will typically be handled by the plan provider at a heavily reduced price. This leaves your business with more money to operate, and less time worrying about IRS obligations.
Save Money on Preparation
At inception, a documentation plan must be professionally drafted for all retirement plans. The process of designing your retirement plan can be quite exhausting. This document usually includes determining:
- Employee demographics
- Vesting schedules
- Contribution types
- Nondiscrimination testing
- Benefit payments
- Loans
- Withdrawals
- Payment fees.
Additionally, the plan must be modified to align with evolving laws and regulations in subsequent years, meaning the original plan document may not always remain relevant.
Taking the time to build a plan around each of these criteria may be important for companies looking for a custom plan, however, for those looking for a quick, cost-effective solution, a PEP provides a clear advantage.
Because the PEP’s plan design is already established, adopting employers of a Pooled Employer Plan can expect significantly reduced document preparation costs.
Employers might have concerns that if all these companies are under one plan, there leaves no room for each company to branch out and offer retirement plan features that are right for their industry or company size.
However, Leading Retirement Solutions offers a Pooled Employer Plan for those engaging in the ROBS strategy that includes integrated customization capabilities to ensure the greatest flexibility possible under a unified plan.
Save Money on Compliance Testing
To qualify for tax-advantaged status, most 401(k) plans must pass rigorous nondiscrimination tests each year to ensure the plan does not discriminate in favor of a few employees, otherwise referred to as highly compensated employees.
With a Pooled Employer Plan, however, testing may be included, and because the plan involves many employers with employees, the cost of compliance testing is spread between the employers under the plan.
Save Money on Form 5500 Filing
All retirement plans, including 401(k) plans, must file a yearly report—usually a Form 5500. These reports let the IRS know certain information regarding the plan’s financial condition, investments, and operations. The IRS checks this information to make sure that the plan is compliant with current laws under ERISA.
The form is either filled out by the employer, taking critical time away from business operations, or given to plan administrators who charge fees.
Under a Pooled Employer Plan, however, business owners no longer need to complete a Form 5500. Your PEP sponsor files one form covering all adopting employers.
Save Money on Quarterly Participant Statements
Under Single-employer Plans, regulations require that business owners send quarterly statements to participants. These statements usually include a high-level summary of the account activity that occurred during the specified time.
Under a Pooled Employer Plan, your quarterly statement costs may be reduced because the costs are shared between employers.
Save Money by Avoiding Investment Underwriting
Investment underwriting under a single employer often features higher fees, fewer services, and fewer investment choices. This is because most Single-employer Plans (especially small businesses) have much less money residing in the plan.
PEP pricing, however, reflects the combined worth of all its adopting employers and, using that buying power, can generally obtain lower fees, more services, and diverse investment offerings.
If you are interested in joining our PEP or want to learn more about our services, don't hesitate to get in contact.
