PEPs Are Popping Seven Years After Secure Act Passage

Pooled employer plans are getting more PEP in their step every day. 

Established under the Secure Act of 2019, PEPs allow multiple unrelated employers to participate in a single retirement plan while delegating most administrative and fiduciary responsibilities to the pooled plan provider. Seven years on, the pooled employer plan marketplace shows both signs of maturity and room for improvement, with multiple providers now boasting over $5 billion in assets. The most recent to pass that milestone was The Standard, whose research shows 83% of participating employers are satisfied with their experience. Financial advisors agreed that PEPs have become a helpful tool, especially for resource-strapped business owners. Not all plans are created equal, though, so it’s important for clients to do their homework before signing up. 

“Business owners and HR like the idea of offering retirement benefits, but they wear so many hats these days that running a plan can feel like a big lift,” said Steve Chappell, assistant vice president of retirement plan sales at The Standard. “Going with a PEP isn’t for everyone, but it solves a lot of those concerns.”

Pros and Cons 

Employers have a duty to monitor the work of their PEP provider, but they are otherwise freed from the burdens of investment selection, plan documentation, participant communications and more. Financial advisors told Advisor Upside this framework has mostly served clients well.

“Many business owners value flexibility and simplicity, which these plans can provide,” said Georgia Lord, head of financial planning at Corbett Road Wealth Management. “There is less customization when it relates to the plan design and investment offerings, though, and vesting schedules are typically standardized across the pool. In one case, a business owner decided they wanted more investment flexibility, and getting out of the plan was a hassle, so that’s something to keep in mind.” 

In general, advisors agreed, PEPs are well-suited for clients whose primary goal is simplicity and ease of use, assuming the pricing is reasonable. Those who are more concerned about control and customization are likely better served by a traditional 401(k) plan. 

“Another thing that employers find attractive in PEPs is the elimination of the mandatory annual audit that’s required when you exceed 100 employees,” said Rodney Loesch, partner at LifeGoals Strategies Group. That alone can save HR staff 40 or 50 hours of work each year.  

Shop Around. There’s a phrase in the registered investment advisor mergers and acquisitions world that can be applied to pooled plans: If you’ve met one RIA, you’ve met one RIA. No two are the same.

“There are 300-plus providers out there, and they’ve all got a different approach, fee structure and investment philosophy,” Chappell said. “We’ve also helped some of the biggest RIAs create an in-house PEP that utilizes their own investment philosophy, for example, so that’s an approach to keep in mind, as well.”