The retirement industry is gearing up for the implementation and adoption of PEPs (pooled employer plans) which were first introduced in 2020 under the SECURE Act. PEPs are similar to MEPs (multiple employer plans) in concept and structure, but will allow unrelated employers to participate in a single (or pooled) retirement plan.
The idea of banding together different employers to offer streamlined administration and economies of scale seems quite reasonable and a valuable offering for small employers that can potentially negotiate lower fees for their employees through collective bargaining.
What’s the catch?
- MEPs/PEPs are actually more difficult to administer and recordkeep than a single employer plan, which creates a host of potential concerns that would affect the compliance of the entire plan.
- MEPs/PEPs can be even more expensive than a single employer plan when considering added complexity of administration, audit costs and extra fiduciary oversight.
- Large plan audit costs should be considered as part of the cost-benefit analysis. Larger plans that are already subject to an audit might benefit from “sharing” the audit costs with other employers. Small plans that are not otherwise subject to an audit might be adding an unnecessary layer of cost that offsets the cost savings of the MEP/PEP.
- All adopting employers in MEPs/PEPs will have the same plan design, so you lose the flexibility of creating a custom plan design to maximize the objectives of the Company.
- There is a single investment lineup, so adopting employers do not have the opportunity to review and select an investment lineup that best meets the needs of the Company and its employees.
When could a MEP/PEP be utilized to effectively offer a group of employers a solution that meets their needs in a cost-effective manner? Ideally, a MEP/PEP solution should be considered for a targeted group of employers within a specific industry or with common objectives/demographics as opposed to a one-size-fits-all solution. This will ensure that the plan design, investment options and general administration/recordkeeping services cater to the common goals of the group. Even in a scenario where a MEP/PEP could meet the objectives of the Companies or Organizations, it might be worth exploring a negotiated agreement with a provider to offer better pricing without utilizing the MEP/PEP in order to maintain more flexibility on the individual plans.
MEPs/PEPs are not for everyone, and you should be wary of providers that advertise MEPs/PEPs on the premise of economies of scale without evaluating the Company objectives. In many cases, businesses can have a fully customized single employer plan that is competitively priced and does not require the employer to sacrifice on plan design, investment options or any other aspect that would be standardized in a multiple or pooled employer plan.