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The Pooled Employer Plan PEP: A Potential Solution For Small Businesses

March 28 2023

Starting and managing a new 401(k) plan is a daunting task for any small business owner, which may be why many still don’t offer one to their employees. According to SCORE, a resource partner of the U.S. Small Business Administration:

  • 28% of businesses with less than 10 employees offer retirement plans
  • 51% of businesses with 10-24 employees offer retirement plans
  • 63% of businesses with 25-49 employees offer retirement plans

There are many details to consider if you want to start up a plan, not the least of which are the time, cost, and fiduciary risk involved. Fortunately, a number of more affordable options are available, with much less administrative burden. Many states have launched (or are in the process of launching) a government-run Roth IRA plan for small businesses that don’t have a current plan in place. These plans can be implemented with minimal time, effort and oversight involved (most of the state-run programs are mandatory for employers to join, while a few are not). In addition, the recently passed SECURE Act 2.0 offers increased tax incentives to small businesses that start up a new 401(k) plan in 2023 or beyond (subject to some restrictions).

Besides these solutions, there is also an option called a Pooled Employer Plan (PEP).

What is a PEP?

A Pooled Employer Plan (PEP) is a fairly recent development in the 401(k) marketplace. It was made possible through the original (1.0) Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. A PEP allows employers to join together and “pool” their retirement plan to create efficiencies and economies of scale. In addition, they must be governed by a regulated Pooled Plan Provider (PPP). In general, a PEP allows for more fiduciary support and protection, significantly reduces key administrative duties, combines the “buying power” of multiple small businesses and allows more American workers to have the opportunity to save for a successful retirement.


Pooled Plan Provider (PPP) does all the heavy lifting. The PPP designates itself as a named fiduciary and plan administrator. In addition to providing a plan document, it assumes responsibility for all administrative duties.

Reduced fiduciary exposure. The employer retains fiduciary obligations with respect to choosing and monitoring the pooled plan provider. Beyond that, there are generally no material fiduciary responsibilities.

Reduced administrative costs. Functions like filing the Form 5500, conducting the audit, distributing participant notices and bonding are handled by the PPP.

Economies of scale. Pooled employers generally pay lower administrative, recordkeeping and investment management fees than what a smaller single employer would pay.


Inflexible plan design options. The PPP dictates plan design options, such as employee eligibility, loans and distributions and plan participation features, such as automatic enrollment and escalation.

Limited investment menu options. The PPP dictates the investment menu options, since it is acting as the plan’s investment management fiduciary.

Employers still retain some administrative responsibilities. Employers must still provide participant data, determine plan contributions, and withhold funds accurately. However, PPPs can mitigate many of these tasks by using technology to provide greater customization options and streamline the administrative requirements for employers.

PEP vs. 401(k)

The following table illustrates the key differences between a Pooled Employer Plan and a stand-alone 401(k) plan:

Named Fiduciary Employer Pooled Plan Provider
Responsible for day-to-day plan administration Employer Pooled Plan Provider
Responsible for filing annual government forms Employer Pooled Plan Provider
Ability to customize investments Yes No or very limited
Ability to customize eligibility and vesting schedules Yes No
Flexible matching formulas and schedules Yes Limited
Responsibility for obtaining ERISA bond coverage Employer Pooled Plan Provider
Hiring provider and managing annual plan audits Employer Pooled Plan Provider


SCORE. (2022, December). Infographic: Small Business Retirement – Investing in Your Future. Infographic: Small Business Retirement - Investing in Your Future | SCORE

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045;

©2023 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940.  Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).