Small businesses offer many benefits to employees and employers alike. But while these numerous benefits are tempting for employees in many ways, it can often be hard to compete with the retirement plans offered by larger companies who have more resources at their disposal. This is where a “Pooled Employer Plan” or PEP comes into play. This type of plan offers employees access to retirement plans that are generally only available to very large businesses.
In this article, we will examine the basics of a Pooled Employer Plan so that you can determine if the plan would work for your business.
What is a PEP?
A Pooled Employer Plan is a retirement plan that is shared between multiple, often completely unrelated small companies. These small businesses are able to combine their resources into a large pool that is managed by what’s known as a PPP or Pooled Plan Provider. The PPP manages the retirement plan for all of the companies within the PEP, and as a result: employers have less responsibility over the management of the plan and employees have better retirement benefits afforded to them than they would ordinarily have within their individual small business.
How Does a PEP Differ from a Standalone 401k?
There are some significant differences between the two plans, but in the end, the biggest differences boil down to plan flexibility and plan manager responsibility.
In a PEP, the Pooled Plan Provider handles all of the intricate details of the plan, allowing business owners to focus their energy where it is needed. In contrast, a standalone 401k puts the responsibility of managing the retirement plan on the employer of the company. This creates a massive amount of extra work for business owners and often doesn’t give employees access to as much benefit in their retirement plans. However, it should be said that standalone 401k plans do provide for more flexibility in plan choices, as there is only one company involved in the 401k instead of multiple.
Another benefit of a PEP over a standalone 401k is that employees have access to educational materials about their retirement planning options. This is an invaluable resource available through PEP plans, as retirement planning can be confusing and difficult to navigate for the average individual.
Should My Business Implement a PEP?
The benefits of a PEP for both employers and employees are numerous, but ultimately it comes down to your own, individual needs as a business owner. If flexibility in plan options is your main goal, a standalone 401k is likely your best bet. On the other hand, if you’d rather have more time to focus on the other aspects of your business, provide better retirement options for your employees, and enjoy the other benefits typically only reserved for larger companies; you may decide to pursue a PEP. The choice is yours.
If you have questions or are unsure of which option is the best choice for your business, plan providers are ready and willing to answer any questions you may have.