The benefits of pooled employer plans

Key takeaways: Pooled employer plans

• A PEP is a single 401(k) plan that lets unrelated employers participate together, with a pooled plan provider (PPP) acting as plan sponsor, named fiduciary and plan administrator.
• For many businesses, the benefits of a PEP — less risk, fewer administrative tasks, and shared costs — outweigh the trade-offs.
• Companies with highly customized benefit needs or established plan infrastructure, however, may prefer to stay independent.

Retirement savings benefits are desired by many employees, but the cost of administering a traditional 401(k) is sometimes unfeasible for small businesses. A pooled employer plan (PEP) is an attractive alternative because most of the fiduciary responsibilities, retirement plan management and associated administrative functions are outsourced to a third-party provider.

Although PEPs have been available since 2021, updates under the SECURE 2.0 Act (effective in 2026) are making them even more enticing for employers. The time has never been better to take a closer look at PEPs.

What is a pooled employer plan?

A PEP is a single 401(k) plan that lets unrelated employers participate together, with a pooled plan provider (PPP) acting as plan sponsor, named fiduciary and plan administrator. This arrangement shifts most of the compliance, filing and oversight burdens from employers to the PPP. In short, a PEP is a modern way for businesses of any size to offer a retirement plan with less work and less risk.

PEP advantages at a glance

PEP fiduciary oversight falls on the PPP rather than the employer. And although each PPP may set its own eligibility requirements, businesses joining a PEP benefit plan needn’t operate in the same industry or geographical area.

• Administrative relief: The PPP manages plan documents, compliance and filings. Employers only handle payroll funding and employee communication.
• Consolidated reporting: Only one Form 5500 is necessary and, when required, one audit at the PEP level — not per employer.
• Lower total cost: Pooling resources with other employers, combined with SECURE 2.0 tax credits, can reduce startup and ongoing plan costs for eligible businesses.

What’s the difference between a PEP and a single-employer plan, like a traditional 401(k)?

PEP fiduciary oversight falls on the PPP rather than the employer. And although each PPP may set its own eligibility requirements, businesses joining a PEP benefit plan needn’t operate in the same industry or geographic area.

Here are the major differences:

Feature	Pooled employer plan	Single-Employer 401(k)
Plan sponsor	Pooled plan provider	Individual employer
Fiduciary responsibility	Delegated to PPP and 3(16)/3(38) fiduciaries	Retained by employer
Compliance and filings	PPP manages Form 5500, testing and filings	Employer manages all
Plan audit	One plan-level audit (when required)	Individual employer audit if there are 100+ participants
Customization	Flexible plan design (eligibility, match, vesting)	Fully employer-controlled
Cost efficiency	Shared administrative costs; eligible for SECURE 2.0 tax credits	Employer bears all costs

The SECURE Act

PEPs were introduced in the wake of the Setting Every Community Up for Retirement (SECURE) Act, passed in 2019. Prior to its passage, employers generally could only participate in multiple employer plans (MEPs) if they shared common factors (industry, geographical area, etc.) with other plan participants. Additionally, the Secure 2.0 Act of 2022, passed in December 2022, made some favorable changes to PEP participation.

Tax credit opportunities for businesses: Employer contribution and startup credits

Under SECURE 2.0, eligible employers can receive valuable tax incentives to help cover plan startup and contribution costs:

Employer size	Contribution credit	Startup credit
1–50 employees	100% of employer contributions, up to $1,000 per employee (years 1–2), phasing down years 3–5	Up to $5,000/year for plan startup costs
51–100 employees	Partial credit based on a sliding scale	Same as above

Learn more: IRS – Retirement Plans Startup Costs Tax Credit

What is the difference between a PEP and other 401(k) plans?

Although PEPs share features with other 401(k) structures, they differ in how they distribute fiduciary and administrative responsibilities. For instance, the PPP assumes much of the oversight that employers typically manage themselves in a single-employer plan.

Another difference is commonality requirements. A PEP doesn’t require participating employers to share a common industry or location, as is the case with MEPs.

Here are the differences at a glance:

Feature	PEP	MEP / Traditional 401(k)
Commonality requirement	None — unrelated employers can participate	Often required for MEPs
Plan oversight	Centralized with PPP as plan sponsor and fiduciary	Employer or lead sponsor retains oversight
Administrative burden	Streamlined through shared plan management	Each employer manages compliance and filings
Cost sharing	Economies of scale; shared costs among participants	Each employer bears full cost

Why employers are paying attention to PEPs

For many growing businesses, joining a PEP means:

• Less time spent managing compliance and audits
• Reduced fiduciary exposure
• Lower overall plan costs
• The ability to offer employees a robust, professionally managed 401(k) plan that competes with those of larger employers

How do PEPs work?

A PEP is designed to help employers reduce the administrative and fiduciary burden of running a 401(k) plan. Once employers join a PEP, the PPP assumes most responsibilities, freeing them to focus on their people and business operations.

1. Roles and structure

A PEP is built around shared oversight. Several key roles work together to manage plan operations and compliance:

• PPP:
  The PPP serves as the legal plan sponsor. It manages the plan document, ensures regulatory compliance, files Form 5500 and provides overall plan governance.
• 3(16) plan administrator:
  Appointed by the PPP, this fiduciary handles day-to-day plan administration, such as employee enrollment, distributions and compliance testing.
• 3(38) investment manager (optional):
  When delegated, this fiduciary selects and monitors the plan’s investment lineup on behalf of participating employers.
• Recordkeeper or custodian:
  The recordkeeper manages participant account data, handles transactions and safeguards plan assets.

Together, these roles create a streamlined experience that reduces complexity for participating employers.

What employers still manage

While the PPP takes on most plan responsibilities, employers play a supporting role by:

• Handling payroll deductions and submitting contributions
• Sharing required employee data for compliance
• Communicating plan details to employees
• Encouraging participation and enrollment

Employers also retain control of key plan design features, such as eligibility, matching formulas and vesting schedules. Doing so helps them build plans that fit their workforces.

Benefits of PEP plans

Pooled employer plans (PEPs) give growing businesses access to the kind of comprehensive retirement solutions typically available only to larger organizations. By joining a PEP, employers can simplify plan management, lower costs and reduce risk — all while offering competitive benefits that help attract and retain talent.

Potential reduced fiduciary risk

In a PEP, fiduciary oversight generally falls on the PPP, which means less legal and administrative exposure for participating employers. However, employers are still responsible for selecting a reputable PPP that acts in participants’ best interests.

In short, a PPP:

• Reduces fiduciary liability tied to investment selection and plan operation
• Provides professional oversight and compliance monitoring
• Frees employers to focus on running their businesses

Less in-house administration

The PPP handles most of the ongoing plan administration, from maintaining documents and completing filings to managing compliance. Employers are still responsible for processing the necessary payroll deductions, but integrated payroll and benefits platforms can automate much of that work.

Key benefits for employers:

• Centralized management through one plan sponsor
• Automated recordkeeping and reporting
• Less time spent on retirement plan logistics

Tax credit opportunities

Tax credits available under SECURE 2.0 make participation even more cost-effective. Employers may be eligible for startup and contribution credits that significantly reduce first-year costs.

Highlights:

• Up to $5,000 annually in startup cost credits for three years
• An extra $500 credit for automatic enrollment
• Up to $1,000 per employee contribution credit for employers with 1–50 employees (phasing down through 100 employees)

Easier vendor relationships

A single-employer plan often requires coordinating multiple service providers — a recordkeeper, custodian, investment advisor, trustee and auditor. In a PEP, these services are bundled under the PPP, streamlining communication and simplifying management.

Key benefits for employers:

• One point of contact for all plan services
• Simplified billing and vendor oversight
• Less confusion and fewer administrative errors

Disadvantages of PEP plans

While PEPs offer meaningful advantages, they may not fit every business model. Some employers prefer to retain full control of plan design or investment decisions. Others may face additional complexity when transitioning from a traditional 401(k) to a PEP.

Impact on longevity protection

Participating in a shared plan means employers rely on the PPP’s governance for long-term compliance and investment performance. This can limit how much control each employer has over plan direction.

Potential drawbacks:

1. Less flexibility to modify plan features mid-year
2. Dependence on the PPP’s oversight and long-term management

Less flexibility

Employers participating in a PEP must follow the plan document created by the PPP, which means there’s a limited ability to customize investment lineups or plan features.

Potential drawbacks:

1. Fewer customization options compared to a standalone 401(k)
2. Plan design changes must be approved at the pooled level

Investment performance risks

Employers share the same investment menu selected by the PPP or 3(38) fiduciary. While professionally managed, performance outcomes are not guaranteed.

Potential drawbacks:

1. Limited control over fund selection
2. Employer reputational risk if investment performance lags

Complexity in transition

Moving from an existing plan into a PEP requires careful coordination, especially when transferring assets or participant data.

Potential drawbacks:

1. Short-term administrative lift during conversion
2. Possible disruption to participant access or reporting

Simple strategies for helping mitigate risks

While pooled employer plans can streamline operations and reduce costs, success depends on careful oversight and partnership management on the part of employers. Afterall, they retain some responsibility for selecting the right providers, monitoring plan performance and maintaining transparency with employees. Failure to fulfill these duties could result in compliance issues and operational delays down the line.

Employers can offset potential pitfalls by:

• Vetting the PPP’s track record and fiduciary qualifications
  Review experience, compliance history and independent audits to confirm that the pooled plan provider maintains strong fiduciary standards and clear accountability.
• Confirming clear service-level agreements (SLAs)
  Ensure contracts specify reporting frequency, performance metrics and escalation processes so expectations are defined from the start.
• Using embedded payroll and benefits tools to streamline transitions
  Coordinating contributions, data transfers and reporting through one system minimizes errors and ensures contributions flow smoothly into the plan.

Is a pooled employer plan right for your business?

A PEP can be an excellent solution for many organizations, but it’s not the right fit for everyone. For some employers, a PEP provides a streamlined, cost-effective path to offering a retirement plan. For others, the structure may limit flexibility or customization.

Ultimately, the decision depends on your company’s size, administrative capacity and comfort level with delegating plan management.

Frequently asked questions about pooled employer plans

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