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.

What is a pooled employer plan?

A PEP is a defined contribution plan, such as a 401(k), in which multiple employers can participate. When employers join a PEP, they delegate their named fiduciary role to a third-party pooled plan provider (PPP).

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 geographical area.


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.

Benefits of PEP plans

PEP plans provide viable 401(k) alternatives for small business owners who may otherwise struggle to compete for talent against large organizations with comprehensive benefits packages. Other advantages include:

Potential reduced fiduciary risk

Fiduciary oversight of a PEP generally falls on the PPP. However, employers must still take care in choosing a pooled plan provider to ensure it provides proficient plan administration and investment management and acts in the best interests of the plan participants.

Less in-house administration

The PPP assumes responsibility for much of the plan administration, handling all plan documentation, governmental filings and ongoing compliance. Employee payroll deductions are left to the employer, but these can be efficiently managed with the help of a payroll service provider that integrates payroll and benefits.

Tax credit opportunities

Tax credits can help offset PEP start-up costs. For the first three years of participation, employers may be eligible for a tax credit of $5,000 annually, with an additional $500 available to those who set up automatic enrollment. Under Secure Act 2.0, an additional credit of up to $1,000 per employee for eligible employer contributions may apply to employers with up to 50 employees for the preceding taxable year. This credit phases out from 51 to 100 employees.

Easier vendor relationships

Businesses participating in single-employer retirement plans (SEP) must independently communicate and coordinate with their recordkeeper, custodian, investment advisor, trustee and auditor. With PEP, all these tasks and services are bundled into one, saving employers time and money.

Disadvantages of PEP plans

Despite its advantages, a PEP does have some drawbacks, particularly when compared to an SEP. Unlike a PEP, an SEP gives employers more of the following:

  • Flexibility
    Employers can customize the design of their plan to meet their retirement goals and the needs of their employees.

  • Control
    Employers are not dependent on the actions or decisions of others and can access information and resolve problems directly without the need of a third party.

  • Choice
    Employers have the unilateral freedom to choose a different service provider, move their plan or negotiate better pricing if they are unsatisfied with the cost or quality of service.

Frequently asked questions about pooled employer plans

Am I eligible for a PEP?

Businesses of all types and sizes can join a PEP. However, eligibility and acceptance criteria may vary between PPPs.

How do I know if a PEP is right for my business?

What’s right for one business may not be right for another. However, a PEP may be an excellent solution for small businesses that want to sponsor employee retirement benefits without the increased costs, logistics or risks associated with a traditional 401(k).

This information is intended to be used as a starting point in analyzing pooled employer plans and is not a comprehensive resource of all requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies.

ADP, Inc. is affiliated with ADP Broker-Dealer, Inc. (“ADP BD”), a limited purpose broker dealer registered with the Financial Industry Regulatory Authority (“FINRA”), and operating pursuant to Securities and Exchange Commission (“SEC”) Rule 15c3-3(k)(2)(i), approved by FINRA to offer 401(k) and SEP/ SIMPLE IRAs, and related retirement plans (the “Retirement Products”) on a payroll deduction basis.

ADP Editorial Team

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.