The COVID-19 pandemic has employers of all sizes re–evaluating pre–tax retirement savings options. While offering a retirement plan was once too cost-prohibitive or difficult to be viable for small employers, new Pooled Employer Plans (PEPs) offer an easier and better path to giving employees the big company benefits they want most.
As businesses shift to a work-from-home model – some for the long-term or even permanently – the office ping pong table and snack bar just don’t have the same appeal anymore.
In fact, it turns out that employees may have always preferred a better, wider range of job benefits that are equitable for workers of all ages.
According to a Glassdoor survey from 2015, 4 out of 5 employees said they would prefer new or additional benefits over a pay raise or promotion. When asked to rank the benefits they valued most, retirement benefits were in the top 3 (right behind healthcare and flexible work schedules).
A good retirement plan is closely tied to employee satisfaction. In the COVID era and beyond, retirement benefits are more critical than ever for increasing job satisfaction and talent retention. Luckily, a change in legislation allows PEPs in the US, making it easier and more equitable for businesses of all sizes to reap the benefits of retirement savings plans.
How the SECURE Act Changed Pooled Plans
While pooled plans have been around for years, they haven’t always been a viable option for small and medium-sized businesses. In the past, implementing and managing a pooled plan required special knowledge and resources to manage investment options, maintain compliance, and mitigate financial risk. For many small and medium-sized businesses, these plans were just too risky or expensive to participate in. Multiple Employer Plans (MEPs) also required the pools to have employers in similar industries, and if one employer had discriminatory distributions, the entire plan would fail.
But that all changed when Congress passed the SECURE Act in 2019.
The Setting Every Community Up for Retirement Enhancement Act (SECURE) laid the foundation for a brand-new type of pooled retirement plan called the Pooled Employer Plan, or PEP.
PEPs make it much easier for small employers to offer retirement plans by erasing the administrative and financial burdens that used to come along with pooled plans. Here are the key benefits.
Pooled Employer Plans Reduce Risk
In a traditional stand–alone plan, the employer held the “sponsor” role. As the sponsor, the employer was on the hook for all administrative, fiduciary, and investment duties. Those duties included:
- Investment selection & monitoring
- Annual report Form 5500 filings
- Annual plan audits
- Plan documents & restatement
- Participant notices
- Employee Communication
- Hardship distributions
- Participant loans
- Distributions and rollovers
If the thought of dealing with all of that (or hiring someone else to handle it) makes your head spin, we have great news.
In a PEP, these legal obligations are outsourced to a professional third party called a Pooled Plan Provider (PPP). While your business will still have some obligations for running the PEP, the administrative tasks are reduced, and the financial risk is significantly lessened. If you want better value for your employees (or are looking to ease the burden of being a plan sponsor), a PEP offers big opportunities for your business.
Lower Employer Costs
In addition to reaping the benefits of outsourcing, small employers also stand to reap group buying power from a PEP.
In the past, pooled plans were most cost-effective for organizations that maintained a big pool of assets (think $5 million or more). A business with fewer than 10 employees, for example, probably wouldn’t be able to meet that threshold. As a result, those employers couldn’t access the best pricing from insurance companies.
MEPs are limiting and difficult to maintain across all employers, but PEPs allow many employers to pool assets, putting cost-effective pricing within reach.
PEP Tax Credits
The financial savings of a PEP don’t end there. The SECURE Act also created enticing tax credits to help ease employers’ financial investment.
Businesses can receive up to $15,000 over the first three years after implementing a PEP. There are additional incentives if the plan you adopt uses automatic enrollment.
Do you think your employees wouldn’t want to be auto-enrolled in retirement savings? Then you might be surprised to learn that 81% of workers like the idea and want employers to offer more help with retirement planning.
If you’re struggling with the idea of handling plan sponsor obligations, peppermint’s PEP comes with a huge benefit: We handle the audits.
A yearly audit is required for all PEPs. There’s no getting around it: It’s the law. A PEP with over 1,000 participants is required to undergo an annual audit for compliance reasons.
This is a good place to note that not all PEPs are created equal. Peppermint’s plan is unique because we handle all reviews and audits, taking another headache off your plate.
When it comes to PEP benefits, peppermint’s plan has another unique benefit to offer: We’ll get you up and running fast.
Sponsoring a traditional 401k used to be time-consuming. As a plan sponsor, your business would have spent a lot of precious time setting up the plan, which involves choosing investment options and working directly with vendors.
With peppermint’s PEP, we save you time and work by taking care of all these tasks. Peppermint works directly with partners and investment managers on your behalf and finds other companies to join the pool.
Can My Business Leverage These PEP Benefits?
Thanks to the SECURE Act, companies of any size can participate in pooled plans as of January 1, 2021.
Ready to see if a PEP is a good fit for your business?
Our solution offers the flexibility to support any member base of any size with any requirements. Get in touch with us by phone at 844-399-8890 or by email at firstname.lastname@example.org so we can tailor the right platform solution that you and your members deserve.
The peppermint blog assumes no responsibility or liability for any errors or omissions in the content of this site. The information contained in this site is provided on an “as is” basis with no guarantees of completeness, accuracy, usefulness, or timeliness. It does not represent or replace actual financial advice provided by a certified financial professional. Since everyone’s situation is different, we always recommend addressing specific questions to your plan provider or certified financial professional. As such, peppermint may not be held liable for your use or reliance on any information contained herein.