A Deepdive into PEPs and their Benefits

Written by The Peppermint Team

Peppermint was created by a group of business owners, entrepreneurs, and benefits experts who have been on both sides of the table as employees and employers.

March 17, 2022

Setting up a retirement plan for your employees doesn’t have to be complicated. 

With the creation of Pooled Employer Plans (PEPs)–a plan that allows multiple businesses to join together to cut the costs of administrative fees–it’s easier than ever to offer retirement benefits. The best part is that you could qualify for tax credits to help cover the expenses!

In a time when the competition for talent is fierce, offering a retirement plan could be the deciding factor between employees (and future recruits) staying or leaving. 

You don’t have to manage, or pay for, a retirement plan on your own. Let peppermint take care of all the details of your Pooled Employer Plan.

So what exactly is a PEP? 

In this article, we’ll cover:

  • What exactly is a Pooled Employer Plan?
  • The difference between PEPs and a traditional 401k 
  • Benefits of offering PEPs
  • Different options for PEPs 
  • Costs of PEPs (plus how much tax credit you could receive)

What is a PEP?

The basis of every Pooled Employer Plan is a 401k. A 401k is by far the most popular retirement fund out there, and for good reason. 

Before there was the 401k plan, there were pension plans. This type of plan puts all the responsibility on the employer, meaning they have to gather funds, determine how much the monthly payment is based on how long the employee has worked for the company, and distribute funds, among other administrative tasks. Ultimately, pension plans were not a cost-effective option. 

In 401ks, the burden is on employees to contribute to the fund, but it is still the employer’s duty to manage the administrative side of the plan or outsource a plan administrator. 

Contributions to the 401k are then invested into different stocks and bonds, usually based on the employee’s age and the target-date for the retirement plan. Typically, the more time before an employee retires, the higher the percentage of stocks and riskier the investments. 

Before the implementation of the SECURE Act, businesses could join a 401k retirement fund together in what was known as a Multiple Employer Plan, but only if they were from the same industry. 

Now with PEPs, any business can join a pool of other businesses headed by a Pooled Plan Provider (PPP), like peppermint, meaning less cost and risk throughout the life of the plan. 

401k: Traditional versus PEP 

The main difference between a traditional 401k and a Pooled Employer Plan is that businesses are on their own in offering a traditional 401k plan. 

Pooled Plan Providers, like peppermint, are there to help you every step of the way and take care of the complicated administrative tasks so you don’t have to. 

Traditional 401k 

Pooled Employer Plans 

Overall administrative and start-up fees are higher, especially if you decide to outsource administrative tasks Administrative and start-up costs are shared with other employers in the pool, lessening overall cost
Employers act as the fiduciary and take on all the risk  Pooled Planned Providers (PPPs) are the fiduciaries and assume all the risk
Employer is responsible for set up, ongoing plan maintenance, managing vendors, etc.  PPPs take on all the behind-the-scenes work of managing vendors and finding other companies to join the pool
Employers are responsible for all administrative duties, including employee notifications PPPs take care of the bulk of administrative duties, like filling out forms and fulfilling audits 


Benefits of PEPs 

The above chart shows just how easy it is to offer a retirement plan to employees by joining a PEP with a reliable Pooled Plan Provider like peppermint. 

Offering a retirement plan is a great way to show your employees that you care about their future. It can improve job satisfaction, leading to better employee retention as well as strengthened recruiting efforts. 

At a time when employees have an upper hand in the job market, it’s important that compensation packages are up to par and competitive against other offers. 

When it’s as easy and affordable to offer a retirement plan as PEPs, you can’t afford not to. 

PEP Options

When you team up with peppermint, you’ll find that there are different options to choose from to make your PEP work best for you and your business. 

All the options come with the same base features:

  • Invest funds before being taxed
  • Transfer funds from prior retirement accounts 
  • Enroll with flexible options 
  • Enroll automatically, which can earn you additional tax credit
  • Borrow from retirement accounts 
  • Withdraw funds in an emergency 
  • Reduce employer’s taxable income


This option optimizes your top employees’ personal retirement fund to maximize contributions.  

Selecting the enhanced plan allows for employers to match up to 100% of the first 4% of participants’ deferred compensation. 

This plan also offers a safe harbor option, which follows a framework that ensures plans follow all government requirements, so you can skip annual non-discrimination testing (and the fees that go with it). It also gives safe harbor to employees in the sense that they get to keep 100% of their investment, no matter how long they have been with the company.


This option is most similar to the Enhanced option, but the Non-Elective option offers automatic enrollment, which allows for even more tax credits! 

With automatic enrollment, 3% of employees’ compensation is automatically put into the fund, although employees may decide to contribute more if they like. 

The Non-Elective option also offers a safe harbor option. 


As the most flexible option, a Discretionary PEP allows employers the ability to adjust contributions to employee retirement funds as business and employee needs change.

Employers also may decide to withhold a percentage of the employee’s earnings based on time of service when they depart. 

Flexibility comes at a price, though. This plan requires annual non-discrimination testing to make sure all government regulations are followed. For this reason, the Discretionary option costs an additional $1000 annually to cover additional administrative duties this plan requires. 

Choosing the best option for your business

This chart breaks down the key similarities and differences between the three plan types, giving you a quick and easy reference for which option would work the best for your business. 




Safe Harbor Option     Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    
Employer Contribution    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    
Exempt from most annual compliance testing     Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    
Optimizes your highly-compensated employees’ personal retirement fund    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    
Offers employer the most flexibility to contribute as much or as little as they like             Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM
Automatically puts a portion of employees’ compensation into fund        Checkbox Square Checked Svg Png Icon Free Download (#521118) -  OnlineWebFonts.COM    

It’s important to weigh the benefits of each and determine which one is best suited to your workforce. 

Maybe you can afford the extra cost that comes with the Discretionary option and want the flexibility. 

Maybe it’s more convenient to pick the Non-Elective option to make sure all of your employees are covered. 

Maybe you want to be able to match your employees’ contributions to save you money on taxes and encourage your employees to contribute to their nest egg.

If you’re unsure, check out our plan calculator to give you a good idea of where to start. No matter what plan you choose, the overall benefit of having a retirement plan in place for employees has been shown to boost job satisfaction and morale.

Costs of PEPs 

Depending on whom you choose as your Pooled Plan Provider, prices will vary, but here at peppermint, we offer the following rates:

  • Employers pay a one-time start-up fee of $750 and $1000 annual fee. 
  • Participants pay $8 per month plus .25% on contributions. 

As previously mentioned, because the Discretionary option requires annual compliance testing and evaluation, there is an additional $1000 annual fee.

Tax Credits

One of the most obvious benefits of joining a PEP are the tax credits. 

As outlined in the SECURE Act, these tax credits can range from $250 per non-highly-compensated employee up to $5,000 for three years. That’s a potential savings of up to $15,000. Additionally, if you decide to go with our Non-Elective option, which offers the auto-enrollment feature, you could get up to an additional $500 per year ($1,500 over three years).

A highly-compensated employee is defined by the IRS as someone who owns more than 5% of the interest of the company during the current or preceding year, or was compensated more than $125,000 in 2019, $130,000 in 2020 & 2021, or $135,000 in 2022. Employers could also choose to include the top 20% of earners. 

Consult the following chart for an easy representation of tax credits you could qualify for.

Type of Incentive How many years  Tax Credits
New Plan Incentive For the first three years of a plan  Up to $5,000
Automatic Enrollment Incentive  For the first three years of a plan Up to $500

Want to see exactly how much your business could save? For a rough estimate, check out our free tax credit calculator

According to the IRS, your business qualifies for the tax credit if:

  • Your SMB employs 100 or fewer people who were compensated at least $5,000 the preceding year.
  • At least one plan participant was a non-highly-compensated employee (NHCE).
  • Your business did not previously have a retirement plan in place in the last three years that covered roughly the same number of employees.

If your business meets the requirements for the tax credit, the next step is filling out Form 8881. 

You can find and download Form 8881 (Credit for Small Employer Pension Plan Start-Up Costs) through the IRS to calculate and report your tax credit.

From there, the form will let you know what form to fill out next to report the credit, which will depend on the structure of your business. 

For partnerships and S corporations, the IRS directs you to report the final number on Schedule K. All other businesses report on Form 3800 for General Business Credit in Part III on line 1 of the form. 

Final Thoughts

When you combine the amount of tax credit you could receive for starting a retirement plan with the ease and affordability of a PEP, the benefits really start to stack up against the drawbacks (if you can find any). 

Here at peppermint, we offer three great options that fit businesses of all sizes and needs. Whether you are leaning towards the Non-Elective option to ensure that employees have a nest egg or you like the flexibility of the Discretionary option, offering a retirement plan of any sort is sure to improve overall employee morale and boost your recruiting efforts. 

Not sure which one is right for you? Talk to a peppermint advisor today to learn what plan type works best for your business.

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