SMB Retirement Programs: Pooled Employer Plans 101

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.

December 13, 2021

SMB Retirement Programs: Pooled Employer Plans 101

According to a survey by Aflac, 75% of employees expect their company to provide a retirement plan as part of their benefits package.

Now, if you’re a small business owner looking for ways to attract and retain top talent, then you’re in luck. Pooled Employer Plans (PEP) may be one of the best ways to offer retirement benefits without actually securing financial capacity or hassling through the paperwork of a 401k.

The 401k is the most well-known retirement package out there, so understandably, your employees may have some hesitations or misconceptions when it comes to alternatives like PEPs.

We’re here to help you better explain what a Pooled Employer Plan is to your employees.


What is a Pooled Employer Plan (PEP)?

First of all, what exactly is a Pooled Employer Plan? We understand that this is probably a new concept to the majority of people, given that the traditional 401k is the most widely known retirement benefit.

To make it short and sweet, PEPs were created by the SECURE Act to enable businesses of all sizes to provide retirement benefits to their employees. It allows smaller companies to pool funds together under one plan in order to provide their employees with the same 401k benefits.

What that means is that small businesses like yours don’t have to shell out a huge investment upfront to get retirement benefits for their employees.

How your business will benefit from PEP

Say goodbye to horrendous paperwork!

Choosing to go for a PEP means that you’ll be working with a Pooled Plan Provider (PPP) like peppermint. This means that you won’t have to deal with the nitty gritty administration that comes with filing and processing retirement benefits for your employees.

Your PPP will be the one to handle the compliance tests, calculations, and other administrative concerns. The provider can also help your employees take better care of their funds through automated investment advice and financial wellness programs.

In peppermint’s case, you’ll also get access to our investment advisor and Vanguard’s major asset class and risk category funds.

Say hello to tax credits

On top of all the above benefits, you’ll also be eligible to receive tax credits and claim half of the startup expenses and costs for new plans (up to $5000 per year for up to three years) when working with providers like peppermint.


Pick your PEP

One of the beauties of a PEP is that you get to choose options that match the funding appetite of your business and employees.

But before diving into that, here are the key features and jargon of PEP explained:

  • Safe Harbor Plan – Avoid calculations and compliance tests by matching your employees’ investments and opting out of a vesting schedule. 
  • Employer Directed Plan – This one has a bit more flexibility as you can control the contribution amount. However, this also means you’re mandated to undergo annual testing and will have more liability in the case that legal issues come up.
  • Vesting Schedule – This pertains to how many years an employee has to work for the company to own a percentage of the employer’s contribution.
  • Non-elective Employer Contributions: The money that employers give directly to their eligible workers’ employer-sponsored plans if the employees make contributions of their own.
  • Automatic Enrollment: When employees have their boss take a specific amount of pre-tax funds from their salary and redirect it to their retirement plan. 
  • Nondiscrimination Testing (NDT): Mandatory yearly tests that assure that the non-Safe Harbor 401k plans are helping all the staff, not only the top employees and owners. If a company is caught not to be following the agreed requirements, they can face penalties, fines, and a lot of administrative work. 

Now, each PPP has its own plan that caters to different business needs. Here at peppermint, we work hard to make sure we come up with the best proposals available on the market.

Our plans even come with equally cool names that tell you exactly what to expect:

Nest Egg Piggy Bank Coin Jar
Safe Harbor Plan Safe Harbor Plan Non-Safe Harbor Plan
Employer match of 4% of the employee’s contribution Employer match of 3% of the employee’s contribution Employer can contribute as little or as much as they want
Employee keeps 100% of the investment if they leave the company Employee keeps 100% of the investment if they leave the company Employer may withhold a percentage of the employee’s earnings based on time of service at departure
Exempt from most annual compliance testing  Exempt from most annual compliance testing  This plan is required to undergo compliance testing
Optimizes employer’s & highly-compensated employees’ personal retirement Optimizes employer’s & highly-compensated employees’ personal retirement Employer Directed Plan


As you can see, we at peppermint make sure there are a myriad of options to choose from.


Wait up! Here are some admin concerns you should consider…

Now, as the decision maker, you’re probably thinking: “Hmm, should I match on a plan or not?” We suggest that you do, and here’s why:

  • Employers can be eligible for tax deductions if they contribute to their employee’s retirement fund. If you want to know if you qualify for tax credits, use our free Tax Credit Calculator.
  • The employer match is a very attractive factor when recruiting talent.
  • Matching contributions gives assurance that the employer is complying with the IRS and makes them less likely to fail non-discrimination testing.

Matching gives you long-term administrative and financial benefits because it saves you time, gets you the best talent, and reduces any penalties or fees you might pay due to non-compliance.

Another thing to consider is the auto-enrollment feature, which gives the employer a tax credit of $500 per year for a 3-year taxable period from the first taxable year that the employer includes this feature. We know every dollar counts for small businesses, so that’s why we’re mentioning it upfront.

We know that all this information might seem a little overwhelming, so if you have questions or need some advice on figuring out what’s best for your business, then simply reach out to us, and one of our expert advisers will be in touch.

Help your employees by being open to their questions

Of course, new things come with a lot of questions, and for something that involves money, there will always be a lot more of them. Since PEPs pertain to your employees’ money and future funds, make sure to keep avenues open for employees to raise any doubts or concerns they may have.

Can I withdraw my PEP funds?

For example, a common question your employees might have is whether they’re allowed to withdraw money from their account while still working with you. Now, in certain plans, this option is available. The way we put it is that it’s like borrowing money from the future you, but you have to pay yourself back (interest and applicable fees may apply). If this option is not allowed on your plan, it’ll be treated as an early withdrawal, and the remaining balance could be applicable for current income taxes along with a 10% penalty.

Do we really need this? It’s a deduction to my salary!

Another common concern is, why should we get a PEP? We’ve been doing well without it; why start now? Well, it’s simple. Tell your employees that you want to help them with their retirement, and since you’re a small business that can’t afford a 401k, having a PEP is the next best option.

Of course, the questions above are only the ones that are most asked regarding PEPs. If there are other questions that have been brought forward that you think could use our expert attention, then simply contact us, and we’d be more than happy to help.

Popping the PEP question to your PPP

Once you’ve decided on what plan works best for your business, don’t forget to walk through it with your employees once again. Make sure to carefully explain the agreements and the responsibilities that being a Pooled Employee Plan holder entails. 

The best part about taking up a PEP with us, though, is that we’ll take care of making sure that your employees are updated on laws and compliance, how their plans are earning money, and other operational and administrative concerns, such as:

  • What contributions are being made 
  • How assets are being managed
  • Distribution of benefits
  • Scenarios involving audits and adjustments 
  • If a plan is no longer working for the company, what adjustments are available

Reminder: We’re here to work with you to make everything easy breezy

As your Pooled Plan Provider, we will take care of all the admin and compliance concerns to make sure that your PEP will be working for your company and employees. 

From managing audits, forms, budgets, and notifications to finding other employers to expand the pool, we make sure to offer you the most tailored plan possible, always taking the tedious stuff out of the way and allowing you to focus on the core competencies of your business!

Next Steps:

Have questions about PEP or any of our services? Reach out to our team here.

Finally ready to get your PEP? Then, enroll now.

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