Small businesses increasingly adopt popular retirement plan option.

A new retirement plan option known as the pooled employer plan (PEP) is rapidly gaining traction among small businesses across the United States. Introduced in part through the SECURE Act of 2019 and further enhanced by SECURE 2.0 in 2022, PEPs offer a streamlined approach for small-business owners to facilitate retirement savings for their employees.

Traditionally, many employers have relied on standalone 401(k) or 403(b) plans. In contrast, the PEP structure allows multiple, unrelated employers to band together, regardless of their industry or geographic location, thereby creating a shared retirement solution. This collaborative model pools the assets of all participating companies, which are then managed by a pooled plan provider. This provider assumes the roles of both fiduciary and plan administrator, relieving individual employers of significant responsibilities.

Recent studies indicate that the PEP market has been experiencing exponential growth, with participation exceeding 1 million individuals nationwide. Assets under PEP management have surged from approximately billion at the end of 2023 to projections of billion by the close of 2025. This growth trajectory underscores the increasing interest from small businesses and nonprofit organizations eager to provide retirement benefits to their employees.

The adoption of PEPs not only simplifies the administrative burden but also minimizes fiduciary liabilities for business owners. Typically, employers are responsible for ensuring compliance with various fiduciary duties, such as investment selection and timely contribution submissions. By joining a PEP, business owners can delegate these obligations to the PEP administrator, who is equipped with the expertise to manage these complexities effectively.

Furthermore, PEPs can significantly reduce retirement plan expenses. The administrative duties—ranging from tax filing and audits to compliance and employee communications—are managed by a single administrator, allowing costs to be distributed across all member plans. This shared approach often yields cost savings through economies of scale, providing business owners the opportunity to allocate resources more effectively.

Additionally, participation in a PEP can enhance the competitiveness of a company’s retirement offerings. Employees are likely to find plans with a broader range of options compared to those available through individual employer plans. This can be a crucial factor in attracting and retaining top talent, particularly in competitive labor markets.

Despite these advantages, potential challenges accompany PEP participation. Joining a pooled plan limits customization options and transfers a degree of control from the employer to the PEP administrator. Transitioning from traditional retirement plans to a PEP involves a restatement and new implementation, necessitating careful communication with employees during this process.

In summary, while establishing a PEP may require navigating certain complexities, the benefits these plans provide, especially for small businesses, can outweigh the drawbacks. Financial experts emphasize that PEPs effectively address barriers often cited by small-business owners, such as high costs and administrative burdens. With approximately 55 million Americans lacking retirement savings—many of whom are employed by small businesses—PEPs offer a crucial solution to enable employers to provide essential retirement benefits.

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