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The Potential Benefits of a Pooled Employer Plan for Your Businesses

According to the U.S. Bureau for Labor Statistic, 27% of workers still do not have access to an employer-sponsored retirement plan.

Businesses today run into a variety of issues when it comes to incorporating a retirement plan into their benefits package. A traditional 401(k) may be too expensive, difficult to maintain, and risky for many employers. That is why the option of a Pooled Employer Plan, or PEP, has become more attractive to many organizations. Smaller businesses are enticed at the opportunity to offer a retirement solution to their employees that would be difficult otherwise and may also qualify for startup plan tax credits. Larger businesses, such as those with 100 or more employees, are attracted by the potential 80%-90% reduction in audit cost, the outsourcing of liabilities to specialized fiduciaries, and delegating much of their workload in running the 401k plan, etc. Today, many of the questions and concerns of employers can be answered by engaging in a Pooled Employer Plan (PEP).

What is a PEP?

A Pooled Employer Plan is a retirement plan designed to meet legislative requirements and reduce administrative burdens typically held by the employer. A PEP allows unrelated employers to pool resources to help achieve economies of scale and administrative efficiencies. With a PEP, employers can focus more on operating their business.

PEP vs. Traditional 401(k)

We can all agree that having a retirement plan is an important benefit and can help your company attract and retain employees. But what type of retirement plan is best for your company and your employees? In traditional retirement plans, the employer typically is the plan sponsor, which carries multiple fiduciary, investment and administrative duties. In a PEP, the plan sponsor role is outsourced to a professional third party known as a Pooled Plan Provider (P3). The Pooled Plan Provider also assumes the plan administrator and is a named fiduciary. This feature adds a significant layer of fiduciary protection not previously available. It cannot be emphasized enough that no retirement plan solution completely removes all the employer’s fiduciary responsibility, including PEPs. While you may delegate responsibility to a Pooled Plan Provider, the responsibility to ensure that the delegation is being carried out remains with the company.

The chart below outlines the differences between a PEP and a Traditional 401(k). So, you can see the benefits of each and make the best decision for your employees.

The management of a traditional 401(k) comes with many plan-related chores and expenses. Employers who adopt into a Pooled Employer Plan will eliminate their annual Form 5500 filings, individual annual plan audit, and will be able to aggregate their assets for potentially significant pricing leverage saving time and money.

Employees Engagement

74% of workers today indicate they would like help from their employer with their personal finances. Now more than ever, employees are looking for help and are willing to engage in financial discussions. In a study from Cerulli Associates in 2019, 18% of small business owners cited that they believe their employees would not participate in the plan as a reason not to offer a retirement plan. That is simply not the case. Employers offering a financial wellness benefits have seen a dramatic increase in usage rate from just 51% in 2012, to 68% today. The more you can offer your employees, the more likely they are to be engaged and the more likely they are to stay with your company.

How We Can Combat the Retirement Savings Gap

There is a serious problem with retirement savings in the United States. In 2022, over thirty percent of all private industry workers did not have access to a retirement plan at all. One of the significant factors contributing to this is the gap in retirement plan availability. This coverage gap is lagging the needs of employees. The PEP is a great solution to start closing that gap. Government social security and pensions are not what they once were, and employees now expect some form of retirement benefits as a part of their benefits package. So as a way to either recruit new employees or hang on to your current employees, engaging in a PEP is a great way to offer a fantastic solution to your employees without adding on additional workload or hefty fees.

OneDigital offers the OneDigital Open PEP for businesses with established retirement plans that typically have 100+ employees or $3,000,000+ in plan assets, and the Complete Retirement Solution PEP for small businesses that don’t currently offer a retirement plan or typically have under 100 employees or under $3,000,000 in assets. These two PEP options help businesses of all sizes provide retirement benefits with minimal costs and risk while taking the complexity out of financial benefits. Let our advisers help create a customized plan that suits the needs of your business and your employees.

Want to Learn More about pooled employer plan from our financial professionals? Watch our session: Fiduciary Academy: Understanding Pooled Employer Plans

Investment advice offered through OneDigital Investment Advisors LLC.