PEPs Are Gaining Ground: How New SEC Guidance Reduces a Key Barrier

Since PEPs (Pooled Employer Plans) were introduced in 2021, one persistent source of friction has been access to Collective Investment Trusts (CITs), a key component of lower-cost, institutional investment lineups. Recent SEC staff guidance reduces that friction.

Single-employer plans like traditional 401(k)s have always had reliable CIT access. PEPs, despite being designed to make retirement plans more accessible for small businesses, were left in a grey area that limited their options. The new guidance changes that.

New to PEPs? Start here → The Potential Benefits of a Pooled Employer Plan for your Business

 

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First: Why CITs Matter for Costs

A Collective Investment Trust (CIT) is a type of investment fund available only to through certain tax-qualified retirement plans, like 401(k)s ^[1]. Because they're not marketed to the public, CITs generally avoid the registration, compliance, and distribution costs that drive up mutual fund expenses, and pricing tends to improve as assets in the pool grow. The result: comparable investments, often at a lower cost to plan participants.

Why PEPs Struggled to Access CITs

CITs are generally exempt from SEC registration requirements, but those exemptions were written with single-employer plans in mind. Two issues created friction for PEPs specifically.

The Rule 180 Problem

Rule 180 allows CITs to avoid registration if a plan covers employees of a single employer ^[2]. A PEP, by design, covers multiple unrelated employers, making it difficult for CIT sponsors to determine whether a PEP qualified under that exemption.

The Self-Employed Complication

A separate rule covers plans with self-employed participants, freelancers, sole proprietors, partners, but it only applies when Rule 180 already qualifies. Because PEPs struggled to meet Rule 180, this created a compounding problem: many CIT providers excluded PEPs with self-employed participants rather than take on the compliance risk. 

What the Recent SEC Staff Guidance Changes

In a recent Staff Statement, SEC staff indicated they will not object if a PEP treats itself as a single-employer plan for certain exemption purposes, provided the plan is covered by ERISA and qualifies as a tax-qualified retirement plan. The guidance also shifts how the decision-maker requirement is applied: rather than evaluating each individual employer in the PEP, the Pooled Plan Provider (PPP), the single company responsible for running the plan, is treated as the qualified decision-maker.

The practical effect:

The guidance may make some CIT providers more comfortable evaluating PEPs for eligibility.
Some PEPs that include self-employed workers may gain access to a broader range of investment options
Small businesses joining a PEP may have access to investment menus that resemble those available in some larger employer-sponsored plans

While CITs can offer cost advantages, pricing and availability still vary by provider and plan.

 

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What About MEPs?

The application of this guidance to MEPs is less clear. Most SEC exemptions for CITs require the plan to represent a single employer, a condition PEPs can now satisfy through the PPP structure, but MEPs cannot clearly replicate. Without a defined single decision-maker, CIT sponsors have reason for caution. In some MEP arrangements, mutual funds remain a primary investment vehicle, which can result in higher investment-related costs for participants than arrangements that make broader use of CITs

What This Means for Plan Sponsors

This guidance does not create new law but may reduce certain interpretive uncertainties that had affected how some market participants evaluated PEP eligibility for CITs. For plan sponsors evaluating their options, PEPs with CIT access are now a more viable and predictable structure than they were before.

Navigating PEP structures, CIT access, and provider comparisons takes expertise. A Retirement Plan Consultant can walk you through your specific situation and help you evaluate whether a PEP is the right fit.

Whether a PEP makes sense depends on the specifics: employer size, existing plan complexity, and provider capabilities. But sponsors running standalone 401(k)s at scale, or considering a MEP, now have a clearer basis for comparing PEPs on both cost and structure.

 

Looking to learn more about managing a retirement plan? Explore OneDigital's Fiduciary Academy.

 

^{[1] https://www.investor.gov/introduction-investing/investing-basics/glossary/collective-investment-trust-cit}

^{[2] Staff Statement Regarding Pooled Employer Plans. (2026, May). https://www.sec.gov/newsroom/speeches-statements/im-staff-statement-pooled-employer-plans-050426}