Employers looking to offer retirement benefits are increasingly exploring pooled arrangements such as Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs). Both structures allow multiple businesses to participate in a single retirement plan, typically a 401(k), with the goal of reducing administrative complexity and potentially lowering costs.
As retirement plan rules have evolved in recent years, these pooled structures have gained attention as a way for smaller employers to offer benefits that might otherwise be difficult to manage on their own. While the two approaches share some similarities, there are important differences in how they are structured and how much flexibility employers retain.
A Multiple Employer Plan, or MEP, allows two or more employers to participate in a single retirement plan sponsored by a central organization. Traditionally, these plans have been organized by trade associations, professional employer organizations, or similar groups representing employers with a common connection, such as operating within the same industry.
Pooling employees and plan assets can create economies of scale that may help lower investment and administrative expenses. Certain plan management functions can also be handled centrally, reducing the workload for individual employers. For smaller businesses that may not have the internal resources to manage a retirement plan on their own, this type of arrangement can make offering a workplace retirement benefit more manageable.
MEPs do come with some trade-offs. Because decisions about plan design, investments, and administration are typically made at the overall plan level, participating employers may have less flexibility to tailor the plan to their workforce. In addition, traditional MEP structures generally require employers to share a common nexus, such as belonging to the same trade association or industry group, which can limit participation.
Pooled Employer Plans, or PEPs, were introduced under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Like MEPs, PEPs allow multiple employers to participate in a single retirement plan. The key distinction is that employers do not need to share any industry or organizational connection to participate.
PEPs are administered by a pooled plan provider, which serves as the plan’s named fiduciary and handles many of the plan’s operational and compliance responsibilities. In practice, the provider oversees tasks such as plan administration, required filings, and day-to-day oversight of the plan. For participating employers, this structure can significantly reduce the administrative burden associated with maintaining a retirement plan.
The potential advantages of PEPs are similar to those offered by MEPs. Pooling assets across many employers can help drive cost efficiencies and provide access to professional plan management that might otherwise be difficult for smaller employers to obtain. At the same time, because the plan is administered centrally for many participating companies, plan features and investment options may be more standardized than they would be in a standalone plan.
Recent legislation has helped make pooled plans more attractive to plan sponsors. The SECURE Act eliminated the so-called “one bad apple” rule, which previously meant that a compliance failure by one participating employer could jeopardize the entire plan. The law also created the framework for PEPs, allowing unrelated employers to participate in the same pooled arrangement. Subsequent legislation, including SECURE 2.0, expanded tax credits that can help small employers offset the cost of establishing a retirement plan.
For many small and mid-sized businesses, MEPs and PEPs provide an alternative to sponsoring a standalone retirement plan. The right approach will depend on how much control an employer wants over plan design, how comfortable they are sharing plan responsibilities with other employers, and whether the efficiencies of a pooled structure outweigh the potential loss of customization.
For questions about MEPs, PEPs, or other retirement plan considerations, please contact us to discuss your organization’s goals and whether a pooled arrangement may be worth exploring with your legal and tax advisors.
This material is provided for general educational and informational purposes only and is not intended to be, nor should it be construed as, legal, tax, or investment advice. Employers should consult their legal, tax, and other professional advisors before adopting or changing any retirement plan arrangement. Sentinel Group and its affiliates do not provide tax advice. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.
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