Joining vs Sponsoring a Pooled Employer Plan: Pros and Cons

PEPs can be a great solution for many small businesses, giving them the opportunity to attract and retain top employee talent while reducing their in-house costs, limiting their fiduciary responsibility, and providing access to potential tax credits. With such robust retirement program options now available for small businesses through the evolution of pooled employer plans, more of your clients may be considering offering retirement programs to their employees.

As you consider PEP providers, you’ll quickly see organizations sponsoring pooled employer plans are typically those with deep experience in this space—proven retirement plan leaders with pooled plans expertise. However, there are also organizations (such as gig economy employers, professional employer organizations, private equity firms and smaller financial services companies) who have benefited from sponsoring a PEP or offering a “white labeled” PEP product.

So that leaves you with a decision to make: Should you join an existing PEP, or do you and your firm establish your own?

Joining an existing PEP

With a focus on providing a simple, competitive program that reduces your client’s liability while offering attractive investment options for their employees, an established PEP offers a thoroughly vetted, turnkey solution for your clients. The pros of joining an existing PEP, such as The Ameritas PEP, include: 

• Ease of implementation: By choosing to join an existing PEP, employers can move more quickly into the implementation stage of their retirement program. Without the need to navigate complex legal and regulatory requirements, your clients can focus on sharing this new benefit with their employees and promoting participation.
   
• Expert oversight and administration: Employers can feel secure that the established PEP’s experienced team stands behind the plan—from setting up competitive investment options, to offering a seamless website and mobile app experience, to featuring reliable customer service.
   
• Trust in a proven leader: PEPs shift most of the employer’s fiduciary responsibility to the pooled plan provider (PPP)—someone who has been in the business of offering retirement plans for many years, in some cases. With the peace of mind knowing that a proven expert is serving as the pooled plan provider, business owners can focus on running their businesses, rather than worrying about how to run their retirement plan.

Read more about the power of the pooled employer plan in this article by Jim Kais, executive vice president, retirement plans.

There are some restrictions that come with joining an existing PEP, of course, primarily regarding investment choices. The investment menu is pre-determined. You and your clients will not have the ability to choose the funds in a pre-established PEP. This can be a concern for some financial professionals who want to have more say in what funds are included in the lineup of their plans. 

“At Ameritas, we’ve worked hard to ensure that the Ameritas PEP offers the best combination of elements business owners are looking for in a robust, well-managed retirement program,” explains Scott Holechek, Ameritas institutional sales leader and pooled employer plan thought leader. “The Ameritas PEP offers economies of scale through increased purchasing power, significantly reduced fiduciary liability, an experienced team to serve the plan, and features such as payroll integration, a fully transactional website and mobile app, and automated enrollment assistance and financial wellness education through GoalWise^SM.”

Sponsoring a pooled employer plan

If your firm or a client is looking to establish a retirement vehicle to service individual employers that do not have a commonality or nexus, a white labeled PEP may be a solution. Establishing a PEP could provide multiple advantages, such as:

Ability to serve your clients more fully, by:

• Transferring fiduciary responsibility by shifting the role of the named fiduciary and the administrative fiduciary from the employer to the PPP.
• Being able to manage your clients’ complete financial portfolio—business assets as well as personal 401(k) assets.
• Outsourcing the investment management responsibilities to another plan partner.
• Streamlining retirement plan management and administration.
• Reducing administrative burden with a single plan for audit and reporting, eliminating the need for individual plan audits, Form 5500 and government filings.

Control and end-to-end customer service of the retirement plan process: As the architect of your own PEP, you can establish a branded process that allows you to select the professionals servicing your plans, and have a voice in building the investment menu for your clients.

With these advantages come potential concerns that should be addressed and/or vetted by your team as you set up the PEP:

• Complexity of setup: You will need to establish or partner with a firm to operate as the PPP. The roles of the named fiduciary, ERISA named plan administrator and the party responsible for all plan administrative duties are transferred from the adopting employers to the PPP. The PPP may delegate responsibilities to partner firms. The PPP would have to make an initial registration filing at least 30 days (but not more than 90 days) before “beginning operations” as a PPP. It should be noted that the DOL takes the position that a PPP begins operations when it begins public marketing of a PEP.
• Unclear regulations: As the marketplace continues to evolve, it’s incumbent on the PEP owner to track regulatory requirements. One key concern is that, by providing investment services to the plan while serving as the PPP, there is a potential for creating a prohibited transaction. This could result in heavy and increasing penalties if not corrected in a timely manner.
•  Business focus: Many small business owners are drawn to PEPs so that they can improve internal efficiencies and keep their focus on primary lines of business. You may need to determine if sponsoring a PEP is a viable avenue to business expansion, or if you will be able to serve more clients more effectively by working with an established PPP. 

Taking the next step with PEPs

The possibilities offered by the changes in the retirement plans marketplace and the increasing popularity of PEPs are exciting and worthy of exploration.

Ultimately, every firm is different, with unique considerations in how you help your clients prepare for the future. That’s why at Ameritas, we offer multiple options for financial professionals to help meet their client’s needs, either by helping establish a new white labeled PEP or providing them access to the existing Ameritas PEP.

With an A+ Standard & Poor’s rating and an A AM Best rating for insurer financial strength¹, we’ve stood as a financial services leader for more than 130 years—and have served the retirement plan marketplace for more than 60 years. Offering $15.3 billion in retirement assets across more than 8,500 retirement plans, a state-of-the-art technical platform and dedicated service, we welcome the opportunity to share how we’re meeting the needs of today’s retirement market with our PEP solutions.  Learn more about Ameritas retirement plans.

Sources and References:

¹ Important disclosure information The ratings* assigned to Ameritas Life Insurance Corp. and Ameritas Life Insurance Corp. of New York provide an independent opinion of each insurer’s financial strength and ability to meet ongoing insurance policy and contract obligations. Standard & Poor’s and AM Best are recognized among the top authorities in analyzing insurance companies. Ratings are current as of June 2023 and subject to change.

*Ameritas Mutual Holding Company’s ratings by Standard & Poor’s include Ameritas Life Insurance Corp. and Ameritas Life Insurance Corp. of New York.

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