A New Age for PEPs

The Setting Every Community Up for Retirement Act of 2019 originally created pooled employer plans for small businesses. When PEPs first launched in 2021, they offered a streamlined process for smaller organizations that had fewer resources to provide retirement options for their employees.

The SECURE 2.0 Act of 2022, which passed in December 2022, expanded PEP provisions to include 403(b) plans, broadening access for nonprofits and educational institutions. It also extended startup tax credits, allowing small employers joining PEPs to qualify for a three-year credit, regardless of the PEP’s length of existence, to help offset costs for new defined contribution plans.

Now, PEP growth is accelerating, with assets held in PEPs more than doubling at Ascensus LLC over the last year.

Lower Audit Costs Lure Larger Plans

The initial SECURE Act stated that PEPs were not required to be audited until they had at least 1,000 participants. In February 2023, the U.S. Department of Labor reduced that threshold to 100 participants, sparking significant integration of larger plans into PEPs, according to Kate Whitmore, Ascensus’ vice president of business development and pooled plan practice leader.

“In my opinion, that guidance in 2023 shifted the mindset that PEPs aren’t just for startups and small employers,” Whitmore says. “As soon as you hit 100 participants, the PEP’s going to be subject to an audit, so you might as well get as many adopters into the program [as possible]—adopters of all sizes—to … facilitate the cost of the audit.”

Audit costs are a major factor as companies weigh options for their retirement plans. Mark Beaton, vice president of retirement plan consulting at OneDigital, recalls one nonprofit that approached audit level and weighed its options for handling the audit. When Beaton suggested a PEP, the biggest pushback from the nonprofit was that its investment menu included environmental, social and governance funds, and it did not want to risk losing them.

“A quick realization was: ‘People aren’t even using the ESG fund anyway. I don’t think this should hinder us from going into a PEP,’” Beaton recalls. “[They could] save the money [and time] on the audit … and also stay with the exact same recordkeeper, just shifting to a pooled plan product, without having too much headache of disrupting the participants’ user experience.”

Market Growth

Ascensus has seen significant growth in its PEP assets, growing to $2.5 billion in assets under management earlier this year, approaching $3 billion, from more than $1 billion in 2024, according to Whitmore.

In an email to PLANADVISER, Sean Jordan, Principal’s head of core and middle market segments, wrote that Principal’s PEP offerings have seen major growth. Among new small market PEP adopters, nearly 70% were starting a plan for the first time, and of those first-time users, 75% had fewer than 100 participants. But Principal is also seeing growing interest from midsize and large employers, who are seeking to reduce administrative complexity and fiduciary risk.

“What started as a niche offering now represents billions in assets and thousands of participating employers,” Jordan wrote.

Beaton says OneDigital’s PEP assets have grown “significantly,” and there is more growth on the horizon, since more states are adopting mandates that require all employers to offer retirement plans to their employees, either on their own or by enrolling them in a state-run plan. 

“There’s so much regulation on retirement plans; it makes it difficult for a business to stay compliant,” Beaton says. “PEPs are operated by a group of professional organizations that are going to make sure you, as an organization, are compliant. … I really see [PEP] growth exploding across the board, regardless of the size of the organization.”

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