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In Practice September 25, 2026
PEP Efficiency: Well Worth the Customization Limits
The reduced administrative complexity and fiduciary responsibility in pooled employer plans often outweigh any perceived loss of control.
Reported by
Mallika Mitra
Pooled employer plans can alleviate the work required by small businesses to offer employees a retirement savings plan and can potentially lower costs. As a result, their popularity is booming: Since being introduced by the SECURE [Setting Every Community Up for Retirement Enhancement] Act of 2019 and officially hitting the market in 2021, total PEP assets have grown to more than $33 billion as of year-end 2025, according to the 2026 PLANSPONSOR Recordkeeping Survey, published by PLANADVISER’s sister publication.
But while businesses enrolled in PEPs can outsource administration, fiduciary liability and other duties to a pooled plan provider, sponsors also have fewer customization options than in a stand-alone 401(k) or similar account. For many, it is a trade worth making.
“Small businesses and small employers definitely want attractive retirement and employee benefits in general, but they also are strapped so thin with the amount of staff they have to manage those—and the staff are usually not subject matter experts in retirement plan administration or learning how to vet vendors,” says Tom Krusic, a financial consultant at Intellicents. “They just want a turnkey solution, at the end of the day.”
Plan Design Customization
Three or four years ago, PEPs had even less flexibility, says Brad Sieniawski, a senior consultant at PlanPilot. Now, plan design considerations are “fairly customizable and fairly impressive at either the recordkeeper or [third-party administrator] level,” he adds. “That’s really taken a major pain point out of the whole PEP discussion.”
For example, Sieniawski says plan sponsors in PEPs can offer employer matching formulas that are very similar, if not identical, to those available in traditional 401(k) plans, including common safe harbor and discretionary matching structures.
Automatic enrollment, vesting schedules, loans and distributions are also customizable. Bruce Harrington, vice president of strategic development at Pentegra, says his firm lets each adopter in a PEP design what is right for their plan.
“We put very few restrictions, and any restrictions that we put in place are generally limitations that the recordkeeping partner … has,” Harrington says. “From a plan design perspective, it’s very wide open. … PEPs come in all shapes and sizes.”
One thing they do tend to avoid is immediate eligibility, since it is an administrative challenge: By the time the employer signs up and shares information, Harrington says everything is already late . Pentegra typically prefers 60 days before eligibility.
What Plan Sponsors Care About
The features of PEPs that typically matter most to plan sponsors are those that directly affect the employee experience and the employer’s workforce strategy—such as employer matching, contributions, eligibility provisions, automatic enrollment, automatic escalation and vesting schedules. Those features influence participation rates, recruiting, retention and overall plan outcomes, says Patrick McCallister, manager of institutional sales at Henderson Brothers Financial Partners.
McCallister says sponsors tend to place far less importance on customizing administrative processes or building unique investment menus.
“Most small and midsize businesses are primarily concerned with achieving strong participant outcomes while reducing fiduciary and administrative burdens,” McCallister says. “They often prefer streamlined solutions, rather than highly customized structures.”
While the operational efficiency and fiduciary support provided by PEPs come at the cost of accepting a degree of standardization—and, in theory, giving up some control of plan governance, investment menu construction and certain administrative decisions—that is not happening in practice.
“Many of these are decisions that employers neither want, nor regularly exercise themselves,” McCallister says. “For many small businesses, the trade-off is largely rhetorical, because they were already relying heavily on outside providers, recordkeepers, consultants and fiduciary specialists to make or support those decisions.”
The 3(38) Role
The trend across the retirement plan industry has moved toward professionally managed investment menus, model portfolios and 3(38) investment manager arrangements, according to McCallister.
“Plan sponsors increasingly recognize that investment oversight is a specialized discipline and are comfortable delegating those responsibilities to fiduciary professionals,” he says. “While some larger organizations may maintain customized lineups, most small and midsize employers prioritize prudent governance and participant outcomes over direct investment-menu control.”
His firm sees relatively few small employers actively customize investment lineups on an ongoing basis. For employers already using a 3(38) investment manager, the difference in the loss of investment-menu control on a PEP is often minimal.
“In both situations, the employer has largely delegated investment selection and monitoring responsibilities to investment professionals,” McCallister says. “The practical reality is that the employer was not making day-to-day investment decisions before and is not expected to do so afterward.”
Harrington says many of Pentegra’s PEPs are built in conjunction with 3(38)s that are also distributors. For example, a brokerage firm with a 3(38) provider could partner with Pentegra on a PEP that would only be sold by advisers that work for that brokerage firm.
PEP Misconceptions
One may think sponsors lose more control with PEPs than with single-employer plans, but Krusic says that is not the case. Rather, he says, a PEP provides a competent team that is a resource and extension of a corporate team, plus an advocate for both employers and employees. Plan sponsors and administrators are still in charge of vendor selection and plan design. He estimates that 95% of businesses do not need customization in their plans; they merely need an employee benefit program to attract and retain talent.
It is uncommon to see an employer reject a PEP because of inability to customize, McCallister says. Most employers that decide against a PEP do so because they have a unique organizational requirement, such as a highly specialized profit-sharing allocation formula, complex controlled-group considerations or an established governance process they want to maintain.
Another misconception about PEPs is that they handle all the employer’s work related to the plan.
“There’s definitely less work in a PEP than there is in a single plan, but the employer still has some fiduciary responsibility,” Harrington says. “They need to make sure that they’re making the right decision when they’re choosing to go into a PEP.”
