June 21, 2022

All Eyes on PEPs

Some small employers are warming to the plans.

Reported by Noah Zuss

More than half of smaller employers say they are interested in learning more about pooled employer plans, according to new data from the LIMRA Secure Retirement Institute. According to Deb Dupont, assistant vice president, worksite retirement at the institute, employers that already offer retirement benefits are showing more interest in PEPs. “Ironically, when there’s already a plan in place, we see smaller employers having a higher interest in PEPs than do those that don’t already have a plan. Interest in starting a plan is lukewarm at best among small non-plan-sponsor employers,” Dupont notes.

“Small employers that do have a plan—presumably a standalone—may be drawn to streamlined administration and the lure of lower costs and liability.” She points to provisions in this year’s Securing a Strong Retirement Act—dubbed SECURE 2.0 after the Setting Every Community Up for Retirement Enhancement Act of 2019; these aim to help small employers offer a plan and could “spike more interest in both standalones and PEPs,” she says.

Overall, interest has increased since Q4 2020, observes Terrance Power, president of pooled plan provider The Platinum 401k, who is not affiliated with LIMRA’s research. “We have seen sponsor interest in PEPs increase significantly,” he says.

“Plan sponsors are reviewing the options available to them to determine which PEP would best suit their company’s plan and participants,” he says. In 2020, a handful of PEPs were established, Power says, and the number has increased. He pegged it at 233, based on Department of Labor registration-site figures.

“The sweet spot for most PEPs appears to be the sponsor that’s subject to an annual plan audit as part of its Form 5500 filing,” says Power. “There can be a significant cost savings available to the company, as well as a dramatic fiduciary liability offload. Our typical adopting employer has around 150 employees and $5 million in current plan assets,” though some larger companies with plan assets approaching $100 million are also showing interest, he says.