Choosing the right retirement plan for your employees isn’t one-size-fits-all. With the evolving needs of growing businesses, it's important to understand your options beyond the traditional Single Employer Plan (SEP). Today, more companies are exploring Pooled Employer Plans (PEPs) and Multiple Employer Plans (MEPs) as viable alternatives. So, how do these options compare, and which one makes the most sense for your business? Let’s break it down.
Single Employer Plans (SEPs): Full Control, Full Responsibility
The SEP is the most commonly used 401(k) structure today. It gives employers full control over plan design and investment options, making it ideal for companies seeking maximum personalization. However, that control comes with full fiduciary and legal responsibility.
If your SEP hasn’t been reviewed in the last five years, you could be missing out on newer plan designs that improve efficiency and employee outcomes.
Pros:
- High flexibility in plan design and investments
- Fully tailored to your company’s goals
Cons:
- Employer wears all fiduciary hats (Plan Sponsor, Administrator, Trustee) - High Risk
- Time-consuming daily and annual administrative tasks
- Subject to individual audits if the plan has 100+ participants (estimated expense $10,000 - $20,000)
- May lack pricing efficiency compared to pooled models
Multiple Employer Plans (MEPs): Shared Structure, Shared Risk
MEPs have been around since ERISA began in 1974. MEPs allow employers, often part of an association or under common ownership, to participate in a shared plan structure. Each participating company retains certain fiduciary duties and is responsible for its own compliance filings, meaning administrative burdens remain.
While MEPs can offer some cost savings and efficiency, they are not as customizable as SEPs. Fiduciary risk is still shared rather than fully offloaded.
Pros:
- Economies of scale may reduce fees
- Still allows for some plan design flexibility
- Suitable for companies with a common bond (association or similar ownership)
Cons:
- Each employer still carries fiduciary responsibility
- Separate Form 5500 and audit requirements
- Limited customization depending on MEP provider
- Compliance is still on a per-company basis
Pooled Employer Plans (PEPs): Streamlined and Scalable
The SECURE Act paved the way for Pooled Employer Plans, allowing unrelated employers to band together in a single plan. With a Pooled Plan Provider (PPP) serving as the named fiduciary, plan sponsor, and administrator, PEPs dramatically reduce the employer’s administrative and fiduciary responsibilities. This makes them attractive for mid-size businesses seeking simplicity, reduced liability, and potential cost efficiencies, especially as more providers adopt and refine the PEP model.
Pros:
- Minimal fiduciary responsibility for the participating employer
- One audit and one Form 5500 for the entire plan
- Payroll integration and support are often included
- Designed for scalability and administrative ease
Cons:
- Investment decisions are often delegated to a 3(38) fiduciary, which may limit direct control over fund choices, but can reduce your liability
- May not suit employers needing a highly customized plan
With their broader appeal and simplified compliance, many MEPs are transitioning into PEPs. Businesses appreciate the built-in oversight and cost efficiency that PEPs provide.
How to Choose the Right Plan for Your Business
Choosing the right retirement plan structure comes down to your company’s goals, size, growth trajectory, and appetite for fiduciary responsibility.
- If you want full customization and control, and are comfortable with the associated fiduciary duties, a SEP may still make sense.
- If you’re looking for some cost-sharing and can align with a common group, a MEP might be the middle ground.
- If you’re seeking simplicity, scalability, and fiduciary relief, a PEP may be your best fit for you. One-person HR teams could benefit greatly from this model.
No matter what your current setup, now may be the perfect time for a review. If it’s been several years since your last evaluation, exploring MEPs or PEPs could reduce your burden, streamline operations, and uncover cost efficiencies.
Not sure where to begin? Our team can help you assess your options and find the right fit for your business! Reach out today.