The 2019 SECURE Act allows any business to join a new type of Multiple Employer Plan (MEP) called a Pooled Employer Plan (PEP). These one-size-fits-all plans offer a simple, cost-effective path to retirement savings by allowing multiple employers to share the same retirement plan and split administrative expenses.
But are MEPs and PEPs the best retirement savings solutions for small businesses and solopreneurs? Read on to learn more about how MEP and PEPs work, and how they compare to traditional employer-sponsored 401(k)s.
What Is a MEP?
The Multiple Employer Plan is a retirement plan that many different employers may join and participate in. The MEP is established and administered by a Professional Employer Organization or MEP organizer and plan fiduciary. The Department of Labor requires one Form 5500 as long as the employers are in the same geographic region or industry. Historically, MEPs were subject to a problematic “unified plan rule,” which meant “one bad apple” that failed nondiscrimination testing or fell out of compliance could “spoil the bunch” and disqualify the entire plan. However, the SECURE Act provides greater protection against this rule, while also making it easier to establish an MEP and allowing a new type of MEP called a Pooled Employer Plan.
What Is a PEP?
Newly offered in 2021, Pooled Employer Plans operate much like MEPs with multiple employer savings accounts managed as one plan by a single organizer. As long as the plan is sponsored by a Pooled Plan Provider registered with the Department of Labor and Internal Revenue Service, there is no need for businesses to share a common industry or geographic location. Unlike a MEP – which allows different types of retirement plans – a PEP must be drawn up as a 401(k) plan. Pooled Plan Providers are named as the plan administrator and fiduciary, and they are also protected by fidelity bond.
Which Plan is Best for Your Small Business?
Pooling plan assets with either a MEP or a PEP allows employers to reduce administrative expenses, fiduciary responsibility, and documentation. However, the requirements that a Pooled Plan Provider be named as a fiduciary and plan administrator opens the door to potential conflicts of interest. What if the financial professional or institution in charge is affiliated with the investments selected for the plan? Without an honest provider, these plans can become self-serving – at scale.
The idea of sharing expenses and administration may be attractive to small and medium-sized businesses, but with these plans there may be less customization, fewer investment options, and little control over participant experience – which may not be right for you.
There is an alternative: employers can establish their own 401(k) plan for employees, where the employer retains operational and investment responsibility. The employer selects the plan design features that fit employee needs, picks the administrator that oversees plan management and provides education to employees, and chooses the menu of investment options that will be available to employees.
If you’re a small business owner just looking to cover yourself (and potentially a spouse), you may consider a Solo 401(k) as a fairly simple retirement plan. Ubiquity now offers a full-service solo 401(k) option called the Single(k) Plus, tailored to solopreneurs, freelancers, and the self-employed. Solopreneurs can make contributions, track assets, receive customer service support, take out loans, choose from model portfolios, and select their own investments (including newly available environmental, social, and governance fund options). Contact us to learn more about starting a small business 401(k) with Ubiquity.
