For most people the summer season is associated with relaxation, fun, family vacations and a generally slower pace. But for many business owners looking to establish a tax-advantaged retirement program for themselves and their employees, this can be a great time to review their options before things ramp-up in the fall and winter seasons.
One of the most common barriers for business owners considering an employer-sponsored retirement plan is concern with the complexity and liability associated with sponsoring a retirement program. As a result, many business owners prioritize finding solutions that help them efficiently meet the administrative and fiduciary obligations of a retirement plan while also balancing their hectic schedules. One popular approach with business owners in satisfying their obligations and mitigating risk with a retirement plan is to outsource many of the key responsibilities to third-party professionals.
Recently, a new retirement plan solution has emerged providing business owners with a viable option to consider when outsourcing. The Pooled Employer Plan (PEP) allows multiple unrelated employers to participate in a type of retirement vehicle that is maintained as a single plan while achieving economies of scale often associated with very large retirement plans. It operates similarly to a traditional stand-alone retirement program, but with the majority of administrative and fiduciary duties for the participating employers handled by the PEP program. Think of it as a big multiple employer program that permits any business owner to join the sponsoring plan.
- Needing to offload much of the retirement plan responsibilities because of stretched staff resources
- Very risk-averse with a desire to outsource responsibility and limit liability
- Seeking a comprehensive and bundled solution
- Looking to reduce certain plan administrative and compliance functions, such as plan audits and IRS Form 5500 tax filings
- Comfortable with the limited investment menus and plan design options associated with some PEP programs
To help ensure efficient and effective support for the participating business owners, there are several key roles associated with each PEP program:
- Pooled Plan Provider – responsible for managing the overall PEP program, along with overseeing plan operations and ensuring compliance with ERISA and IRS requirements.
- Investment Manager – responsible for the selection and monitoring of the investment menu.
- Plan Administrator – responsible for administrative and recordkeeping functions, including ERISA reporting, disclosure and tax filing requirements.
- Financial Professional – participating employers may select an independent financial professional to provide investment and financial planning guidance for the plan sponsor and plan participants.
Ultimately, recent regulatory action has led to an evolving retirement plan landscape. With multiple options and additional complexity, many business owners are searching for solutions that provide assistance with fiduciary, administrative and recordkeeping support. The introduction of the PEP program into the retirement plan marketplace provides another alternative for business owners to consider. There is no universal right or wrong answer for a business owner considering a stand-alone retirement plan option vs. a PEP option, as both solutions can provide access to outsourced retirement professionals and independent financial professionals; but each solution can also vary widely with respect to fees, services, investments and flexibility.
As PEP programs continue to gain awareness and traction, we’ll likely see an increasing number of business owners who already offer workplace retirement plans consider PEPs as a viable option in their plan review process. For business owners who have rejected a retirement plan for their business because they didn’t feel they could manage the additional administrative duties, PEPs may be a new pathway toward an enhanced employee benefit program. Consider speaking with one of our Benjamin F. Edwards financial advisors for any questions related to employer-sponsored retirement plans and retirement savings strategies.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
5770344 Exp. 07/31/2029