By Mike Lee
For small businesses, an age-old problem has been providing appealing incentives to employees without the resources of larger companies. It can be extremely difficult to attract good workers when the huge company down the street is offering perks you couldn’t hope to match.
Fortunately, as far as retirement plans go, there are solutions to keep your business competitive against the giants in the field. A Pooled Employer Plan or a PEP allows your small business’s employees to reap excellent retirement benefits with the added bonus of saving you from extra stress and time-consuming work.
Should Your Business Consider a PEP?
While every small business’s needs are unique, there are some similarities. When it comes to retirement plans, it can be difficult to attract employees unless you can offer them some security once they reach retirement age.
A PEP provides a solution to this issue. PEPs essentially operate as group retirement plans made up of a variety of businesses which may or may not be related. Each of these companies enters into a plan which is organized and overseen by a PPP or a Pooled Plan Provider.
Why Choose a PEP Over a Standalone 401k for Your Business?
While there are multiple benefits to standalone 401ks and PEPs alike, most small businesses would likely prefer to enter into a PEP.
Below is a comparison between the two types of plans:
- In a PEP, the Pooled Plan Provider acts as the fiduciary. This saves the employer a significant amount of time and effort. When it comes to a standalone 401k, the employer acts as the fiduciary.
- While the PEP has many benefits, Standalone 401k plans offer the most customizability and flexibility. Pooled Employer Plans do not offer the capability of creating customized investments or vesting schedule options. Standalone 401ks offer these options, so if customizability is the main concern for you, the PEP may not be the best choice for your business.
- Form Filing Responsibilities. The employer bears the responsibility of filing all necessary paperwork each year with a standalone 401k. In a PEP, the Pooled Plan Provider is the responsible party for filing these documents, freeing up the employer to focus on other aspects of the business.
- Audit Management and Other Procedural Items. It can’t be stressed enough: In a PEP, a Pooled Plan Provider takes care of all of the stressful elements inherent in a retirement plan. In contrast, in the standalone 401k, these responsibilities fall on the employer.
What are the Advantages of PEPs for Employers and Workers?
The benefits of PEPs can be neatly categorized by the benefits as they relate to employers and workers alike.
- Employer Benefits. Business owners enjoy a hassle-free plan which is managed almost completely by another party (the PPP). As a result, the employer has less risk, saves time, and enjoys excellent cost options on plans.
- Worker Benefits. On the other side of the coin, employees enjoy retirement education opportunities and easy to manage investment options that make planning for retirement a simple process.
Bottom Line
If you are a small business and you are considering opting for a PEP for your company, know that there are plan providers who can assist you with any questions you may have.
