How Small Businesses Can Customize Retirement Plans Your Employees Really Want

December 4, 2023

There’s a new(ish) kid in town who has come to level the playing field of retirement plans when it comes to small businesses. The SECURE (Setting Every Community Up for Retirement Enhancement) Act was passed in 2019 and expanded coverage of qualified retirement plans to all, allowing small, unaffiliated businesses to combine their resources to lower expenses, reduce liability, and ease administrative responsibilities.

The Pooled Employer Plan, or PEP for short, officially came on the scene in 2021. Before the SECURE Act, multiple employer retirement plans required the companies to be related by industry or association. The Pooled Employer Plan creates an option for multiple organizations, regardless of their affiliations, to band together to offer the employees of their small businesses first-rate plans at affordable prices.

In this article, we will discuss what a PEP plan is and how it works, its many benefits, and how easy it is to compare your options with Syndeo as your premier HR partner. 

What is a PEP? How it works.

A Pooled Employer Plan is just what it sounds like: a pool of resources from small, unrelated businesses that allows them to source retirement plans with the same buying power as that of bigger companies. It is administered by a Pooled Plan Provider (PPP), which could be a registered investment advisor, third-party administrator, or a professional employment organization (PEO) like Syndeo. 

When you participate in a PEP, the burdensome administrative tasks of setting up the plan options and coordinating with vendors and investment managers shift to the PPP. As the plan sponsor, the PPP assumes the significant fiduciary risk that falls to the employer in a traditional 401(k). The PPP can help design the best plan for your scenario and advocates on behalf of clients who participate in the PEP. They also assume responsibility for the year-end tax audits, including discrimination testing, saving the employer tens of thousands of dollars. 

Benefits of a PEP

Traditionally, retirement plan options have been costly, time-consuming to administer, and pose a considerable amount of risk for a single organization. The Pooled Employer Plan disperses the expense, spreads the risk, and alleviates the administrative burden that traditional 401(k) plans place on small businesses. 

One of the chief advantages of opting into a PEP is the reduced fiduciary responsibility that your company will take on. Instead, that responsibility will fall to the plan administrator, who is required by ERISA (Employee Retirement Income Security Act) law to steward the plan in the sole interests of its participants and beneficiaries. This decreased burden offers a tangible convenience to many employers and business owners who lack a comprehensive understanding of retirement plans. Even though you are delegating control over how the plan is managed in the day-to-day operations, you will free up valuable time to concentrate on the growth and expansion of your business.

Another advantage is the overall lowering of fees associated with the PEP retirement plans while still maintaining a strong buying power. As small business owners, you are likely aware that a small holding has astronomical fees that make offering an affordable plan to your employees difficult. When pooled together, small businesses can use their collective pool of money to create a considerably stronger buying power of investments, just like a large corporation can. Capitalizing on the larger buying power means you can offer a customized retirement plan option at a fraction of a traditional 401(k) price.

One significant advantage is the flexibility for the business owner to set the parameters of the plan, including participant requirements, matching requirements, and the vesting schedule. These guides can be established based on your overall budget and yearly contribution budget and are specific to your company. Because every business participating in the PEP can set its parameters in ways that work for them, PEP employers have a high employee participation percentage in their retirement plans. In this sense, they are truly offering affordable coverage that suits their employees even though they may be a small business. 

Benefits to Syndeo’s Pooled Employer Plan

Beyond choosing to participate in Syndeo’s PEP, knowledgeable investment advice and sound retirement planning services are built into our model. Our PEP has access to all major fund families so you are not limited to a group of proprietary products. Our full lineup does not limit your choice as the best performing investments and funds, and employees can customize their own investment lineup with complementary advising from our financial advising firm. 

Reducing your fiduciary liability makes offering an affordable retirement option less risky for your small business. Syndeo assumes fiduciary liability and risk while taking on the administrative burden that would otherwise fall to you as the business owner. Opting into Syndeo’s PEP removes those burdens and risks so you can focus on scaling your business. 

Those are great benefits, but how do I know a PEP is right for my business?

If you want to attract top talent, offering a retirement plan is a must. As a small business owner, joining a PEP makes it not just possible but affordable, too. Additionally, if you are looking to relieve yourself of the burdensome fiduciary responsibility and investment management tasks, a PEP takes that burden away. Finding a trustworthy PPP is the key to ensuring that retirement plans meet your expectations. 

If you already offer a retirement plan for your employees, don’t be afraid to compare the costs of a single-company traditional 401(k) plan with a PEP. If there is no significant cost savings, then you know that the plan you offer is the best one available for your company. However, if there is a significant cost savings, that is money you can put back on your profit sheet or into your business. 

Even running the numbers can save you in the long-run.

Consider this intriguing, real-life example: Earlier this year, we completed a cost analysis for a potential client who sponsored their own retirement plan. We had been nurturing this lead for some time, and our analysis compared their existing plan costs to what they could achieve by transitioning to our PEP, considering both administrative and fund class expenses. Imagine their surprise to discover that our PEP would save them $25,000/year in total costs! 

In our plan, this cost savings would be 100% allocated to the employees (all costs under our plan are allocated on a pro-rata basis to each employee with an account balance). This specific example beautifully illustrates how our Pooled Employer Plan can empower businesses to make financially savvy decisions.

It’s easy to get started with Syndeo.

Step 1: Set up a consultation with our financial advisory firm. 

In this meeting, we will provide a high-level overview of our plan, who is involved in servicing it, and address the specifics of the adoption paperwork.

Step 2: Work together to set your company’s eligibility and match requirements. 

Here is where you, as the employer, choose the specific requirements an employee must meet in order to qualify for the plan. Eligibility can range from immediate entry up to one year of employment with 1,000 work hours required. In addition, you can set different eligibility rules for a company match. If you prefer to have a short eligibility period for employees to contribute from their own paycheck, but prefer that they be employed for a certain period of time before they start receiving the company match, we can establish those parameters as well. This flexibility allows each adopter to structure their plan to fit both the company’s and employees’ needs.

Because you can tailor the match rules or opt not to provide a match altogether, the choice is entirely yours. During our consultation call, we'll collect the necessary information to assist you in determining the appropriate match, thereby preventing any potential problems during year-end non-discrimination testing.

Step 3: Develop a vesting schedule if you want one. 

After we settle on a matching option, we will guide you through setting a vesting schedule if necessary. A vesting schedule assigns specific employment terms that an employee must meet in order to qualify for the match that the company contributes to their account.  It’s up to you whether you want to implement a vesting schedule, and if so, what that schedule should look like. But don’t worry. Your team at Syndeo will assist you in making the decisions that best fit your situation.

Check to see if a PEP is right for your company.

Pooled Employer Plans have leveled the playing field for small businesses when it comes to offering customized retirement plans that their employees truly desire. If you're a small business owner looking to attract top talent or ease the burdens of retirement plan management, a PEP may be the solution you've been searching for. Syndeo is a trustworthy Pooled Plan Provider and your premier HR partner. To explore how a PEP can benefit your business and employees, and to take the next step towards providing a retirement plan that aligns with your goals, contact Syndeo today.

Have you considered a Pooled Employer Plan in the past, but didn’t know how to get started? Don’t forget to like, share, and subscribe to our newsletter for more thought-provoking HR content from Syndeo. If you want to learn more about how outsourced HR services can get you back to business, contact Syndeo today!

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