For millions of Americans employed by small businesses, who do have a way to save for retirement, a pooled employer plan could be a game changer. According to the U.S. Bureau of Labor Statistics, there are approximately 38 million private sector employees who lack access to an employer-sponsored retirement plan.
The Department of Labor hopes that the growing interest in PEPs will influence small business owners to offer this new and innovative option to their workers. PEPs help level the playing field by ensuring small businesses have the same benefits and advantages available to employees of larger companies. The SECURE Act of 2019 laid the groundwork for PEPs, while the subsequent SECURE 2.0 Act of 2022 further cemented their position.
Because PEPs involve multiple participating businesses, typically there are much lower administrative and record-keeping costs, in comparison to single employer retirement plans. Additionally, when dealing with traditional plans, companies must engage with record keepers, investment advisors, legal or tax advisors, trustees, custodians, auditors, and in some cases, actuaries. The costs incurred for these additional services can add up quickly. An investment advisor alone may cost a company as much as $50,000 to $250,000 per year based on the company’s size. When using a PEP, however, these services are all grouped together with one provider that offers economies of scale.