Modernizing Retirement: The Emergence and Impact of Pooled Employer Plans

The evolving landscape of employee benefits has seen a significant shift with the introduction of pooled employer plans (PEPs). These plans allow unrelated businesses to band together to offer retirement benefits, streamlining administrative responsibilities and potentially reducing costs.

By understanding the roles, responsibilities, and audit requirements, employers can better navigate the complexities of effective PEP management and compliance and help improve their employee benefits offerings.

What is a pooled employer plan?

The SECURE Act created pooled employer plans (PEPs) by amending the Employee Retirement Income Security Act of 1974. A PEP is a type of retirement plan that allows multiple unrelated employers to participate in a single plan. PEPs are designed to reduce the administrative burden and fiduciary liability for employers, while providing cost-effective and diversified investment options for employees.

PEPs are distinct from multiple employer plans as they don’t require participating employers to have a common link, thus broadening the accessibility for various businesses to join. 

By pooling resources, administrative costs and investment fees can be significantly reduced, resulting in potential cost savings for employers and participants.

Roles and responsibilities within a PEP

A PEP is administered by a pooled plan provider (PPP), which is responsible for most of the fiduciary and administrative duties of the plan. In addition, a PEP must engage an independent qualified public accountant (IQPA) to perform an annual audit of the plan’s financial statements and compliance with applicable laws and regulations.

However, employers who join a PEP are not completely relieved of their roles and responsibilities. According to the Department of Labor, employers still have the following obligations:

Selecting and monitoring the PPP

Employers must act prudently and in the best interest of their employees when choosing a PPP to manage their retirement plan. They must also monitor the PPP’s performance and fees on an ongoing basis and replace the PPP if necessary.

Providing accurate and timely data to the PPP

Employers must provide the PPP with all the relevant information about their employees, such as names, dates of birth, compensation, contribution rates, and enrollment status. Employers must also update the PPP promptly if there are any changes or errors in the data.

Complying with the plan document and the law

Employers must follow the terms and conditions of the plan document, which is established by the PPP and adopted by the employers. Employers must also comply with the applicable federal, state, and local laws and regulations governing the plan, such as the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Pension Protection Act.

PEPs are a significant advancement, allowing unrelated businesses to participate in a unified 401(k) plan managed by a pooled plan provider. These plans are designed to alleviate the complexities and burdens often associated with retirement plan management, particularly for small businesses.

Audit requirements and processes for PEPs

PEPs must adhere to specific audit requirements similar to traditional single-employer plans. However, instead of each employer undergoing an individual audit, a consolidated audit is performed for the entire plan. The PPP facilitates the audit and works with adopting employers to gather necessary data.

To effectively contribute to the streamlined audit process, employers need to keep their records accurate and available. Employers should maintain the following documents for each plan year:

• Payroll records, including wages, hours, and contributions for each employee
• Demographic data support for each employee

Employers should also respond promptly to any requests from the PPP or the IQPA for additional information or clarification. Employers should cooperate with the PPP and the IQPA to enable the audit to be completed on time and accurately reflect the plan’s financial and compliance status.

Advantages for PEP participants

Although the audit is not conducted specifically for the benefit of plan participants, it can still offer numerous advantages:

• Auditors test samples of plan participant contributions, distributions, and investment earnings for completeness and accuracy.
• Findings from an audit can provide constructive feedback that can help plan sponsors and administrators make necessary improvements or corrections, helping the plan to operate in line with plan provisions and ERISA standards.
• Audits can reveal operational deficiencies over the participating employer processes related to eligibility, contribution calculations, and remittances. Identifying and addressing these issues can help the PPP determine if the plan is operating in line with the plan instruments.

Overall, an audit provides an added layer of oversight, which ultimately benefits the participants by fostering greater transparency and accountability.

Challenges and strategic considerations for adopting employers

While PEPs offer numerous benefits, adopting employers must carefully consider several factors before joining, including:

• Experience and reliability of the PPP and recordkeeper
• Specific needs of employees and the ability to tailor the adoption agreement
• Investment choices and administrative service fees

Employers must remain vigilant in their responsibilities, particularly in the accurate submission of employee data and contributions which, if mishandled, can still pose compliance risks. 

How we can help

PEPs are a new and innovative way for employers to offer retirement benefits to their employees. By joining a PEP, employers can reduce their administrative and fiduciary responsibilities, while providing a high-quality and cost-effective plan for their employees. 

However, employers still have a role to play in the audit process, which is essential for promoting the integrity and transparency of the plan. 

CLA’s employee benefit plan professionals have extensive knowledge in auditing PEPs and the roles participating employers play in the audit process. We can help PEPs with more than just the audit, including ongoing testing and monitoring of adopting employers and much more. 

Contact us

If you’re considering creating a PEP and want to learn more about the audit process or wondering what your audit requirements will look like as an adopting employer in a PEP, complete the form below to connect with CLA.