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Navigating the Future: Small Business Retirement Plans and the Rise of Pooled Employer Plans

Navigating the Future: Small Business Retirement Plans and the Rise of Pooled Employer Plans

December 07, 2023

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

As small business owners look to secure the financial well-being of their employees and attract top talent, the importance of robust retirement plans cannot be overstated. In recent years, the landscape of retirement planning has evolved, with Pooled Employer Plans (PEPs) emerging as an innovative and cost-effective solution for businesses of all sizes. In this blog post, we'll explore the realm of small business retirement plans, shedding light on the benefits of PEPs and how they are transforming the retirement planning landscape.

The Importance of Small Business Retirement Plans

Offering a competitive retirement plan is not just a perk; it's a strategic investment in the future of your business. Retirement plans contribute to employee satisfaction, retention, and overall financial wellness. For small businesses, selecting the right retirement plan is a pivotal decision that requires careful consideration of factors such as cost-effectiveness, administrative ease, and regulatory compliance.

Traditional Retirement Plans for Small Businesses

Traditionally, small businesses have turned to Individual Retirement Accounts (IRAs), Simplified Employee Pension (SEP) IRAs, or 401(k) plans to provide retirement benefits to their employees. While these options offer flexibility, they may come with administrative complexities and costs that can be burdensome for small businesses with limited resources.

Introducing Pooled Employer Plans (PEPs)

Enter Pooled Employer Plans (PEPs), a game-changing development resulting from the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. PEPs are a type of 401(k) retirement plan that allows multiple unrelated employers to participate in a single, professionally managed plan. This shared approach brings several advantages for small businesses seeking a streamlined and cost-effective retirement solution.

Cost Efficiency and Administrative Streamlining

PEPs allow small businesses to pool their resources, spreading the costs associated with plan administration, compliance, and investment management across multiple employers. By joining forces, businesses can benefit from economies of scale, reducing the financial burden and administrative complexities often associated with traditional retirement plans.

Professional Investment Management

One of the key advantages of PEPs is the involvement of professional fiduciaries who oversee plan investments. This can relieve small business owners of the fiduciary responsibilities related to investment selection and monitoring. Professional management can lead to improved investment performance and greater peace of mind for both employers and employees.

Access to High-Quality Investment Options

PEPs offer access to a broader range of investment options, including institutional funds with lower fees. This can result in better outcomes for participants, as they can build diversified portfolios tailored to their individual financial goals and risk tolerance. The enhanced investment menu is a significant advantage compared to the more limited options in some individual small business plans.

Reduced Fiduciary Liability

PEPs distribute fiduciary responsibilities among various service providers, mitigating the individual employer's fiduciary liability. This can be particularly appealing for small business owners who may lack the expertise or resources to navigate the complex landscape of retirement plan regulations and compliance.

Streamlined Reporting and Compliance

PEPs centralize reporting and compliance tasks, simplifying the administrative burden for participating employers. This streamlined approach ensures that small businesses can focus on their core operations without being overwhelmed by the intricacies of retirement plan administration.

Automatic Enrollment and Escalation Features

PEPs often come equipped with features like automatic enrollment and contribution escalation, encouraging employee participation and increasing retirement savings over time. These features promote financial wellness among employees and help them build a more secure retirement future.

Considerations for Small Businesses Exploring PEPs

While PEPs offer numerous benefits, small businesses should carefully assess their specific needs and circumstances before making the transition. Considerations include the costs associated with joining a PEP, the flexibility of plan design, and the compatibility of the PEP with the company's overall benefits strategy. Additionally, it's essential to choose a reputable PEP provider with a strong track record in plan administration and compliance.

Conclusion

As small businesses seek to enhance the financial well-being of their employees and remain competitive in the talent market, the evolution of retirement plans becomes a crucial focal point. Pooled Employer Plans (PEPs) represent a transformative step in the world of small business retirement planning, offering cost efficiencies, professional management, and streamlined administration. By embracing the innovative features of PEPs, small businesses can provide their employees with a pathway to a more secure and prosperous retirement, while simultaneously navigating the complex landscape of retirement plan regulations with greater ease. As the retirement planning landscape continues to evolve, PEPs stand out as a strategic solution for small businesses committed to shaping a brighter financial future for both their employees and the business itself.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This commentary reflects the personal opinions, viewpoints and analyses of the MONECO Advisors employees providing such comments, and should not be regarded as a description of advisory services by MONECO Advisors or performance returns of any MONECO Advisors client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. MONECO Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.