The cost—in time, money, and resources—may be more than you think.
Nicole, the HR director of a growing company, called me after receiving the bill for her annual 401(k) audit.
“David, our plan is becoming expensive—and that doesn’t include the hours my staff spends coordinating the payroll company, record keeper, advisor, TPA, and auditor. Growth is creating a new problem: Our 401(k) plan is beginning to require its own small bureaucracy!”
“Perhaps it’s time to consider a Pooled Employer Plan.”
“What’s that?”
“A Pooled Employer Plan, or PEP, allows unrelated businesses to participate in one larger 401(k) plan. Instead of sponsoring and managing one standalone plan, the company becomes a participant in a plan overseen by a Pooled Plan Provider (PPP). A properly structured PEP can bring plan administration, compliance, government filings, participant notices, investment oversight, and other responsibilities together under one coordinated arrangement.
“That can be especially valuable when several outside providers are involved and no one is quite certain who is responsible for what. When retirement-plan administration becomes everyone’s responsibility, it has an unfortunate habit of becoming no one’s responsibility.”
“What are the advantages?” asked Nicole.
“A properly run PEP can allow the annual plan audit to be performed at the pooled-plan level rather than separately for each participating employer.
“It can reduce the administrative burden on HR and payroll personnel.
“It can transfer significant administrative and fiduciary responsibilities to professional providers.
“And it may provide more favorable pricing by combining the participants and assets of multiple employers. For a company already paying substantial audit, administrative, and compliance costs, that can create meaningful savings.”
“Sounds interesting,” said Nicole. “What does the employer have to do?”
“Joining a PEP does not mean you can sign a few documents and forget the retirement plan exists. Remember, it is still your firm’s retirement plan. The company must still prudently select the PEP and monitor the provider after joining.
“And the employer may give up some control over the investment lineup, administrative procedures, and plan design. A business with a highly customized contribution formula, unusual eligibility provisions, or specialized benefit objectives may still be better served by a standalone plan.”
“What’s the best path for us?” asked Nicole.
“The answer depends on what your company is paying, the time your employees are spending managing the plan, and how much flexibility it needs.
“The comparison should include:
- Administrative and investment fees
- Fiduciary responsibilities
- Audit costs
- Payroll coordination
- Participant services
- Plan-design flexibility
- Transition requirements
“Here’s a simple way to look at it:
“Does your company’s current 401(k) have any unique features that justify its cost, administrative burden, and fiduciary responsibility? If the answer is no, consider whether a PEP could simplify administration, reduce costs, and shift significant responsibilities to the experts at Concierge.”