Differences among single, pooled, and multiple employer retirement plans

Single-employer plans (SEPs) put you, the plan sponsor, in control. You determine your plan’s design features—to the extent permitted by law and your plan document (if you’re using a preapproved document)—and you get to pick your plan’s service provider and investments.

But SEPs may present oversight challenges for some sponsors, which include serving as the plan administrator under ERISA and being ultimately responsible for plan tasks, such as IRS filings, participant disclosures, and annual compliance testing. 

A multiple-employer plan (or MEP, also known as a closed MEP) is sponsored by a single entity, industry, professional, or ownership group. The plan is made available to businesses that are unrelated for income-tax purposes but have some common interest.

Based on the U.S. Department of Labor’s (DOL's) final rule on association retirement plans, an MEP may also be structured in one of the following two ways:

1   Professional employer organization (PEO)

2   An association of employers in a geographic region, industry, or trade

The MEP sponsor generally chooses the plan features, service providers, and investments, and takes on many of the ERISA fiduciary duties usually associated with the sponsor of an SEP. Prior to adopting the plan, the employer interested in joining the MEP has an ERISA fiduciary duty to prudently evaluate the benefits and suitability of the plan for its employees.

Another potential benefit of an MEP over an SEP is group pricing. Small businesses are likely to benefit from the lower investment fees and recordkeeping costs that typically accompany a retirement plan with more assets than they’d have on their own. They’re also likely to enjoy the same economies of scale with lower professional fees in an MEP, such as for auditing, accounting, and third-party administration.

MEPs, however, also come with drawbacks, including:

• The employer generally has little control over plan design and investments; for the       most part, you take the plan as designed, although this varies among MEPs.
• When you withdraw from an MEP, you’re usually required to follow specific plan             exiting and asset transfer rules.
• With the advent of low-cost, quality investment funds and technology                             enhancements, SEPs may be more price competitive with MEPs than originally             thought. 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act created the pooled-employer plan (PEP). Available on January 1, 2021, PEPs offer cost-sharing and administrative economies of scale similar to MEPs, but with similar restrictions around plan design and investments. The big difference, however, is that participating employers in a PEP don’t have to have anything in common with each other or with the provider of the PEP.  

The PEP also introduces a new plan fiduciary, the pooled plan provider (PPP), who assumes most of the responsibilities of the plan sponsor and plan administrator, therefore reducing the fiduciary burden of the participating employer.  

SEPs, MEPs, and PEPs all offer the opportunity for you to provide long-term retirement benefits for your employees. Each type of plan should be viewed in its entirety to determine if it meets your needs—and if it’s in the best interests of your employees.

For more detail on SEPs, MEPs, PEPs, and retirement plans for small businesses—and to access our tools for financial professionals—please visit our financial professional resources page.