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READER RADAR: A Plethora of PEP Perspectives


Pooled Employer Plans—or “PEPs” as they’re more commonly referred to, were greeted with much excitement when they became a reality in the SECURE Act—but are they living up to that hype? NAPA-Net readers weighed in.

Created by the SECURE Act in 2019 and first approved for use in 2021, a PEP is a type of 401(k) plan that allows unrelated businesses to participate in one plan managed by a pooled plan provider (PPP). In fact, a recent survey found that more than half of smaller employers surveyed by the Secure Retirement Institute (SRI) that are considering a DC plan are interested in learning more about PEPs—regardless of whether they have a retirement plan currently in place. SRI found that employers with 10–99 employees are significantly more interested in learning more about PEPs, especially the largest (small) employers (those with 50–99 employees).

And yet—despite the launch of a number of new PEPs, employer interest to date doesn’t quite seem to have lived up to expectations. Besides that, the 2022 NAPA 401(k) Summit Insider rated PEPs as fourth-most overhyped trend (granted, there was a big gap between that and #1). 

That said, and as is often the case, those in favor of Pooled Employer Plans seemed not only quite keen, but enthusiastic about the current state—and their prospects. But there was a fair amount of skepticism —and downright negativity on the need for, and benefits from, the offering. You’ll see what I mean…

Employer Interest

First, we asked readers for their sense of the current interest in Pooled Employer Plans (PEPs) by EMPLOYERS (generally speaking):

38%—Curious, but no more.

27%—Not even aware of the option.

18%—Interested, but not ready to commit.

12%—Already committed.

5%—Chomping at the bit!

Reader comments were every bit as diverse:

Only had 1 plan inquire about it. they have 1200 employees and very specific plan features so not a good candidate.

These plans will be an egregious violation of fiduciary duty as there is no onus or responsibility for the types of service providers that “team up.”

We're finding that once clients understand the value of the 3(16) service along with the savings on the annual audit they are fired up about joining the PEP.

We've pitched it to those we think would be good candidates.  They've heard of it, we explain it, but they are concerned that there are times they will want to change something in plan design and then be told they can't do it.

PEPs sound great until clients realize that it's a lot of sizzle and not much steak.  In many cases they are paying a whole bunch of extra fees for stuff they don't really need.

We have two clients that are interested in this option, the issue has been Fidelity PEP requires safe harbor contribution and they can’t afford it.

Your answers are bias. Where is the "know about it but don't want it" option? "Understand it and understand it’s not all that it’s cracked up to be" option? 

It is hard to get a small employer to engage in conversation about a retirement plan in the first place’

3(38) on two national PEPs newly rolled out.

Like some benefits, but not others’

Most ER's are unaware.  Of those which are aware, the majority are misinformed as to the actual benefits.

It's between not aware and not ready to commit.  Many don't know and when they do some want more information, some discount it immediately’

We are the leading recordkeeper of PEPs.  Over 10,000 new plans in the last year.

Small employers are over consumed with other issues as a priority over a retirement plan.

There is a big education component to PEPs and it starts with the advisor.  They need to understand the pros and cons to properly inform their plan sponsors.  There are lots of opportunities out there (especially in States with a mandate).  PEPs can fill an important gap, but it will take some time for them to gain traction.

Will work with them but not what we expected’

If they get traction in the market they could become a force however that takes years.  There are are number of items that still need to be settled like who can be a PPP and audit requirements.

I think PEPs are sold, not bought. I think advisors are far more interested in PEPs than employers because advisors see it as a way to do less work. “I can do one committee meeting instead of 50?  Sign me up!”  I think awareness depends on whether the existing advisor has a PEP and how hard they are pushing it. I think most advisors that have one view it as a tool they need to have in the toolbox just in case the need arises or a competitor has one. I’d add a 6th option. Aware, but not interested.

If the option has been discussed with the client I would say they are interested.  Some have reservation and some are ready commit.

Haven't seen a significant amount of employer join them despite the hype’

Much of the price compression comes from scale, so employers are waiting until scale is already achieved before joining. 

We have seen many advisers in "sell" mode and most advisers we have encountered, like most TPAs/RKs that are offering PEPs, are treating these as a product and have the sell more mindset.

It is true that they are not aware of them, but another factor not mentioned above is the lack of interest in them.

Small biz hustling to keep the lights on while the PEP market and its product manufacturer's haven't yet made price to be worthy of the trade-offs to a single-employer plan set-up.

I'm with a recordkeeper that has thousands of participating employers joining the PEP as their startup plan. So for small businesses given the option of a PEP or Single Employer Plan, over 70% are selecting the PEP.  Over 20,000 have said yes to the PEP in less than 2 years.

Advisor Interest in Promoting

And next we asked about readers’ current interest in Pooled Employer Plans (PEPs) for the employers they support (generally speaking)?

37%—Curious, but no more.

23%—Interested, but not ready to commit.

21%—Already committed.

12%—Chomping at the bit!

7%—Not even aware of the option.

PEP won't fit my plan business. I don't have plans for very small employee populations.

I am not hearing anyone talk about them other than advisors.

Only when it makes sense.

Past interested, but I'd say, "Interested but our clients are ready to commit." 

Priorities for our plan sponsors have been on increasing education—costs are lean and service runs smoothly, so a change in recordkeeper or complete plan design overhaul has not been on the to-do list for our sponsors YTD.

Tough to get enough employers together to start your own.

Where's the option for "not interested"?

Where's the option for Thanks, No Thanks?

For small employers that anticipate low ee contributions, CalSavers is a better option. PEP will work in limited situations when an employer does not want to have fiduciary responsibility.   Fidelity’s PEP is a good option for new 401(k) plans, but it requires a safe harbor contribution which can be a barrier price-wise. Also their set up is only through website. Other PEPs have really bad cost structures or GVA, which is not competitive with either CalSavers or traditional 401(k).

As a recordkeeper we already have a few PEP's running.

No interest.

There are very few options where we can maintain a relationship with the participants. 

Works for some (smaller plans, start ups).

What is evident is that employers are looking for cost savings, but have concerns about limitations and levels of service that typically come with MEP/PEP's.

I don't see the mass appeal. 

We have one established, but take up rate is low.

Not really until it is explained.

Don’t really work with this demographic.

We are currently actively doing due diligence to understand the best pooled plan solution (ie PEP vs GOP).  It is very likely we'll have a solution in place within the next 6 months.

Has to be sold vs. apparent value.

This could be a good option for plans subject to audits that are still relatively small depending on how the audit requirements and cost are determined.

My employers are generally on the larger side, so zero interest there once they understand what a PEP is.

Waiting to have more details flushed out on the operations side.

We have created a PEP and have added more new DC plans as clients in the last year than in the 6+ years of our firm's existence combined.

We have started a few PEPs for the right adviser relationship.

We have no client of which we are aware that we believe would benefit from a PEP environment. We believe any employer on a PEP will grow up as their assets grow and spin off to their own plan.  Small, uninformed employers with start up plans all pooled in one big plan seems like one big pain without much of a payday.

As an retirement plan advisor I am aware of them. However, I also have little interest in them as do my clients.

Only curious if it becomes a disruptor to our client base, which it hasn't to date.  We have no plans yet of trying to implement a PEP for any of our clients.

Not sold on it being better.

I am in the process of creating a PEP modeled after my ideas of what the ideal plan looks like.

Most responsible Plan Sponsors are interested in learning about new options, regardless of what it is.  Actually making the change is a challenge, in my view, of resolving the competing interests of wanting to feel in control and wanting to be rid of the burden and liability.

Much ado about nothing.

My response would actually be a combination of Curious with already committed in some instances.  We recognized the opportunity early, as we became a 3(38) to our own PEP effective January 1, 2021, and now have 7 adopting employers involved in that plan.  We never believed it would become the "end all" that some stakeholders in them believed they would be, we have always viewed the PEP as a "nice to have" in our bag.    With price compression, coupled with more administrators taking on 3(16) responsibilities, standalone plans can prove to be just as competitive when they are working with a specialist, a true 401(k) architect, as we believe we are.

The marketing missed the mark.  it doesn't solve small plan coverage.  it is a better way to purchase premium services.

What’s Holding PEPs Back?

To the extent adoptions haven’t (yet) matched expectations – well, we asked readers what was holding back adoption:


36%—Don't want to give up control.

35%—Too new.

31%—I'm not recommending them.

22%—Advantages underappreciated.

17%—Preference for Group of Plans alternative.

10%—Not a darn thing—all systems GO with my clients!

Not a lot of providers and we have no providers approved at our firm.

It is illegal for a BD or RK to serve as the PPP. Only a 3(16) TPA or independent third party needs to serve as PPP.

As a specialist, a big part of what we do is act as the investment fiduciary.. so choosing a PEP takes that away and devalues our services a little.

Currently researching options.

Many of the PEP providers have limited plan document options, which aren't ideal for many of my clients. The ability to customize a plan to a specific sponsor matters!

PEPs are sold and not bought.  The only reason these would take off is if service providers (advisors and record keepers) make a strong push to sell them.  Most are only offering them as a defensive measure and not as a primary strategy.

Big difference if integrated with payroll or not.

The advantages come with additional payroll audits and filing requirements possibly opening up opportunities to be audited as the PPP or RK.  There also may some concern around use of proprietary services to bolster revenue to meet thin operating margins (as RK or RIA).  In some respects, GoPs have less worry in this regard.  Closed MEPs always performed better than open MEPs due to the nexus/bond between adopters. See if this holds true w PEPs. 


I am still not sure they will be efficient - I worry about the employer that does not provide timely or accurate data and that the PEP providers will find it more work and have to increase fees.

With the exception of audit savings, PEP's are a more service for the same cost proposition.  It has not moved the needle for our clients.

The broker dealers.  They all want their own 3(38) and have been slow to react, so they are wait and see.  So we don't use lots of FAs if their company doesn't support our line up (Mesirow).  They want their own line up but not easy for RKers to have that set up already each 3(38) for each FA Broker Dealer quickly.

I see two factors.  1) Education.  A PEP is not a fit for every plan, but especially in the micro and small market space it can be a very appealing option, as well in States with a mandatory plan requirement.  2) Providers are getting creative with alternatives, GOP, MEAP, and exchanges offer many of the same advantages.

Still employer skepticism—a lot of parties for them to get their hands around.

They've already had a large failure rate, which is a huge red flag. and one of the reasons our firm has steered clear of a PEP offering to date (we've opted for a GoP instead).

Many advisors do not have an option to offer a PEP even if they wanted to.  I have heard from a Merrill advisor that they don't even have an approved option.  Also, advisors do not want to upset the boat and are not taking the time to learn something new and then explain it to their existing plans.  Advisors have a responsibility to learn about PEPs and explain the advantages to their clients.  Furthermore, Recordkeepers have been too slow to adopt and promote a PEP option as they waited to see which way the wind is blowing.  Once * releases their PEP, the adoption rate could explode.  * has one but they, of course, have GIC minimums which is going to be a non-starter for some advisors.

One thing not listed is the mis-marketing, and there is a lot of that going on. Employers don't fully understand and when they hear the "adopt and you have no responsibilities" pitch, they know something is off. It's they are not fully embracing the sales pitch and that these are new, so they figure there is something that they don't know yet and they are being cautious, which is good.

It is simply a lack of interest. Control could be a factor here, too.

Where they fit the best (in my opinion) is the startup 401(k) market, and most financial advisors have little to no interest in that space.  They would rather bring existing plans into their practices since their compensation is easy to determine and immediate.

Current PEPs are structured in a manner that mimics, to a great extent, costs in a single employer plan.  PEPs have the ability to dramatically reduce costs, but since this would have a negative effect on provider revenues, there's little incentive to create a PEP that truly helps businesses take advantage of the structure.  There won't be notable change until a new entrant in the marketplace has success with a new business model. 

The "in the box" approach needed for PEPs does not work for many of our clients and for those that it might work for, the fee difference from what they're currently paying is negligible.

Little trust in PPPs

The benefits aren’t better enough to make the switch.

These are complicated and time consuming to set up.

To the knowledgeable consumer, it is merely a plan design.  One that can be emulated more and more frequently when working with a 401(k) specialist/advisor, coupled with 3(16) services from either the recordkeeper/administrator or a Third-Party administrator (TPA).

The marketing missed the mark.  it doesn't solve small plan coverage.  it is a better way to purchase premium services.

TPA's who don't know how to run them and advisors who see them a threat, not a solution.          


We then asked readers about their expectations for the current PEP adoption rate:

39%—Accelerate—in time.

17%—Keep the current pace.


13%—Not sure.

9%—Accelerate soon.

6%—Accelerate rapidly soon.

They have a strong place for an aggregator of small like-minded employers.

It will go fast because all of the large firms will team up and cannibalize the small firms in the industry, pushing our new talent and creating a giant barrier to entry.

Apple pay took about 8 years to be ubiquitous...

I just don't see the attraction to these.

Dead in three years

I think there are immediate gaps that PEPs can bridge with state mandates and start up plan activity.  Also helps Payroll Firms and Associations that could not offer closed MEPs., offer PEPs now just as efficiently. 

I think they make sense for growing, large advisory groups allowing better scale.  For most, it gives up too much control and unrelated businesses don't need or want to be aggregated.   I think it's much ado about not a lot.

It's nearly 70% of our all new start up plans.

Accelerate due to state mandated plans.

This will take time.  I can see the number of PEPs continuing to grow and eventually there will probably be a consolidation where the best PEPs are left standing.

I think adoption will likely accelerate but not significantly. I still see PEPs as an “edge case” type of solution. A small percentage of overall plans will choose PEPs.

Reports of adoption vary widely-- from the 1,000s of employers reported by Paychex to the near-zero uptake that has resulted in the failures of other PEPs already. Thus, it is difficult to answer this question.

They will grow but not as fast as they should.  The advisors who get it are making easy sales, so it's fine with me because my business is benefitting.

It depends on several factors, and not enough space here to expand.

In states with mandated retirement plans I believe the uptake will be greater.

As price comes down, interest rises.

With the advent of SECURE 2.0 and more state mandated retirement programs, those selling PEPs to start ups will accelerate rapidly. 

Startup plans primarily...don't see a ton of sponsors shifting to a PEP if they already sponsor a plan.

I don't think PEPs will grow in any noticeable and meaningful way. Too many options for the small employer, too much to learn, too little time.

Successful PEP will need economy of scale but early adopters of any PEP will pay the start-up costs. Can scale be reached before those adopters bail?

PEP Suggestions?

And while some would surely say it isn’t required, we asked readers to weigh in with suggestions for those sponsoring/promotion PEPs to increase/enhance/expand their reach (or not):

I have not seen any plan sponsor approved brochures on PEPs and the pros and cons.

Someone should do some research on my comments above and put out a white paper about legality and fiduciary duty.

Education is key for expanding the use of these plans!

Don't see clear benefit for established plans.

Expand distribution.

Come up with a compelling reason to offer these.

Name brand PEPs should provide more partnership with advisor/consultants to help set up. (It’s web only; wholesalers not compensated to assist, so they don’t).

Spend your time focusing on participant savings rates.

Find a seed client to make tiered pricing better. Payroll integration seems to be key driver.

Set up in states with a Retirement plan or payroll deducted IRA mandate.


ADVISOR BE AWARE - My experience with MEP/PEP's are that the true source of fee savings comes primarily from the level of dedicated service/support provided, which to me is the one thing these smaller companies need the most.  And if the client is not getting the support they need from the MEP/PEP provider, they turn to their trusted advisor. 

Demonstrate some real value.

Solve the 3(38) fund line up alignment issues.

Great option for the small market who have to comply with state run plans. Also great for employers with over 100 employees who have to file a separate large plan audit.

Begin in states where plans are mandated and educate, educate, educate!

The primary advantage is the administrative offload to the plan sponsor, which is huge.  401(k) administration is overly complicated and most plan sponsors don't have the level of expertise to administer their plans adequately.  Being able to offload these responsibilities is the main advantage, along with the reduced fiduciary role.

Independence—but that comes with many people involved. Need to package in a way that maximizes one interaction point

Apart from the audit exemption, you can synthesize the benefits of a PEP with a 3(16), 3(38), etc. I think the befits of PEPs are often oversold.

Need to provide the option of the standalone plan along with the option of a PEP and discuss the advantages and disadvantages.

Don't overhype the concept-- that just turns off employers. instead, just try to be an educator and don't try tom sell PEPs in places where they would not be a good fit.

Double down

Talk about it to businesses without plans in place.  It's pretty clear that many will end up in a plan or state program in the next few years, and that will be with or without their advisor.  Take the lead now to keep the client in the future.

Don’t do it.  Just a gimmick, no real benefits or advantages

Focus on structuring the fees in a way that makes PEPs more attractive to employers

Give Plans better pricing without the nonsense of a PEP

Suggest them to large plan filers.  The savings is primarily in the audit cost.

Other Comments

In principle it’s a good idea to drive down costs and bundle service but it leaves a gaping hole for a monopoly set up by the biggest players

Going to take time and more education.

Plan sponsors are overwhelmed by the amount of change in the past few years (SECURE Act, CARES Act, PPP, etc). At present, PEPs are lost in the shuffle.

Usually a more expensive option for smaller plans with less flexibility & control, so unless they are required to do an audit and can save a good chunk of change by using a PEP, most plan sponsors have still gone with a standalone plan.

Think will do much better when 403b’s allowed to participate

PEP’s are an incredible alternative to state run plans.

I mean...they're just not that much better than sponsoring their own plan. "But the liability!" 3(16). "But the pricing!" Haven't seen that play out yet. Who pays for the audit? How are they navigating the payroll issues? Who wants to be on the bleeding edge of ERISA and be the guinea pig?

We've looked into building a PEP a few different times with a few different providers and we always come back to the conclusion that it's not worth the time or effort when you can accomplish the same goal with a stand-alone plan.

Thanks to everyone who participated in this week’s NAPA-Net Reader Radar poll!