Smart Businesses Think Twice About Pooled Employer Plans

The Pooled Employer Plan (PEP) has been promoted to small businesses as a smart shortcut to affordable, hassle-free retirement benefits. But do PEPs live up to their promise? At RPCSI, we believe it’s important for employers to understand the risks and alternatives before making any retirement plan decision.

What Are Pooled Employer Plans—And Why All the Hype?

Created by the SECURE Act, Pooled Employer Plans are designed to let multiple, unrelated employers participate in a single 401(k) plan, overseen by a Pooled Plan Provider (PPP). The idea is that pooling resources will lead to lower fees, less administrative burden, and easier compliance for small businesses.

It’s an attractive pitch—sign up and let someone else handle the details, all while saving money for your company and employees. But recent analysis and real-world experience suggest that the reality is far more complicated.

The Hidden Downsides of Pooled Employer Plans

Before joining a PEP, small business owners should consider the following concerns:

1. Lack of Transparency and Control

When you join a PEP, you cede most oversight and administrative duties to the PEP. This means you rely on them for plan decisions, fee structures, and investment menus. Many PEPs embed several layers of fees—often asset-based—rather than transparent, flat per-participant pricing. And because PPPs may choose proprietary investments, conflicts of interest can arise, sometimes at the expense of plan participants’ returns.

2. Fees Often Aren’t Lower

Though marketed as more affordable, recent data show that most PEPs have failed to deliver meaningful fee reductions for small employers. When fees were compared in a 4-participant plan with $670,268 in assets, the PEP’s cost (administration fees + investment expenses) was $5,641.27 per year. A comparable single-employer plan only costs $2,834.15. It’s also important to know the largest PEPs command the most assets—and thus benefit from economies of scale—but smaller plans in the pool may find little savings. Layered and opaque fees, especially when not disclosed clearly, can easily offset any supposed administrative efficiency.

3. Reduced Customization

To keep administration streamlined, most PEPs standardize plan provisions. If your business wants to tailor vesting schedules, employer match formulas, or plan features such as loans and distributions, you may be out of luck. Many employers find this lack of flexibility makes the plan less effective for their workforce’s needs.

4. Monitoring the PPP—and Exiting the Plan

Even as fiduciary duties shift to the PPP, you still hold responsibilities to monitor their performance—something that’s far from straightforward when you don’t have easy access to plan details or fee disclosures. And if you want to leave the PEP, you’ll face a complex, costly process. Employers and participants may find themselves “locked in,” adding stress and frustration down the road.

Is Your Company Utilizing a PEP?

• Yes
• No

The Smarter Alternative: Transparent, Low-Cost Single-Employer Plans

Instead of pooling with other employers and ceding control to a third party, small businesses can achieve lower fees and greater plan control with a straightforward single-employer 401(k):

• Open Architecture: Choose from a wide range of investments, including low-cost index funds, not just options selected by a PPP.

• Transparent Fees: Flat per-participant administrative pricing and clear disclosures mean no hidden costs.

• Custom Fit: Tailor eligibility, matching, vesting, and plan features to your actual workforce—not a generic pool.

• Easier Oversight: Retain the ability to monitor your providers and make changes if service quality or costs don’t meet your expectations.

At RPCSI, we specialize in partnering with small and mid-sized businesses to build cost-efficient single-employer plans that put control back in your hands—free of proprietary product restrictions or hidden conflicts of interest. For 25 years, we’ve prided ourselves on transparent consulting, responsive customer service, and clear, honest pricing. As a CEFEX-certified firm, we demonstrate our ongoing commitment to fiduciary excellence and industry best practices—providing clients with confidence that their retirement plans are managed with the highest standards of integrity and professionalism.

The Bottom Line: Choose Clarity Over Convenience

PEPs may seem convenient, but convenience can come at a high price—hidden fees, lack of flexibility, and limited oversight. For many businesses, a well-designed single-employer 401(k) offers greater value, transparency, and control.

Ready to see how a custom retirement plan can work for your business? Connect with RPCSI today for a free, transparent evaluation and discover a better way to help your employees build their financial future.