Pooled Employer Plans for Not-for-Profits

Not-for-profit organizations may soon be able to take advantage of pooled employer plans for their 403(b) plans.  Pooled employer plans (PEPs) are retirement plans that allow unrelated businesses to participate in one plan managed by a pooled plan provider (PPP).   PEPs were created with the passage of the SECURE Act in 2019, but only for for-profit companies.  These plans have become popular among small to medium-sized businesses as it reduces their costs and fiduciary responsibilities.

Due to their popularity, recently proposed legislation, SECURE Act 2.0, would grant access to these plans to not-for-profit organizations.  Back in March 2022, the US House of Representatives passed the SECURE Act 2.0 by a vote of 414-5.  The US Senate HELP Committee passed their version of the SECURE Act 2.0 unanimously on June 14th and the Senate Finance Committee unanimously approved their own portion of the bill on June 23rd.  The Senate legislation will have to be reconciled with the bill passed by the House before the bill can receive a final vote by both chambers.

PEPs provide several benefits:

  • Reduced administrative costs: Organizations would not be responsible for filing the Form 5500 or conducting the audit as those are done at the plan level by the PPP
  • Reduced fiduciary risk: The PPP assumes most of the fiduciary risk; however, the organization is responsible for choosing the PPP and ensuring they maintain professional standards
  • Economies of scale: Due to the size of a PEP compared to a single employer plan, the PEP may be able to offer different functions at a lower cost basis
  • The PPP is designated as the named fiduciary and plan administrator removing most functions from the organization.

Of course, there are some downsides to choosing a PEP.  Organizations must be willing to cede most of their control over the investment choices and plan design.  Organizations will have to decide if the cost savings and reduced fiduciary risk are worth losing control over the plan.

If you have any questions regarding your non-profit’s retirement plans, feel free to reach out to a member of our Sax Wealth Advisors team or our Not-For-Profit team.

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