Pooled 401k Plans: A Comprehensive Overview for Employers

Pooled 401k plans are a type of retirement savings plan that allows multiple employers to pool their employees' 401k contributions into a single plan.

This plan is also known as a "multiple employer plan" or "MEP." It's designed to provide small businesses with a more cost-effective and efficient way to offer retirement benefits to their employees.

By pooling resources, employers can reduce administrative costs and fees associated with traditional 401k plans. According to the article, pooled 401k plans can save employers an average of 30-50% on administrative costs compared to traditional plans.

In addition to cost savings, pooled 401k plans also offer more investment options and better fiduciary protection for employers. They're also subject to the same ERISA regulations as traditional 401k plans, providing an added layer of security for employees.

A different take: Multiple Employer Plan 401k

A pooled 401k plan is a type of retirement plan that combines the investments of multiple employers into a single plan.

For another approach, see: Governmental 457 B Plan

These plans are often used by small businesses or organizations with multiple locations.

They offer a cost-effective way for employees to save for retirement.

Pooled 401k plans are typically administered by a third-party provider.

This provider is responsible for managing the plan's investments and ensuring compliance with regulations.

The plan's assets are pooled together, which can help reduce fees and increase investment options.

This can be especially beneficial for small businesses with limited resources.

A pooled 401k plan allows employees to make pre-tax contributions to their retirement accounts.

These contributions are made before taxes are deducted, which can reduce taxable income.

Employers may also make contributions to the plan, either as a match or a non-elective contribution.

The plan's investment options are typically chosen by the plan administrator.

These options may include a range of asset classes, such as stocks, bonds, and mutual funds.

The plan's fees are usually lower than those of a traditional 401k plan.

This is because the plan's assets are pooled together, which can help reduce administrative costs.

Additional reading: Does Roth 401k Reduce Taxable Income

In a traditional 401(k) plan, the employer is the plan sponsor, has fiduciary responsibility, and full control of the plan. This means they're responsible for investments, managing third-party relationships, and administrative decisions.

A PEP, on the other hand, transfers most of the responsibility to the pooled plan provider (PPP), allowing employers to select and monitor the PPP and transfer fiduciary risk to the PPP.

Here are some key differences between traditional 401(k) plans and PEPs:

By joining a PEP, employers can reduce their administrative workload and fiduciary risk, while still being able to customize matching and profit sharing to suit their company's needs.

Administration fees paid by a pooled 401(k) plan are unavoidable. All 401(k) providers charge fees for delivering plan administration services.

Direct fees are deducted from participant balances, while indirect fees are deducted from the returns of plan investments. Indirect fees are often called "hidden" 401(k) fees because they lack transparency.

Intriguing read: 401k Administration

The pooled 401(k) plan we evaluated has three major service providers – Transamerica, TAG Resources, and Mesirow. Their fees are summarized in a TAG Resources 2022 Fee Schedule, with almost all of them being indirect.

The direct fees paid by the pooled plan are minimal, totaling $100 annually. This small amount can make the plan seem low-cost, but almost all the fees charged by the service providers are paid by plan investments.

Transamerica, the asset custodian and recordkeeper, charges fees for these services. Assuming $670,268.16 in assets, Transamerica's annual fee would be $1,206.48, or 0.18% of the assets.

A key benefit of joining a pooled employer plan (PEP) is outsourcing administrative and compliance headaches. This can eliminate individual audit requirements and reduce the strain on internal human resources, all without increasing costs.

Here are some benefits of joining a PEP:

In a PEP, the employer transfers most of the responsibility to the pooled plan provider (PPP) and retains responsibility to select and monitor the PPP. This shift in responsibility allows employers to reduce time and effort spent on plan management.

Employers in a PEP select the pooled plan provider, but they don't have the same level of control as they do in a single-employer plan. In a single-employer plan, the employer is the plan sponsor, has fiduciary responsibility, and full control of the plan.

The table below highlights the differences in employer roles between a PEP and a single-employer plan:

By comparing the two tables, you can see the level of involvement and responsibility that employers have in a PEP versus a single-employer plan.

Pooled 401(k) plans, like the one we're evaluating, don't come cheap. Administration fees are a necessary evil, and they're often paid from plan assets.

Direct fees are deducted directly from participant balances, while indirect fees are buried in fund expenses. Indirect fees are often called "hidden" 401(k) fees because they lack transparency.

Indirect fees can be tricky to spot, but they're usually found in revenue sharing and annuity wraps. The pooled 401(k) plan we're looking at has three major service providers: Transamerica, TAG Resources, and Mesirow.

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According to the TAG Resources 2022 Fee Schedule, almost all of the fees from these providers are indirect. We'll dive deeper into the specifics of these fees.

Transamerica is the pooled plan's asset custodian and recordkeeper, and they charge annual fees for these services. Assuming $670,268.16 in assets, Transamerica's annual fee would be $1,206.48 ($670,268.16 * 0.18%).

Here's a breakdown of the types of indirect fees:

These fees can be significant, and it's essential to understand how they're affecting your plan.

Pooled 401(k) plans are often touted as a cost-effective solution, but the truth is more complex. Pooled plans can indeed cost less as a percentage of assets, but this is a misleading claim.

Pooled plans pay asset-based fees for recordkeeping and TPA services, which can be a significant expense. In contrast, 401(k) plans can pay flat fees instead, which are often lower.

In our experience, 401(k) plans that pay flat administration fees for recordkeeping and TPA services cost less than plans that pay asset-based fees – even pooled plans. I dare anyone to prove otherwise.

Flat administration fees can be paid from a corporate bank account, resulting in higher returns for participants and a tax deduction for business owners. This is a huge advantage over pooled plans that pay asset-based fees.

Additional reading: How Often Does a 401k Manch

Joining a pooled employer plan (PEP) can be a game-changer for employee benefit plans. It helps outsource administrative and compliance headaches, eliminating individual audit requirements and reducing the strain on internal human resources.

By joining a PEP, you can reduce your HR workload. This is a big deal, as it allows you to focus on your business and people, rather than getting bogged down in plan details.

One of the main benefits of PEPs is that they can cut costs. And, as an added bonus, they can also provide increased fiduciary support. This means you'll have more confidence in your plan's management and operation.

Here are some key benefits of PEPs:

Some employers might wonder why they should join a PEP. The answer is simple: PEPs deliver what matters. They change the 401(k) experience to create value for employees and employers, offering expert-driven plan design and investment structure, lower investment and service fees, and reduced fiduciary risk.

By joining a PEP, you can also reduce administrative effort and improve participant experience and outcomes. And, as an added bonus, PEPs often emphasize innovation, helping you stay ahead of the curve in terms of plan management and employee benefits.

Traditional retirement plans can be complex and time-consuming to manage, but a PEP offers a more streamlined alternative.

In a traditional 401(k) plan, the employer is the plan sponsor, taking on fiduciary responsibility for investments, third-party relationships, and administrative decisions.

A PEP, on the other hand, transfers most of the responsibility to the pooled plan provider (PPP), allowing employers to focus on their business.

The employer retains responsibility to select and monitor the PPP, but transfers fiduciary risk to the PPP, reducing their liability.

This shift in responsibility can result in potential savings due to economies of scale, as well as reduced time and effort spent on plan management.

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