What is a “MEP/PEP” Plan?

When it comes to offering retirement benefits, small and medium-sized businesses often face significant challenges, from high administrative costs to complex compliance requirements. Fortunately, MEPs (Multiple Employer Plans) and PEPs (Pooled Employer Plans) provide a solution by allowing multiple employers to band together in a single retirement plan, which can simplify management and reduce costs [1] [2].

MEP: The Traditional Approach

A Multiple Employer Plan (MEP) is a retirement plan that is maintained by two or more employers who share some kind of common interest or relationship. This "nexus" might be based on industry, trade association membership, or other factors that create a natural connection between the businesses. By pooling resources, employers in a MEP can take advantage of economies of scale, potentially lowering fees and improving investment options for their employees [1] [3].

However, one of the main challenges with MEPs has historically been the "one bad apple" rule. This rule meant that if one employer within the MEP failed to meet their fiduciary responsibilities or comply with plan rules, the entire plan could be disqualified by the IRS. This risk made MEPs less attractive to some employers, despite their potential benefits [4]. The SECURE Act of 2019 addressed this issue by eliminating the "one bad apple" rule, making MEPs more appealing [1] [5].

PEP: A New Era of Flexibility

To address the limitations of MEPs and encourage more businesses to offer retirement benefits, the SECURE Act of 2019 introduced Pooled Employer Plans (PEPs). Unlike MEPs, PEPs do not require a nexus between participating employers. This means any business, regardless of size or industry, can join a PEP. PEPs are overseen by a Pooled Plan Provider (PPP), who assumes the primary fiduciary and administrative responsibilities, further reducing the burden on individual employers [3] [5].

This structure allows employers to enjoy the benefits of a large-scale retirement plan without needing to manage the complexities themselves. PEPs are designed to be a plug-and-play solution, making it easier for businesses to offer competitive retirement benefits and focus on their core operations [2] [4].

Choosing Between a MEP and PEP

When deciding between a MEP and a PEP, employers need to consider their unique circumstances and priorities. MEPs may still be a good fit for businesses that already have a natural connection with other employers, such as those within the same industry or trade association. On the other hand, PEPs offer greater flexibility and simplicity, making them an attractive option for employers looking to minimize their administrative burden while providing a robust retirement plan to their employees [3] [5].

Both MEPs and PEPs represent a significant shift in how retirement plans can be structured, particularly for smaller employers. By pooling resources and responsibilities, these plans make it easier to offer competitive benefits, ultimately helping more employees save for a secure retirement [1] [4].

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References

 [1] Voya Financial. (2024, April 11). A primer on multiple employer solutions: MEPs vs. PEPs vs. Defined Contribution Groups. Retrieved from https://www.voya.com/voya-insights/primer-multiple-employer-solutions-meps-vs-peps-vs-defined-contribution-groups 

 [2] Ascensus. (n.d.). Ascensus PEP and MEP 401(k) Solutions. Retrieved from https://www.ascensus.com/solutions/retirement/defined-contribution/meps-peps/ 

 [3] Ameritas. (2023, August 18). What's the Difference Between MEPs and PEPs? Retrieved from https://www.ameritas.com/insights/whats-the-difference-between-meps-and-peps/ 

 [4] Ubiquity Retirement + Savings. (2021, November 12). What Is the Difference Between a MEP and a PEP? Retrieved from https://www.myubiquity.com/resources/what-is-the-difference-between-a-mep-and-a-pep 

 [5] Vernick Financial. (n.d.). MEPs? PEPs? A Business Owner's Guide to Understanding the Difference. Retrieved from https://vernickfinancial.com/insights/meps-peps-a-business-owners-guide-to-understanding-the-difference