The “PEP” pool keeps growing. Paychex, Inc. announced Dec. 9 it will be among the first in the retirement industry to sponsor and maintain a Pooled Employer Plan (PEP) to help businesses nationwide provide a cost-effective retirement plan option for their eligible employees.
The Paychex PEP will include reduced fiduciary liability for employers, simplified plan management, and reduced plan expenses when compared to single-employer retirement plan offerings. It will be available starting January 1, 2021, the first day on which PEPs can be offered in response to provisions of the SECURE Act.
“Not only has the COVID-19 pandemic made business more complex than ever before, it’s significantly impacted the financial security of millions of Americans. Expanding retirement plan access is critical to the long-term financial wellbeing of workers nationwide,” said Tom Hammond, Paychex vice president of Corporate Strategy and Product Management. “Our new PEP will provide business owners with a cost-effective plan option that relieves the compliance and administration burdens of a traditional 401k plan, giving their employees access to a robust retirement plan benefit and allowing them to confidently prepare for their financial future.”
Through a PEP, employers collectively participate in a 401k plan that is administered by a Pooled Plan Provider (P3). The P3 acts as both plan sponsor and formal plan administrator, intended to relieve participating employers of significant fiduciary and administrative burden.
The PEP especially offers a solution for small to mid-sized businesses that may have been unable to offer a retirement plan previously due to the lack of cost-effective plan options or the time or resources needed to manage complex plan administration. Businesses currently offering an employer-sponsored qualified retirement plan can also benefit by merging their plan and assets into a PEP to potentially save time and money.
Additional benefits of the Paychex PEP include:
- Reduced administrative tasks by removing the need to contract with and monitor third-party fiduciary services providers
- Reduced risk, as many fiduciary responsibilities are assumed by Paychex in its role as the P3
- Potential for greater levels of efficiency by integrating Paychex payroll with the PEP
- Opportunities for compliance cost savings, as Paychex will administer the required independent financial audit for the PEP to comply with IRS and Department of Labor requirements, which can cost large employers between$10,000 and $15,000 annually
Investment manager, trustee named
Rochester, N.Y.-based recordkeeper Paychex is aligning with two other retirement industry leaders to provide services for the PEP offering. Mesirow Financial will serve as the 3(38) investment manager of the PEP and Mid Atlantic Trust Company will serve as the Trustee.
“Over the last five years, we have seen a shift from 3(21) to 3(38) fiduciary services, particularly at the smaller end of the retirement plan market. These small and mid-size employers appear to be signaling an openness to fully outsourcing fiduciary duties and will likely be interested in the fiduciary support afforded in a PEP,” said Mike Annin, senior managing director of Fiduciary Solutions at Mesirow Financial. “We are excited to serve as a 3(38) fiduciary in the Paychex PEP and join Paychex in leveraging this unique solution aimed at making retirement plans more accessible to millions of Americans currently without one.”
Tim Friday, group CEO of Mid Atlantic Capital Group and president of Mid Atlantic Trust Company, added that Mid Atlantic Trust Company is thrilled to have a role in Paychex’s product response to the SECURE ACT. “As the PEP trustee for Paychex’s up-and-coming offering, we share in the motivation of collective purchasing power with the common goal in making retirement plans more readily accessible to employers and their employees,” Friday said.
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