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Will PEPs Address the Retirement Plan Woes of Small Employers?

As the debut of pooled employer plans draws near, the current MEP system provides a useful test case for what can go right--and wrong.

One downfall of our retirement saving system is the cost and quality of the plan that you have access to can be significantly dependent on the size of your employer. Small employers have fewer employees to join their plans and generally fewer collective assets to invest, resulting in limited bargaining power to negotiate low fees and barriers to accessing low-cost investment options that may have higher minimum investments. Allowing many small plans to pool their resources in one plan sounds like a good way to help small employers offer better plans--and it will be possible starting Jan. 1, 2021. But what is a realistic outlook for these new pooled plans?

Currently, small plans can only combine with other employers that share a "common nexus" (an industry, for example) to form a multiple-employer plan, or MEP. As created by the SECURE Act, pooled employer plans, or PEPs, will remove this requirement and address a couple of MEPs' known logistical issues. While MEPs are in many ways the precursor to PEPs--and therefore could shed light on how PEPs can succeed and what pitfalls to avoid – there is relatively little research on MEPs. We look to illuminate the picture of the MEP landscape and identify key policy implications in our new research.