As pooled employer plans (PEPs) continue to gain traction following the SECURE Act, employers are asking how annual testing, reporting, and ongoing administration differ from the traditional single-employer 401(k) or Multiple Employer Plan (MEP) model. While PEPs promise streamlined governance and reduced administrative burden, they do not eliminate compliance obligations under ERISA. Instead, they reallocate responsibilities—particularly to the Pooled Plan Provider (PPP)—and reshape how employers engage with plan governance, fiduciary oversight, and retirement plan administration throughout the year. Here’s what you need to know.
PEPs in context: https://pep-structure-technical-guidance-overview.huicopper.com/plan-design-flexibility-in-peps-what-s-standard-and-what-can-be-customized what’s the structural shift?
A Pooled Employer Plan is a 401(k) plan structure that allows unrelated employers to participate in a single plan overseen by a registered Pooled Plan Provider. Unlike closed MEPs that historically required a common nexus, PEPs—created under the SECURE Act—remove the commonality barrier and centralize key administrative and fiduciary functions. Employers join as “adopting employers,” often selecting from standardized plan design options while offloading day-to-day administration, consolidated plan administration, and many fiduciary duties to the PPP and its designated service providers.
What stays the same?
- ERISA compliance remains foundational. PEPs are subject to ERISA, the Internal Revenue Code, DOL regulations, and IRS qualification requirements, just like single-employer plans. Annual nondiscrimination testing applies unless the plan design uses safe harbor approaches that satisfy ADP/ACP testing or other test-avoidance strategies (e.g., QACA). Reporting and disclosure requirements still exist; they are fulfilled at the plan level and, in some cases, supplemented by employer-level notices or payroll-related confirmations.
What changes with annual testing?
- Centralized testing execution: The PPP (or its third-party administrator/recordkeeper) typically performs ADP/ACP testing, coverage testing (410(b)), top-heavy determinations, and limitations under 415 as part of consolidated plan administration. Employers provide accurate payroll and census data, but they no longer manage the testing process themselves. Data dependencies intensify: While the PPP runs the tests, testing quality now hinges on each adopting employer’s timely, complete, and accurate data. Inconsistent compensation definitions, late employee status updates, or missing hours can trigger testing failures or corrective actions for that employer segment. Standardized plan features reduce variance: PEPs often employ plan design guardrails—like safe harbor contributions, uniform eligibility rules, or harmonized definition of compensation—to reduce testing complexity and failure risk. Employers may have limited ability to deviate from these standards, trading flexibility for testing predictability.
How does annual reporting work?
- Form 5500 filing at the plan level: PEPs file a single consolidated Form 5500, with the PPP as the primary plan administrator listed on the filing. The filing includes an attachment identifying each adopting employer and, if applicable, each participating employer’s EIN. Employers generally do not file separate 5500s for their portion of the PEP. Plan audit considerations: When a PEP surpasses the audit threshold, an independent qualified public accountant (IQPA) audit is performed at the plan level. However, auditors may sample payroll and contributions from multiple adopting employers. Employers must be prepared to substantiate their data and processes if selected. Disclosure coordination: Participant disclosures (e.g., 404(a)(5) fee disclosures, QDIA notices, safe harbor notices) are coordinated by the PPP or recordkeeper. Employers remain responsible for distributing notices to their workforce when the PPP requires employer action, and for relaying workforce changes that impact disclosure timing or content.
Fiduciary oversight and plan governance in a PEP
- The PPP’s role: The Pooled Plan Provider is responsible for plan administration and named fiduciary functions, including monitoring service providers and ensuring the plan is operated in compliance with ERISA. Many PPPs also engage a 3(38) investment manager or act as one, shouldering fund selection and monitoring. The employer’s retained duties: Adopting employers remain fiduciaries for selecting and monitoring the PPP and the PEP, remitting timely contributions, maintaining accurate payroll data, and following plan terms. Employers should document their PPP selection process, fee reasonableness review, and ongoing oversight. Governance cadence: Expect a structured governance calendar. The PPP typically issues quarterly reports on investments, fees, operational metrics, and compliance. Employers should review these materials, attend governance meetings or webinars, and keep minutes of oversight activities to demonstrate prudent process.
Operational compliance and practical timelines
- Payroll remittance: Contributions and loan repayments must be deposited as soon as reasonably segregable from the employer’s assets. The PPP will define remittance deadlines and file-level formatting; employers must align payroll processes accordingly to avoid late deposit violations. Year-end and off-cycle corrections: The PPP manages corrective actions under EPCRS frameworks for testing failures or operational errors. Employers may be asked to approve refunds, fund corrective contributions, or supply supplemental data to support corrections. Mergers, acquisitions, and workforce changes: In a PEP, corporate transactions and eligibility changes still trigger compliance implications. Employers must notify the PPP promptly about acquisitions, layoffs, or reclassifications to coordinate testing groups, coverage metrics, and partial plan termination analysis.
Comparing PEPs and MEPs on testing and reporting
- One-bad-apple fix: The SECURE Act extended relief so that compliance failures by one adopting employer do not necessarily disqualify the entire PEP, provided the PPP follows required remedial steps. This mitigates a historical MEP concern and reduces cross-employer risk. Standardization vs. autonomy: MEPs and single-employer plans may allow greater customization, but that can complicate testing and reporting. PEPs favor standardization, delivering scale economies and more predictable compliance at the expense of bespoke design features.
Cost, fees, and transparency
- Aggregated buying power: PEPs can leverage scale to negotiate recordkeeping, trustee, audit, and investment fees. Consolidated plan administration reduces duplicative Form 5500 filings and plan audits. Fee allocation: The PPP will disclose how fees are assessed across adopting employers—per-participant fees, asset-based fees, or employer-level administrative charges. Employers should confirm fee reasonableness, understand benchmarking, and track any revenue-sharing offsets.
Action steps for employers considering a PEP
- Map your data: Align payroll codes, compensation definitions, and eligibility tracking with the PEP’s requirements. Conduct a data quality review prior to joining. Evaluate safe harbor design: Consider adopting a safe harbor contribution to reduce ADP/ACP testing risk and simplify year-end corrections. Clarify service model: Confirm who does what—PPP, 3(16) administrator, 3(38) investment manager, recordkeeper, custodian—and how fiduciary responsibilities are allocated. Prepare for audits: Maintain documentation for remittances, eligibility determinations, loans, hardship withdrawals, and committee oversight. Even in a consolidated audit, you may be sampled. Establish governance rhythm: Create a calendar for reviewing PPP reports, fees, investments, and service-level metrics. Keep records of review and any follow-up actions.
Bottom line
PEPs do not erase annual testing and reporting; they centralize and professionalize them. Employers gain efficiency and reduced administrative lift, but they retain critical fiduciary duties: selecting and monitoring the PPP, maintaining data integrity, remitting contributions timely, and engaging in plan governance. With the right PPP partnership and a disciplined oversight process, adopting employers can achieve ERISA compliance with fewer operational burdens and a more scalable 401(k) plan structure.
Frequently asked questions
Q1: Do PEPs eliminate ADP/ACP testing for my company? A: Not by default. Testing still applies unless your PEP adopts a safe harbor design that satisfies the nondiscrimination rules. Many PPPs encourage safe harbor to reduce corrective refunds and year-end complexity.
Q2: Will my company still file a Form 5500? A: Typically no. The PEP files a single consolidated Form 5500. Your company will be identified as an adopting employer in the filing, and you may need to supply data to support the plan’s annual report and audit.
Q3: What fiduciary responsibilities do I still have in a PEP? A: You remain responsible for prudently selecting and monitoring the PEP and PPP, ensuring timely and accurate payroll contributions, following plan terms, and maintaining accurate data. The PPP generally assumes most day-to-day plan administration and fiduciary oversight duties.
Q4: How do audits work in a PEP? A: If the PEP meets audit thresholds, a single plan audit is performed. The auditor may sample transactions across multiple adopting employers. Be prepared to provide payroll, remittance, and participant-level documentation if selected.
Q5: Can I customize my plan design within a PEP? A: To a degree. PEPs often offer a menu of standardized options to support consolidated plan administration and ERISA compliance. Excessive customization may be limited to preserve testing and reporting efficiencies.