facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Retired Military Finances 401: MEPs? PEPs? A Business Owner's Guide Thumbnail

Retired Military Finances 401: MEPs? PEPs? A Business Owner's Guide

Retirement Funding

If you're a retired Senior Military Officer or NCO, you may have gone into business for yourself. And, one of the things you may not have gotten to yet is setting up a retirement plan for yourself and your employees. But establishing a retirement plan for your business and the staff you employ can be very expensive and time-consuming and you may be tempted to forego retirement benefits for your employees. But this limitation is sometimes at the detriment of the employee. According to the U.S. Department of Labor, retirement planning options are only available to 53 percent of employees at small businesses (businesses with less than 100 workers).1 

To resolve the challenges of retirement planning, MEPs (multiple employer plans) sought to create cost-effective options for small businesses. However, traditional MEPs have suffered from restrictions that make them less attractive to many small businesses. 

The SECURE Act, which passed in December 2019, hopes to resolve small business retirement challenges by adjusting traditional restrictions and establishing a new form of MEP - the PEP (pooled employer plan).

What Is a Multiple Employer Plan?

Multiple employer plans (MEPs) are retirement plans available to businesses within a similar industry (food service, construction, etc.).2 Historically, MEPs suffered from the “unified plan rule,” or as it’s commonly referred to, the “one bad apple” rule. This rule would have disqualified an entire retirement plan if one employer violated compliance. 

How the SECURE Act Affects MEPs

With the introduction of the SECURE Act, MEPs benefited from a variety of changes to make them more attractive to smaller businesses.

Some of the largest changes include:

  • Making it easier to establish an MEP 2
  • Providing protection against the “One Bad Apple” rule 3
  • Establishing a new form of MEP - the PEP, or “pooled employer plan”

What Is a Pooled Employer Plan?

As an extension to the original MEP, PEPs are required to follow the same set of regulations and requirements as a MEP. The benefit of a PEP is it allows businesses from different industries to establish retirement options similar to a traditional MEP. 2 This provides employers with the opportunity to establish potentially superior retirement options at a lower cost by combining their collective purchasing power.

However, PEPs also have their own unique restrictions, including:

  • Limited to the use of 401(k) plans  
  • Must be administered by a  “pooled plan provider” 2 

What Is a Pooled Plan Provider?

A pooled plan provider is responsible for the sponsorship and management of an employer’s retirement plan and must be sponsored by a financial service company and registered with the Secretary of Labor and Secretary of the Treasury.1 Pending this registration, providers could begin supplying PEPs as of January 1st, 2020. 1

MEP vs. PEP

The biggest difference between the base MEP and the addition of a PEP is a trade-off of increased buying potential at the cost of retirement plan options. In addition, unlike traditional MEPs, PEPs allow businesses to go outside of their industry, but restrict members to the use of a 401(k) plan. Together, these differences can reduce the overall cost of both compliance and administration, allowing businesses that would not benefit from a pre-SECURE Act MEP to have a competitive option for establishing retirement benefits through a PEP. 

Remembering these differences can help you determine the best option for saving money while still providing your employees with superior retirement benefits.

If you found this article useful, you might like the following blog posts:

Retired Military Business Owner? How to Implement a Financial Wellness Program for Your Employees


Retired Military Finances 201: 6 Questions to Ask When Hiring a CPA for Your Business


Retired Military Finances 201: Simplified Employee Pension Plans



  1. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/pooled-plan-provider-registration
    2.        
  2. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/secure-act-unscrambling-peps-meps-and-gops.aspx
    3.        
  3. https://www.congress.gov/bill/116th-congress/house-bill/1994/text#toc-H51D76EE5FFB84D868B84080FBCEC9D58

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.