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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.        
  3. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/secure-act-unscrambling-peps-meps-and-gops.aspx
  4.        
  5. https://www.congress.gov/bill/116th-congress/house-bill/1994/text#toc-H51D76EE5FFB84D868B84080FBCEC9D58

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