As businesses grow through mergers, acquisitions, or expansion, managing multiple 401(k) plans can become increasingly complex. While plan consolidation is sometimes a goal, often companies find themselves with non-integrated plans that for some period of time, or indefinitely, aren’t merged into the company’s main 401(k) offering due to costs, timing, or other priorities.
In this multi-part series, we explore how Pooled Employer Plans (PEPs) offer a streamlined and cost-effective solution for employers dealing with fragmented 401(k) structures. In the first part of our series, we discussed how PEPs can support employers through mergers and acquisitions. In this second part, we’ll focus on how PEPs can address non-integrated 401(k) plans.
A Pooled Employer Plan (PEP) is a retirement savings solution that allows employers to outsource most of their plan management responsibilities and risk. A third party Pooled Plan Provider (PPP) handles the key plan management and administration responsibilities, including fiduciary oversight which reduces the burden on individual employers and creates economies of scale.
01
Merging 401(k) plans can involve significant costs related to plan design alignment, payroll setup, participant communications and legal/regulatory hurdles. By harmonizing delivery of plans through a PEP, employers and participants can benefit from shared administrative costs and reduced vendor and investments fees, all without the need to fully integrate the plans.
02
Managing multiple 401(k) plans across different segments and vendors can quickly become an administrative headache. Plan sponsors with non-integrated plans often find themselves performing the same plan management activities multiple times, leading to inefficiencies. A PEP streamlines plan management by centralizing administrative functions under the Pooled Plan Provider. This low-touch approach allows employers to offload the complexity of managing multiple plans while ensuring fiduciary oversight is handled by experts.
03
With non-integrated plans, companies face increased fiduciary and compliance risks, as each plan operates under its own set of rules and governance structures. In a PEP, many of the fiduciary responsibilities are transferred to the Pooled Plan Provider, significantly reducing the employer’s exposure to potential compliance issues and litigation risks. This makes PEPs an attractive option for companies seeking to reduce their fiduciary burden without sacrificing the quality of retirement benefits offered to employees.
04
A key challenge of maintaining multiple 401(k) plans is the lack of consistency in the retirement benefit experience for employees. Different plans may may be supported by different vendors, have different investment options, and different features and resources, leading to confusion and inequity among employees. A PEP can standardize the participant experience, offering consistent plan features, investment options and educational resources across all business segments even if the plans are not integrated.
05
PEPs provide flexibility for future changes in business structure. Whether the company decides to combine plans while joining the PEP or later, a PEP can offer a smoother transition because plan management is centralized. For companies that may eventually consolidate plans or design structures but are not ready to do so in the near term, a PEP can provide a strong interim solution.
PEPs offer a practical way for employers managing non-integrated 401(k) plans, potentially allowing them to enhance the user experience, streamline administration, reduce fiduciary risk, and reduce costs, without the complications of full plan integration. We believe this is especially valuable for companies that are not planning to merge their plans but still want to provide a seamless retirement experience for employees.
When managing retirement plans during periods of corporate growth or restructuring, PEPs can offer the flexibility and efficiency needed to support companies through transition and beyond.
This document provides information on LifeSight Pooled Employer Plan (PEP) services that are being offered to you by WTW. Willis Towers Watson US LLC and Towers Watson Investment Services, Inc. or their affiliates are not acting in the capacity of providing “Investment Advice” within the meaning of 29 C.F.R. § 2510.3-21. It is your decision whether to engage WTW to provide any services or to invest in any investment available through WTW’s LifeSight PEP offering.
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