How to Pick a PEP

Since the first pooled employer plan launched on January 1, 2021, the market for PEPs has boomed to about $30 billion in assets, as of the end of 2025. But the choice of whether to adopt a PEP—and if so, which plan to select—is not one a plan sponsor should make lightly, as outlined in a new report from the Georgetown Center for Retirement Initiatives.

When Congress created PEPs through the Setting Every Community Up for Retirement Enhancement Act of 2019, one of its key objectives was to reduce the costs and administrative burden for employers when offering a retirement plan. By allowing unrelated employers to join together under a single, professionally managed plan, PEPs allow plan sponsors to shift much of their administrative and fiduciary burdens to pooled plan providers, responsible for administering the plan.

The CRI’s report found that most of the PEP market’s growth to date has come from employers that already offered a single-employer plan migrating their existing assets into a PEP—not from employers that previously did not offer a plan. To reap the most rewards from joining a PEP, however, all employers interested in adopting a pooled plan can compare PEP fees, determine what conflicts of interest may exist among pooled plan providers and understand the challenges of exiting a PEP.

“Five years in, PEPs have real potential to expand retirement savings options for workers, but the market is still maturing,” says Angela Antonelli, the executive director of the CRI and one of the authors of the report. “By shedding light on what’s working and what still needs attention, [the CRI] hope[s] to support a retirement plan market that can include PEPs and genuinely helps more employers offer their workers a path to retirement security.”

Comparing Fees Is No Easy Feat

Fees are among the most important—yet most difficult—factors for employers to compare when evaluating a PEP, the report stated. The CRI’s analysis of Form 5500 data found that PEP fees are not always lower than those of single-employer plans.

“It’s not always an apples-to-apples comparison,” says Michael Clark, a senior vice president at Gallagher Fiduciary Advisors LLC and one of the report’s co-authors.

PEP fees vary based on factors such as employer size, structure and services offered, the CRI’s report stated. Outside of a PEP, retirement plans that are subject to the Employee Retirement Income Security Act and have at least 100 participants must file an annual independent audit, which typically costs between $11,000 and $15,000 per year. In a PEP, this cost can be shared among participating employers—though that includes employers with fewer than 100 participants, employers that otherwise would not have been subject to the audit requirement or fee before joining a PEP.

In addition, although fixed administrative costs for plan documents, Form 5500 filings and compliance work are spread across all participating employers in a PEP, payroll processing and census updates remain the responsibility of each employer, the report stated.

A circumstance favorable to PEPs, however, is the pooled plan provider’s ability to use a PEP’s pooled assets as leverage to negotiate lower investments management fees, including access to institutional-class or low-cost index funds that small plans cannot obtain on their own, the CRI report found. However, single-employer plans can independently achieve a similar fee reduction by shifting to low-cost index funds. Single-employer plans with delegated or advisory arrangements are also able to lower costs by negotiating breakpoints, the report stated.

PEPs also have leverage to negotiate lower advisory fees due to their scale. According to the 26th edition of the 401(k) Averages Book, a $5 million plan paid an average fee of 27 basis points as of September 2025, while a $50 million plan averaged 16 bps.

While PEPs can reduce some costs through economies of scale, there are additional costs for the professional management of the PEP that would otherwise be the responsibility of the employer in a single-employer plan, the report stated. PEPs may also have higher fees due to the additional services paid from plan assets.

PEP fee structures may also include tiered pricing based on an employer’s assets and participant counts, the report stated. The PPP’s discretion in determining pricing emphasizes the fiduciary responsibility of adopting employers to negotiate fees in good faith and to conduct a formal request for proposal to solicit bids from various PPPs when evaluating options.

Conflicts of Interest Require Attention

While conflicts of interest among PPPs may be inherent, they have the potential to become active issues when they are undisclosed or poorly monitored or managed, says Scott Carroll, a senior consultant at Gallagher and another report co-author.

When the PPP also serves as the investment manager, recordkeeper or managed account provider, or when it offers proprietary investment products, the report stated, employers need to examine carefully whether the arrangements serve the participants’ best interests. Proprietary offerings can provide participants with reduced fees and other benefits, but employers must decipher any cost-benefit trade-off.

“Why would someone not [pick this PEP]?” is a question Clark says he encourages sponsors to ask when evaluating a PPP’s conflicting interests.

To proactively mitigate conflicts that affect plan outcomes, the CRI report recommended that the Department of Labor use its regulatory tools to strengthen federal oversight of PEPs, without inadvertently favoring one PEP business model over another and without putting well-run single-employer plans at a disadvantage.

Meanwhile, PPPs, recordkeepers and service providers should clearly disclose to employers and participants their affiliations, proprietary products and commission arrangements, the report noted.

Difficulties of Exiting a PEP

While the retirement industry has focused on “building up” PEPs, it is worth considering adjusting PEPs’ offramps as well, Carroll suggests. A single-employer plan can terminate any of its provider relationships at any time, but that is not as simple with a PEP.

In certain situations, such as mergers and acquisitions, an employer may have to establish its own stand-alone employer-sponsored retirement plan to accept assets from a PEP before it can be terminated, the report stated. This can create additional cost and administrative burden—which, ironically, PEPs are designed to alleviate.

Clark says a PEP may also transfer assets into another PEP, but he has not seen many instances of this in PEPs’ short existence.

According to the DOL’s July 2025 interpretive guidance regarding PEPs, a company’s circumstances might change such that the PEP it selected may no longer be the best choice for its employees. A company may grow, downsize, go out of business or simply desire to sponsor its own plan.

Clark says creating a PEP “spin-off” involves everything that goes into creating a single-employer 401(k): selecting prudent investments, creating a plan document and filing a Form 5500, among other requirements.

To smooth the exit ramp, Congress could help reduce the legal and administrative barriers to exiting a PEP, the CRI’s report suggested. At the same time, employers, when evaluating different PEP options, should ask PPPs detailed questions about what happens if they want to exit the plan.

The current exit ramp “creates a lot of extra work for a plan that’s probably going to be around for a very short period of time,” Clark says.