Discover the Differences and Ideas for Your Workplace Retirement Plan
Just ask anyone: Uncle Sam and the retirement industry love acronyms. Another was added in December 2020—PEP—which conveniently rhymes with MEP and SEP. The three plan types are 401(k) cousins meaning they share many fundamental similarities, and their main differences relate to the administrative models they use.
If you don’t speak fluent tax code or understand complex legal jargon, you are not alone. We’re going to break down a few of the 401(k) abbreviations you may have heard about recently.
A Single Employer Plan (SEP) is, as the name implies, sponsored by a single employer, including any controlled or affiliated group members. This is what most people think of when referencing a traditional 401(k) plan. A SEP is often the plan of choice for large, medium, and small businesses as it can be easily customized to meet specific company needs. With a SEP, employers have total control over plan decisions and can work with a retirement plan specialist to help with fiduciary responsibilities.
A Multiple Employer Plan (MEP) is a retirement savings plan where multiple employers participate in a single plan. It is sponsored by one entity and adopted by one or more others, but here is the kicker: they need to share a common thread. Participating employers can’t be related tax-wise but they are often members of an association or professional employment organization. While there are various ways to set up a Multiple Employer Plan, to keep it simple, when we use the MEP acronym in this article, we are referring to a closed MEP. Member companies of a closed MEP are not required to file an individual 5500 report, undergo an annual plan audit and acquire individual ERISA bond protection.
A Pooled Employer Plan (PEP) is a pooled retirement plan, a type of Multiple Employer Plan that allows two or more unrelated employers to participate in a single plan. It’s the new kid on the block, created by the SECURE Act of 2020 with an effective date of January 1, 2021. A PEP is offered by a group of employers who outsource all administration to yet another acronym—a PPP, or Pooled Plan Provider—a 3(16) fiduciary who establishes and administers the PEP.
The PPP is an important part of the PEP and has three fundamental models:
As with any solution, there are advantages and disadvantages; the same is true for selecting a type of 401(k) plan. There are so many variable options with each plan type, so here are a few key points to consider:
Have questions? Call us today or schedule a virtual conversation to discuss which plan type could be best for your business.
 A MEP can also be a defined benefit plan.
 SEP can also refer to a Simplified Employer Plan, an IRA-based plan for self-employed individuals or small business owners with a few employees.
This article is for educational purposes only. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that LoVasco Consulting Group is not engaged in rendering tax or legal services. If tax or legal advice is required, you should consult your accountant or attorney. LoVasco Consulting Group does not replace those advisors.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered broker dealer and Investment Advisor, member FINRA / SIPC. LoVasco Consulting Group is independently owned and operated.
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