While some business owners may realize some distinct advantages of joining a PEP versus implementing their own 401(k) plan, there are some downsides to going this route, and at 401GO, we believe our Syndicate  option is a better choice.

How Does a PEP Work?

PEPs gained in popularity after Congress passed the SECURE (Setting Every Community Up for Retirement) Act in 2019, which made it easier for 401(k) providers to offer this multiple-employer plan.To be succinct, this federal law’s intention was to make it easier for workers in the U.S. to save for their own retirement. Many U.S. workers are employed by small and medium-sized businesses that don’t offer 401(k) plans, and that puts them at a disadvantage. Sure, they can (and do) open IRAs, but this method of saving for retirement falls short of a 401(k) in a number of ways.

With a PEP, a group of employers joins together and shares the costs and benefits of the plan in a way that a larger, more prosperous business is able to do on its own, similar to a purchasing co-op. A big difference is that with a PEP, employers from different industries and different geographic areas are free to band together. Before the SECURE Act was passed, businesses interested in this type of arrangement had to join a MEP (Multiple Employer Plan) comprised of businesses in the same industry. Now, with PEPs, companies have more freedom.

What’s the Draw of a PEP?

The bottom line with a PEP is that it may save some companies money. A PEP offers another advantage, which is that of relinquishing many fiduciary responsibilities to a third party. Instead of getting into the weeds of your 401(k) plan, your pooled plan provider takes tasks off your plate that can typically overburden you and your business, focused mostly on outsourcing many tasks to multiple service providers.  

On the other side, since 401GO assists with those same tasks by simplifying the process of starting and managing a 401(k) plan with features such as same-day setup, automatic notifications and no-hassle payroll integration, taking responsibility for your plan doesn’t need to be overwhelming.

If PEPs lower fiduciary risk as well as startup and management costs, why does 401GO offer our Syndicate?

What Is 401GO Syndicate?

Our Syndicate plan offers many of the same attractive benefits that MEPs and PEPs do. Syndicates are groups of participants looking to offer a great product to employees while spreading out the costs and responsibilities at the same time. Each member group gets to offload their plan management and administrative costs and functions. Additionally, it’s not just companies that can start their own Syndicate — it’s other entities as well, such as chambers of commerce.

Some of the perks that make Syndicate different from an ordinary PEP are the same ones that make 401GO such a great option for small-business owners.

Chief among them is quick setup. Other traditional 401(k) plans take weeks to set up, while at 401GO, you can become a plan sponsor in 15 minutes. Starting a Syndicate is fast and easy as well. Plus, when a business starts its own Syndicate, it sets the rules, such as when and what types of employees can join, what the vesting schedule is, how much the employer match will be and more. Being a sponsor gives you back some of the control you would give up by joining an established PEP. And there’s no guarantee of any particular applicant being granted membership in a PEP — who gets in and who doesn’t is up to the sponsor and/or the group itself. Additionally, sponsors pay no ongoing costs — only member entities pay. And because the fee is shared among members, it’s lower than each business would pay on its own. In fact, this is one of the major drawbacks with PEPs that not everyone is aware of: loss of control. 

What’s Bad About PEPs

Those who join PEPs thinking it’s a great way to offer their employees a valuable benefit while saving money at the same time may be sorely disappointed if they don’t understand the agreement fully, or if they don’t carefully read and digest the fine print before signing.

Worse, it can be extremely difficult to withdraw from a PEP once you’re in. Like any binding contract you sign, if you decide you don’t like the terms later and want to leave to sponsor your own 401(k), you may find that exiting is a long, drawn-out and expensive process. Additionally, if you ever close down your 401(k) plan in the PEP, you do not have control over the complete liquidation of assets and closure as it would fall on the PEP sponsor.

This is not necessarily because the PEP sponsoring group is untrustworthy or devious (although that is possible), but the sponsor makes the rules and the members must follow them, like it or not. You trade control and flexibility for monetary savings and reduced fiduciary responsibility (which may or may not be a good thing). These rules within the PEP can range from requirements to use the same payroll provider, same eligibility provisions (such as age and service), and additional costs relative to an audit.

Moreover, audit requirements have become easier to follow (starting in 2023) with the magic number that would require an audit (over 120) now being applied to those with an account balance, not those who are eligible to participate. For a PEP, this new counting rule does not apply. In fact, the PEP would require an audit if there are more than 1,000 participants overall. One clear and simple advantage of a Syndicate to the PEP is the reduced need for audits.

With a Syndicate, your plan is portable – or removable altogether, if you wish to dissolve the association. Additionally, employers retain the fiduciary control of their plan’s management with all the helpful automation to keep them informed to meet those responsibilities. While small business owners may not see this as a perk, it’s often because they don’t fully understand the process.

With a PEP, when you relinquish fiduciary responsibility to the pooled plan provider, you are not fully divested of liability. When you try to tease out the particulars, you will find that IRS rules on MEPs and PEPs are murky, difficult to interpret and constantly undergoing changes and revisions. Further, PEP sponsors are allowed to set certain rules regarding fiduciary responsibility, and each PEP can be different. Too often, employers learn that their PEP has all the power to make fiduciary decisions and changes, but leaves too much of the responsibility for what happens as a result of these decisions to the powerless members.

Syndicate & Financial Advisors

Financial advisors can help business associations and chambers of commerce get started with Syndicate, and ease the setup process for participating small businesses. You can help mitigate some of the fear that companies face when joining a group plan. Businesses want to be sure they can trust the person who’s taking the reins. Your clients already know and trust you, so you are the perfect person to facilitate the establishment of their Syndicate plan.

Assuming a pooled plan provider is honest isn’t the same as assuming they are good at their job, and both are critically important when managing MEPs, PEPs and Syndicates. Additionally, one of the most arguably widespread problems with PEPs is that members have no control over what type of investments they will be offered. It’s not unlike the Health Insurance Marketplace, which is so important to providing care for those who otherwise couldn’t get it, but in some locations may force subscribers to choose from among marginal, second-rate or downright bad plans. No one wants choices like that. 401GO offers Syndicate financial advisors excellent fund options — choices your members will appreciate.

Add to that the low cost, bundled automated services and live support when you need it, and you’ll see why so many financial advisors and small and medium-sized business owners choose Syndicate. Chat with 401GO today to learn more about Syndicate and our other retirement plan solutions.

The post The Hidden Dangers of PEP Retirement Plans appeared first on Fast and Affordable 401k for growing businesses.

401GO offers a group 401(k) plan called Syndicate. This product comes with many attractive features for the organization, the business owner as well as the participants.

Feature 1: No Cost to the Sponsoring Organization

Most group retirement plans come with big expenses. They can cost thousands of dollars to set up and maintain. A Syndicate costs the sponsoring organization nothing, giving you a free benefit to utilize to help attract businesses to your group.

For businesses, their costs are some of the lowest in the industry. They’ll only pay a small base fee, plus a low fee per active participant (not per employee!), so they won’t pay for employees who are not using the plan. And, the pooled pricing available using a group plan means businesses can get much lower pricing through your organization than they could find anywhere on their own.

Pooled pricing is the biggest advantage for businesses to join the group plan. Taking advantage of economies of scale, employers can receive pricing as low as $4/participant.

Feature 2: Extremely Fast Setup Time

Most group plans take weeks, even months, to set up. A Syndicate can be up and running the same day.

It’s a game-changer for organizations who are anxious to get started.

Employers can set up their plans quickly too. Using our automated setup process, they can complete their onboarding process in just 15 minutes, and have a plan in place that is ready to use. Compare that to legacy providers, who often require 4-6 weeks to get a plan started.

This is particularly valuable for participants. Using our guided strategy builder, employees spend just 5 minutes answering a few questions about their time horizon and risk tolerance, and we help them build a customized portfolio that will suit their needs perfectly. They can make changes to the portfolio at any time.

Feature 3: No Fiduciary Liability

The sponsoring organization incurs no fiduciary liability or responsibility for plan management at all. 401GO provides the investment lineup, and individual businesses provide a sponsor for their plan, so that responsibility remains with the business owners, and not with the association or chamber.

While each business will need to provide a plan sponsor to carry the responsibility for their plan, most of the work is outsourced, so the only job business owners (and their admins) need to do is oversee that work is being done appropriately. This is made easy on the 401GO portal, which comes with reporting to provide awareness.

Feature 4: No Administrative Duties

All the day-to-day work of managing a group retirement plan is offloaded to 401GO. We manage the contributions and distributions, we provide employee notifications, we monitor compliance and file required reports, we provide customer support, and our partner Matrix Trust holds the plan assets.

None of this work will need to be performed by either the sponsoring organization or the individual businesses. Once setup is completed, the only work typically required of business owners is an annual review to ensure information is accurate and up to date, which takes about 10 minutes.

Feature 5: Co-Branding for Organization Recognition

A Syndicate plan comes with co-branding opportunities, so that when business owners and their employees log in to their accounts, they will see the logo of the sponsoring organization. This lends credibility to your organization, and helps remind the business owner of the valuable benefit they are receiving.

A Step Above Traditional Group Plans

If you’re researching the benefits of a group 401(k) plan for your organization, consider these important plan design features.

• Does the plan require specific design features of participating employers?
• Does the plan come with complications that cause difficulty for employers, employees or admins?
• Does the plan require employers to be connected in some way?
• Does the plan require admin work to be done by the sponsoring organization?
• Does the plan require the businesses to be a certain size?

Syndicate doesn’t. It doesn’t require specific design features, complications, business sizes or connections. And it requires no work by the sponsoring organization.

401GO aims to be your preferred partner in retirement planning. We’ve developed our platform to be automated, easy to use and smart, so that it meets the needs of every small business, their employees, and the organizations they belong to.

Talk to us today about how we can benefit your team.

The post 5 Reasons to Offer a Group 401(k) Plan to Your Organization appeared first on Fast and Affordable 401k for growing businesses.

In an effort to build out a network and expand a retirement offering like the 401(k) plan, you could simply leverage an already established network found within a chamber. This is easier said than done, but the reciprocal benefit found from a chamber aligned with what 401GO offers, referred to as a 401(k) Syndicate, opens up a completely new and exciting opportunity.

To give a little history, the traditional offering for a retirement benefit plan with a large group of employers, such as those members within a chamber is to create or sponsor a multiple employer plan or MEP. However, I have to say that the MEP is simply the wrong fit for this type of organization.

3 Reasons an MEP Doesn’t Work for a Chamber

1. An MEP puts the fiduciary responsibility onto the chamber. In other words, the chamber must be the sponsoring organization, which means they will hold a trustee role and be required to oversee the MEP’s operations and service providers. There are options coming down the pipeline that would allow other organizations to take much of this from the chamber, but it comes at a cost.
2. It’s expensive to get off the ground. The cost of an MEP should always be understood before starting down that path. An MEP requires many service providers, which then adds even more to that number down the line. Not to mention, once this is started a chamber is hooked into it. It’s not easy to just walk away once you get going (like a boulder barreling down a mountain, it won’t stop until it’s made an impact). Consider the time expense and if the chamber would have to hire someone to keep up and maintain that MEP.
3. A chamber’s model doesn’t make sense with an MEP. They are a resource for their members, and would instead want to provide an offering or benefit instead of being the sponsoring organization. It also blurs the line with some of their members in the financial services. While some organizations are more aptly suited, such as an association or even a PEO, an MEP might make more sense. If the MEP is costing the chamber money it can quickly become the focus and distract from the resources and education for which they are wanting to provide.

As states ramp up Secure Choice retirement plan alternatives, it would be timely to look at how a chamber can be a player in providing an option to their members. Additionally, there are many opportunities that come up with the SECURE Act with regard to costs and grouping retirement benefits (you can find more information about this here). Moreover, a group 401(k) plan gives flexibility to the chamber in terms of providing a resource to their members, instead of sponsoring something that puts them in a bit of a pickle with those members that are trying to provide similar or the same services. That is why the 401(k) Syndicate meets and matches most of the criteria previously mentioned.

6 Things to Know About a 401GO Syndicate

1. A 401(k) group offering in which the chamber has no fiduciary obligation or responsibilities.
2. This runs outside the chamber in a way that does not disrupt the resources they are trying to provide their members. Instead it is something more easily referenced for those members in which overlap in the industry (benefit and investment advisors more specifically).
3. Each employer is setting up their own 401(k) plan within an automated railway. The plan design options are ideal and easily adopted through the 401GO platform. (A 15-minute setup should certainly save on the time expense.)
4. The chamber can co-brand to allow for their members to look to the 401(k) Syndicate as a cohesive retirement benefit. They would continue to rely on the chamber for those services without the contradictory pushiness of an MEP that has the underlining pressure of joining instead of being optional. Think of the co-branding as having the chamber logo for all those businesses when they login, on both the employer and employee level.
5. As mentioned numerous times in this article, one of the best things about a 401(k) Syndicate is the flexibility. If there is a business member in the chamber that works with a financial advisor that they would like to link up for their 401(k) plan, they don’t have to give that up. A 401(k) Syndicate can accommodate many financial advisors within it.
6. Cost may be last on this list, but certainly not unimportant. A chamber can offer a 401(k) Syndicate to businesses with under 50 employees for $9 per participating employee a month (no setup, document, filing, administrative fees, etc.). A chamber can also arrange an even more reduced cost to the $9 per participant per month or receive a referral credit.

Keep in mind, there are a lot of options out there, but when it comes to the benefit in the retirement space for 401(k) plans, automation is king. Not only does it open options such as the 401(k) Syndicate, but it also creates efficiencies that only improve features and reduce cost.

At 401GO we think a partnership with a chamber is the ideal combination to leverage the network of members and power of automation.

The post Why a 401(k) Syndicate is the Best Option for a Chamber of Commerce appeared first on Fast and Affordable 401k for growing businesses.