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The ABCs of Group Retirement Plans Easily Explained

What’s the difference between MEPs, MEAPs and PEPs?

By Brian Hartmann, CFP

The foundational concept of a group retirement solution—the multiple employer plan—has deep roots. Dating back to the early 20th century and formalized by the Taft-Hartley Act of 1947, multiple employer plans (MEPS) began as vehicles to make agreements between management and labor unions possible across numerous employers in the same industry.

While the multiple employer solutions we know today may look different, their underlying benefits have endured the test of time. In fact, their structure becomes even more relevant every day as business owners adapt to the evolving world around them, and as they look to manage expenses and resources while attracting and retaining top talent.

On Dec. 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law, which included several provisions that impact group retirement plans, including the creation of a new type—the Pooled Employer Plan, or PEP. Read below for an overview of the different core types of group plans and their key differences.

What’s a MEP?
A Multiple Employer Plan (MEP) is a tax-advantaged retirement plan established under section 413c of the Internal Revenue Code that permits unrelated employers (businesses) with some commonality to join together to form a single plan. A third party that the participating businesses have in common—like an industry-based or locality-based association the business are members of, for example—will take on the roles and responsibilities of the plan sponsor.

While MEPs existed prior to the SECURE Act, they now involve less risk for each employer who participates, as the “One Bad Apple” rule was eliminated. This rule previously meant that if one employer had a compliance failure, it could disqualify the entire plan. Other terms for types of MEPs include Association Retirement Plans (ARPs) and the new Pooled Employer Plans (PEPs), which become available on Jan. 1, 2021.
What’s a MEAP?
A Multiple Employer Aggregation Program (MEAP) is a group retirement program that multiple unrelated employers can join through their association with an offering organization. That offering organization acts in an endorser capacity for the MEAP, as opposed to a plan sponsor capacity, like the PEP or MEP.
The key difference is that the joining employers still maintain their own single plan and are not grouped into one large plan with other participating employers. The program aggregates many of the services to create efficiencies and typically includes administrative and investment fiduciaries to oversee many operational and fiduciary tasks for the program and its adopting plans.
The MEAP is excellent for employers who want to take advantage of collective purchasing power, a reduction in administration time and less fiduciary responsibility and risk, while avoiding many of the administrative and plan design complexities associated with joining a single plan with several other employers.

What are PEPs?
Introduced under the SECURE Act, a Pooled Employer Plan (PEP) is a type of MEP, but without the requirement of all businesses sharing a commonality. A Pooled Plan Provider (PPP) operates as a single plan and can offer the PEP to employers that want to take advantage of collective purchasing power, a reduction in administration time and less fiduciary responsibility and risk.
Another term for PEP is an Open MEP. Under the SECURE Act, a MEP may change to the PEP structure and remove the affiliation requirement, making it open to any 401(k) plan to join. A financial professional can guide you.
For employers looking to offer retirement benefits for your employees, it’s important to work with a financial professional to determine the best fit for your organization, including your desired oversight and the number of employees.