Comparing PEP Fees to Standalone 401(k) Plans: A Practical Guide

Comparing PEP Fees to Standalone 401(k) Plans: A Practical Guide

Choosing the right retirement plan structure can meaningfully affect both costs and responsibilities for employers. As Pooled Employer Plans (PEPs) gain traction following the SECURE Act, many sponsors are weighing the fee and governance tradeoffs against a traditional, standalone 401(k) plan. This practical guide breaks down how PEP fees compare to standalone arrangements, what’s included (and what’s not), and how to evaluate the total cost of ownership alongside fiduciary and administrative considerations.

Understanding the two plan models

Standalone 401(k) plan: An employer sponsors its own plan, selecting and monitoring service providers, managing plan governance, and maintaining ERISA compliance. The employer retains fiduciary oversight unless it delegates specific responsibilities to external fiduciaries (e.g., 3(16), 3(21), 3(38)). Pooled Employer Plan (PEP): A type of Multiple Employer Plan (MEP) created by the SECURE Act. A Pooled Plan Provider (PPP) serves as the named fiduciary and plan administrator, offering consolidated plan administration and standardized features to many unrelated employers. Employers adopt the PEP rather than sponsoring their own plan.

Core fee components to compare Regardless of structure, most retirement plan administration cost elements fall into the following buckets. The mix and who pays can vary by provider and plan size.

Recordkeeping and participant services: Per-participant fees, asset-based fees, or a blend. Covers website, statements, call center, transactions, and payroll integration. Investment management: Expense ratios, wrap fees, revenue sharing offsets, managed account fees, and potential stable value spreads. Fiduciary services: 3(16) administrative fiduciary oversight, 3(21) or 3(38) investment fiduciary services, annual plan review, and committee support. Audit and compliance: Independent plan audit (generally required for plans with 100+ eligible participants), nondiscrimination testing, Form 5500 filing, ERISA bond, and plan document maintenance. Custody and trust: Trust/custodial fees, trading costs, QDIA mapping oversights. Ancillary services: Loan/withdrawal processing, QDROs, hardship reviews, distributions, participant advice or financial wellness programs.

How PEPs typically package and price these services

Bundled fiduciary relief: The PPP is the named plan administrator and a fiduciary for key functions. Many PEPs include 3(16) administration and 3(38) investment management, reducing employer fiduciary exposure and streamlining plan governance. Consolidated plan administration: Standardized plan design, shared investment menu, unified Form 5500 for the PEP, and a single plan audit at the pooled level. This often lowers per-employer audit costs and simplifies ERISA compliance tasks. Pricing constructs: Commonly per-participant fees with breakpoints by headcount, sometimes with a base fee. Asset-based pricing may apply for investments or managed accounts. PEPs may use collective purchasing power to negotiate lower recordkeeping and custody costs. Tradeoffs: Less customization compared with standalone 401(k) plan structure. Employers must align with the PEP’s investment lineup, operational rules, and service calendar. Some features—such as bespoke eligibility, match formulas, or provider selection—may be limited.

How standalone 401(k) fees typically look

Unbundled or semi-bundled: Employers select vendors for recordkeeping, advisory, and administration. Fees may be more transparent but require active oversight to assemble and monitor a best-in-class stack. Customization premium: Tailored plan design can be valuable, but complexity may raise testing, document, and administration expenses. Audit dynamics: Large plans must secure their own audit, which can be a material annual cost. Smaller plans avoid the audit threshold but still manage filings and testing. Fiduciary mix-and-match: Employers can retain or outsource 3(16) and 3(38) duties. Outsourcing can narrow the gap in fiduciary support compared with a PEP, but at potentially higher à la carte pricing.

Where PEPs can be more cost-effective

Small to midsize employers: PEPs can leverage scale to reduce per-participant recordkeeping fees and eliminate individual plan audits. The unified Form 5500 and pooled audit lower recurring compliance burdens. Employers seeking turnkey oversight: When the PPP provides comprehensive fiduciary oversight and standardized investments, administrative time and risk decrease, translating into indirect cost savings. Plans with limited internal resources: Consolidated plan administration limits the need for a standing committee and reduces vendor management time.

Where standalone 401(k) plans can be more cost-effective

Larger employers with scale: Once a plan reaches meaningful assets and participant counts, direct-negotiated recordkeeping and custody fees can be very competitive. Large plans can absorb audit costs and still present lower all-in fees. Highly customized designs: If your workforce needs sophisticated eligibility, complex employer contributions, niche investment options, or unique payroll setups, a customized standalone plan can reduce operational friction and participant confusion. Existing vendor relationships: Organizations with entrenched HRIS/payroll, advisory, and recordkeeping alignments may achieve operational efficiencies that counterbalance PEP advantages.

A practical framework for apples-to-apples comparisons

Consolidate fee data: Request a detailed fee exhibit from each provider, including per-participant, asset-based, and transaction fees. For PEPs, confirm what the PPP fee covers versus separate recordkeeping or managed account fees. Normalize investment costs: Compare net expense ratios after any revenue sharing or fee credits. Ensure QDIA and managed account fees are included. Include audit and filing impacts: For standalone plans above the audit threshold, add the estimated audit cost. For PEPs, confirm whether pooled audit costs are embedded and how they are allocated. Quantify fiduciary and internal labor savings: Estimate hours spent on plan governance, vendor management, ERISA compliance tasks, and committee meetings. Assign a reasonable labor cost to these activities and include it in total cost of ownership. Stress-test plan design needs: Identify any features your organization considers non-negotiable. Determine whether a PEP’s standardized design supports them. Price any exceptions or workarounds. Review transition and exit costs: Ask about implementation fees, payroll integration charges, and any termination or de-conversion fees—both in a PEP and a standalone 401(k) setting. Evaluate service quality: Fees should be considered alongside service-level commitments, participant outcomes, cybersecurity posture, and error resolution processes. Lower cost does not always mean better value.

Fiduciary and governance implications beyond fees

In a PEP, the PPP centralizes fiduciary oversight and many day-to-day duties, which can reduce employer risk exposure. However, employers still have a duty to prudently select and monitor the PEP and PPP. In a standalone plan, the sponsor retains core fiduciary responsibilities unless outsourced. This can offer more control but requires disciplined plan governance and documentation. Under either model, ERISA compliance remains a shared responsibility: ensure timely remittance of deferrals, accurate payroll feeds, and adherence to the plan document.

Total cost of ownership: an example approach

Direct fees: Recordkeeping, investment, PPP or advisory, custody, audit, testing, document maintenance. Indirect costs: Staff time for retirement plan administration, governance meetings, training, error correction, and vendor RFPs. Risk-adjusted considerations: Potential costs linked to operational errors, late deposits, or investment lineup lapses. Outsourced fiduciary functions may lower these risks.

Market trends to watch

Increasing PEP adoption among small and midsize employers due to the SECURE Act clarity and the promise of consolidated plan administration. Competitive pressure on per-participant pricing as PPPs scale. Growing availability of hybrid solutions: standalone plans with extensive outsourced 3(16)/3(38) services, narrowing the operational gap with PEPs. Continued emphasis on cybersecurity, data integrations, and managed accounts, which may introduce new fees in either structure.

Key takeaways

PEPs can deliver cost efficiencies and meaningful risk transfer via a PPP-led model, especially for smaller employers or those seeking turnkey administration. Standalone 401(k) plans can be highly competitive at scale and offer maximum flexibility in 401(k) plan structure and investment design. The best choice depends on your plan size, desired customization, internal bandwidth, and appetite for fiduciary responsibilities. Compare options using total cost of ownership, not just headline fees, and document your selection and monitoring process for strong plan governance.

Questions and answers

Q1: Do PEPs always eliminate the need for an audit? A: For most adopters, the PEP performs a single pooled audit, and employers avoid their own standalone audit. Confirm with the PPP how audit costs are allocated and whether any employer-level procedures apply.

Q2: Can I customize my plan if I join a PEP? A: PEPs offer standardized features to enable consolidated plan administration. Some customization may be available, but you’ll need to align with the PEP’s investment lineup and operational rules. If deep customization is critical, a standalone approach may fit better.

Q3: If I outsource 3(16) and 3(38) in a standalone plan, do I get the same benefits as a PEP? A: You can approximate the fiduciary coverage of a https://targetretirementsolutions.com/about-us/ PEP by hiring external fiduciaries, but pricing may be higher on an à la carte basis, and you’ll still manage multiple vendors and your own audit if applicable.

Q4: How should I compare investment costs between options? A: Look at net expense ratios, revenue sharing offsets, stable value spreads, and any managed account or advice fees. Ensure the default (QDIA) and core menu costs are included in the comparison.

Q5: What’s the single biggest mistake plan sponsors make when comparing PEPs and standalone plans? A: Focusing only on explicit fees and overlooking internal labor, fiduciary risk, and the impact of ERISA compliance tasks. A total cost of ownership approach provides a more accurate comparison.