A PEP retirement plan, or Pooled Employer Plan, is a single 401(k)-style retirement plan that multiple unrelated businesses share, run by a professional Pooled Plan Provider (PPP). Congress created PEPs through the SECURE Act of 2019 so smaller employers could offer retirement benefits at a scale most couldn’t reach alone. For 2026, employees participating in a PEP can defer up to $24,500 of their pay, and small employers joining for the first time may qualify for federal tax credits worth up to $5,000 a year for startup costs, plus a separate credit tied to employer contributions.
How the Shared Structure Works
A PEP is treated as one plan under the Employee Retirement Income Security Act (ERISA), even when dozens or hundreds of separate employers participate.1U.S. Department of Labor. U.S. Department of Labor Announces Registration Requirements for Pooled Plan Providers One Form 5500 annual filing covers the whole pool, and one independent audit satisfies the reporting requirement for every employer in it.2DOL.gov. Registration Requirements for Pooled Plan Providers Plans with 100 or more total participants generally need that audit. In a standalone 401(k), each employer arranges and pays for its own; in a PEP, the PPP handles it once for the group. That shared audit is one of the biggest cost savings small businesses see.
The Pooled Plan Provider sits at the center of everything. By law, the PPP serves as the plan’s named fiduciary, its plan administrator, and the party responsible for the administrative work needed to keep the plan compliant with ERISA and the tax code.3Legal Information Institute. 29 USC 1002(44) – Definition: Pooled Plan Provider The PPP coordinates recordkeepers and investment managers, runs nondiscrimination testing, and files regulatory paperwork. Employers hand off the operational weight of running a retirement plan to a single professional entity.
Who Can Join
Almost any private-sector employer is eligible, regardless of industry, size, or location. Before PEPs existed, multiple-employer plans generally required a “common interest” among participating employers, like membership in the same trade association. The SECURE Act dropped that requirement entirely.1U.S. Department of Labor. U.S. Department of Labor Announces Registration Requirements for Pooled Plan Providers A five-person landscaping company can share a PEP with a mid-size accounting firm or a nonprofit arts organization. There is no minimum or maximum employee count, and businesses at very different revenue levels share the same investment menu and administrative pricing.
On the employee side, SECURE 2.0 broadened access for long-term part-time workers. Starting in 2024, employees who work at least 500 hours per year for three consecutive years and are at least 21 must be allowed to make elective deferrals, even without hitting the traditional 1,000-hour threshold. Employers in a PEP need to track those hours and enroll part-timers when they cross the line.
What the Employer Still Owes
The biggest practical draw of a PEP is how it reshuffles responsibility. In a traditional 401(k), the employer is plan sponsor, named fiduciary, and often plan administrator, all at once. In a PEP, the PPP takes on most of those roles by law and handles compliance testing, filings, investment oversight, and participant disclosures.2DOL.gov. Registration Requirements for Pooled Plan Providers
Employers don’t shed fiduciary duty entirely, though. Each participating employer keeps the duty to prudently select the PPP and monitor its performance at reasonable intervals. That monitoring obligation is where most employers in a PEP still carry real legal risk. Federal guidance describes what monitoring looks like in practice: reviewing the PPP’s experience with employee benefit plans, checking that fees match what was agreed, confirming that participant complaints get resolved, and evaluating whether investments are performing reasonably against their benchmarks.4Federal Register. Pooled Employer Plans: Big Plans for Small Businesses Employers should also check whether the PPP receives compensation from third parties or uses participant data for cross-selling, since those conflicts can affect plan quality. This is not a set-it-and-forget-it arrangement.
One other operational duty stays with the employer: getting money from your payroll into the plan on time. The Department of Labor requires small plans (fewer than 100 participants) to transmit employee contributions within seven business days of the payroll date.5U.S. Department of Labor. Employee Contributions Fact Sheet Missing that window is a common compliance violation for small employers and can trigger penalties even inside a PEP.
Protection Against Another Employer’s Mistakes
A common fear with any shared plan is that one employer’s failure could bring down the whole thing. Before PEPs, that “one bad apple” risk was real: if a single employer in a multiple-employer plan violated the tax rules, the IRS could disqualify the entire plan for everyone. The SECURE Act addressed this through a specific tax code provision.6Office of the Law Revision Counsel. 26 USC 413 – Collectively Bargained Plans
In a PEP, if one employer fails to comply, that failure doesn’t automatically disqualify the plan for the rest of the pool. The PPP has to follow a defined process: notify the noncompliant employer, give them a deadline to fix the problem, and if they don’t respond, transfer that employer’s employees’ assets out of the pool into a separate plan or another eligible retirement account. The plan documents must spell those procedures out in advance. The protection depends on the PPP actually doing its job. If the PPP itself drops the ball, the shield weakens, which is another reason the monitoring duty matters.
Signing On: The Joinder Agreement
The legal document that brings an employer into a PEP is called a Joinder Agreement. The PPP provides it, and it works as both a contract and a customization tool. Before signing, you’ll want your entity’s legal name, Employer Identification Number (EIN), and payroll frequency in hand.
You also make several plan-design decisions in the agreement:
- Matching formula. The employer match is the most visible feature to employees. Common formulas fall between 3% and 6% of salary.
- Vesting schedule. This sets when employees fully own the employer contributions. For matching contributions in a 401(k), the law allows either a three-year cliff schedule (0% until year three, then 100%) or a six-year graded schedule (20% after two years, rising to 100% after six).7Internal Revenue Service. Retirement Topics – Vesting
- Eligibility requirements. Plans can require employees to complete up to one year of service (generally 1,000 hours over 12 months) and be at least 21 before participating. If the plan offers immediate vesting, it can extend the waiting period to two years.8U.S. Department of Labor. FAQs About Retirement Plans and ERISA
Every choice in the Joinder Agreement affects both your ongoing cost and your employees’ experience. Bring an accountant or benefits advisor in before committing to a matching formula you can’t sustain.
Automatic Enrollment for Newer PEPs
Any PEP established after December 29, 2022, must follow SECURE 2.0’s mandatory automatic enrollment rules for plan years beginning on or after January 1, 2025. Employers joining a newer PEP sometimes miss this.
The plan must automatically enroll eligible employees at a default contribution rate of at least 3% but no more than 10%. That rate steps up by one percentage point each year until it reaches at least 10%, with a hard ceiling of 15%.9Federal Register. Automatic Enrollment Requirements Under Section 414A Employees can opt out or change their rate at any time, but the default is enrollment, not a blank form waiting to be filled out.
Some employers are exempt from the mandate:
- Businesses with 10 or fewer employees
- Businesses in operation fewer than three years
- Church and governmental plans
- Plans adopted before December 29, 2022 (grandfathered in)
If you’re joining a PEP established after that date, auto-enrollment is baked into the plan design. Your PPP handles the mechanics, but your employees will be enrolled automatically unless they opt out.
2026 Contribution Limits
A PEP follows the same IRS contribution limits as any other 401(k). For 2026:10Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Employee elective deferral limit: $24,500 (up from $23,500 in 2025)
- Catch-up contributions (age 50 and older): $8,000 (up from $7,500 in 2025)
- Enhanced catch-up (ages 60 through 63): $11,250, a higher limit created by SECURE 2.0 that applies only during those four years
An employee aged 60 through 63 could defer up to $35,750 in 2026 ($24,500 plus $11,250). That window is narrow and worth flagging to workers approaching retirement. Once they turn 64, they drop back to the standard $8,000 catch-up.
Tax Credits for Small Employers
Small employers joining a PEP for the first time can claim two separate federal credits that substantially cut the cost of offering a retirement plan.
The startup costs credit covers up to $5,000 per year for three years toward the ordinary costs of setting up and administering a new plan. Employers with 50 or fewer employees who earned at least $5,000 in compensation qualify for the full credit.11Internal Revenue Service. Retirement Plans Startup Costs Tax Credit Employers with 51 to 100 eligible employees can still claim it, but the amount phases down.
SECURE 2.0 added a second credit tied to employer contributions. For employers with 50 or fewer employees, it covers 100% of employer contributions up to $1,000 per participating employee in the first two years, then 75% in year three, 50% in year four, and 25% in year five.11Internal Revenue Service. Retirement Plans Startup Costs Tax Credit For 2026, this credit isn’t available for contributions made on behalf of employees earning more than $110,000.12Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted A business with 10 employees could combine up to $15,000 in startup credits with up to $10,000 in contribution credits in the first year alone.
Leaving a PEP
Exiting a PEP isn’t the same as terminating a retirement plan. If your business outgrows the arrangement, gets acquired, or wants to move to a different provider, you can discontinue participation. The Joinder Agreement and the PEP’s governing documents spell out the process, including notice periods.
When you leave, employees’ account balances can stay in the PEP during a transition, or they can be transferred to a new plan you set up with a different provider. To formally terminate your portion of the plan, federal rules require you to first spin off your segment into a standalone plan, which can then be terminated using standard procedures. At that point employees receive distribution options, including rolling their balances into an IRA or a new employer’s plan.
Exit terms vary by PPP. Review the termination and discontinuance provisions in the Joinder Agreement before you sign, so a change in business circumstances later doesn’t come with surprises.