Pooled Employer Plans (PEPs) vs. SIMPLE IRA

There are now many different retirement plan options for employers. It is becoming more common to see Pooled Employer Plans (PEPs) and SIMPLE IRAs evaluated against one another. Both types of plans can be good options for the right situation. We take a look at the differences between the two plans here:

	PEP	SIMPLE IRA
Definition and Purpose	Provide the benefits of a 401(k) Plan at a lower price point and with outsourced administration.	Designed for small businesses willing to accept limited contribution options.
Eligibility	No restrictions on number of employees.	Limited to businesses with less than 100 employees.
Employee Deferral Limits (2023)	Employee contributions capped at $23,000, additional $7,500 catch-up	Employee deferrals capped at $16,000, additional $3,500 catch-up
Employer Contributions	Flexibility to make Profit Sharing, Safe Harbor, or Matching Contribution. No employer contribution is also an option.	Employer contributions at 3% match, or 2% non-elective
Plan Administration and Support	Serviced by a co-fiduciary, providing support for both the employer and participants.	Each employee is responsible for their own individual brokerage account.

Conclusion

Both SIMPLE IRAs and Pooled Employer Plans offer valuable retirement benefits for employees and employers. The choice between the two depends on factors such as the size of the business, administrative preferences, and the willingness to take on fiduciary responsibilities. It’s essential to consult with a financial advisor or retirement plan expert to determine which plan aligns best with your organization’s goals and workforce structure.

If you currently have a SIMPLE IRA and are interested in converting the plan, SECURE 2.0 recently made it easier to switch a SIMPLE IRA to a 401(k).