Evaluating a Pooled Employer Plan: A Fiduciary Due Diligence Framework
Pooled employer plans have moved from novelty to mainstream.
More than 50,000 401(k) plan sponsors have adopted a PEP model since SECURE 2.0, and adoption continues to build as small and midsize employers revisit vendor contracts and fiduciary workloads. The structural appeal is legitimate. A PEP is a defined contribution plan serving employees of multiple unrelated employers, sponsored and administered by a pooled plan provider that assumes a substantial share of the administrative and fiduciary responsibility that would otherwise sit with each adopting employer. For an employer without dedicated retirement plan staff, that is a real reduction in burden. It is not, however, an elimination of responsibility — and the gap between those two ideas is where PEP due diligence lives.
What actually transfers, and what does not
Adopting a PEP moves considerable work: plan document maintenance, much of the compliance and administrative function, and typically investment selection and monitoring. What remains with the adopting employer is the duty to prudently select and monitor the pooled plan provider, and to continue validating that participation in the arrangement remains in the best interests of plan participants. In other words, the adopting employer's fiduciary role narrows to a single but consequential decision, repeated over time: is this the right provider, and is this still the right arrangement? That is a smaller job than running a standalone plan. It is not no job, and it is not a one-time job.
Why fee comparison is the shallowest layer
PEP marketing tends to lead with cost, and cost comparison is where most evaluations begin and too many end. Fees matter. But a fee comparison between PEPs — or between a PEP and a standalone plan — is only meaningful once you have established that the services being compared are equivalent. They frequently are not. Fiduciary scope, service model, investment lineup governance, and exit terms vary widely across arrangements that appear similar on a fee schedule.
The following framework addresses what the fee schedule does not:
1. Define the pooled plan provider's fiduciary scope precisely "Fiduciary services" is a category, not a commitment. Establish in writing: • Whether the PPP or an affiliated party serves as 3(38) investment manager with full discretion, or as a 3(21) co-fiduciary advisor • Whether 3(16) administrative fiduciary services are included, and precisely which administrative functions those cover • Which functions remain the adopting employer's responsibility — payroll data accuracy and timely remittance almost always do Get the scope in the service agreement, not in a presentation deck.
2. Map the parties behind the arrangement Most PEPs are assemblies. The pooled plan provider, recordkeeper, investment fiduciary, custodian, and auditor may be five entities or one, and the answer changes the analysis. Determine which parties are affiliated, how each is compensated, and whether any entity is selecting an affiliate to serve the plan. Affiliation is not disqualifying and is common in the market. But it is a conflict to be identified, evaluated, and documented — the same standard applied to any other service arrangement.
3. Establish the ongoing monitoring obligation before you adopt This is the item most consistently underdeveloped in PEP evaluations. Ask the provider directly: what reporting will we receive, at what frequency, and what would we examine to conclude that this arrangement remains prudent for our participants? A provider that has thought carefully about adopting-employer fiduciary duty will have a clear answer and standard reporting built to support it. A provider that treats the question as unusual has told you something useful about how it views the relationship. The committee should then commit to a monitoring cadence — annual at minimum — and record it.
4. Understand the audit structure Audit treatment in pooled arrangements differs from standalone plans and varies across PEPs. Establish who is audited, at what level, what the adopting employer must supply, and what the cost allocation looks like. This is rarely a decisive factor. It is frequently a surprise, and surprises are avoidable at the diligence stage.
5. Know what happens when another adopter has a problem Pooled arrangements raise a question standalone plans do not: what is the effect on your employees if a different adopting employer becomes non-compliant? Statutory and plan-document mechanisms exist to address this, and well-constructed PEPs handle it cleanly. But the specific mechanics — how the PPP identifies the issue, what remediation is required, what happens if remediation fails, and whether the pool bears any consequence — should be understood before adoption rather than discovered afterward.
6. Evaluate the exit before you need it The most overlooked item in PEP due diligence is the one that matters most if the arrangement stops working. Establish: • Required notice period to withdraw • Mechanics of transferring assets and records to a successor arrangement • Whether withdrawal requires a plan termination, spin-off, or restatement • Blackout duration and participant impact • Any withdrawal fees or unamortized cost recapture Raising exit terms during a selection process can feel adversarial. It is not. The cost of leaving is part of the cost of entering, and a committee that has evaluated it has evaluated the arrangement completely. Committees that skip this question do not avoid the answer. They receive it at the moment of least leverage — after a service failure, an acquisition, or a fee change.
Applying the framework
These six areas produce a diligence file that will support the selection decision and the ongoing monitoring obligation that follows it. The output should include written evaluation criteria set before proposals were reviewed, a comparison of the PEPs and the standalone alternative considered, the compensation picture for each party, and minutes recording the committee's reasoning. Employers already in a PEP can apply the same framework retroactively. If your committee cannot currently answer these questions about an arrangement you have already adopted, the useful response is not concern — it is an agenda item.
A pooled employer plan can be an excellent structural fit, particularly for employers whose fiduciary capacity is genuinely stretched. The model does what it claims: it moves substantial work to a professional provider. What it does not do is remove the employer from the fiduciary table. It changes the seat. The adopting employer's job becomes selecting the right provider and continuing to verify that the arrangement serves participants well. That is a narrower duty, and a real one.
Evaluating a PEP on price alone satisfies neither.
To find out more about Culpepper RFP Services, click here and here. Also check out this blog post on fee benchmarking.
Whether you are evaluating a PEP or already in one, these six questions are worth working through with your committee and recording the answers.
Most organizations approach the health benefit broker RFP as a procurement exercise. They issue a questionnaire, collect responses, compare fees, and select a winner.
That process is better than nothing. But it falls short of what a well-designed RFP is actually capable of — and what regulators, courts, and ERISA counsel increasingly expect.
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