PEO 401(k) Services: MEP, PEP, and Retirement Plan Administration

PEO 401(k) plans come in two structural flavors:

• Multiple Employer Plan (MEP). The traditional PEO 401(k) structure. All client employers participate in a single plan sponsored by the PEO. Pre-2020 MEPs had "one bad apple" risk — one client's compliance failure could disqualify the entire plan. The SECURE Act of 2019 eliminated that risk for properly-structured MEPs.
• Pooled Employer Plan (PEP). A SECURE Act innovation (effective 2021). A Pooled Plan Provider (PPP) sponsors the plan; PEOs and other employers join as participating employers. PEPs offer cleaner fiduciary separation and easier exit when leaving the PEO.

Most modern PEO 401(k) plans are PEPs. Older PEO plans may still be MEPs. The practical differences from a buyer's perspective: PEPs typically offer cleaner exit handling and fiduciary clarity; MEPs may have slightly lower fees in some cases. Ask which structure each PEO uses.

The six dimensions that materially differentiate PEO 401(k) plans:

1. Fund lineup quality. Number of investment options, presence of low-cost index funds, target-date funds availability, brokerage window option.
2. Fee structure. Recordkeeping fees (per-participant or asset-based), investment management fees (expense ratios), administrative fees. Compare against fi360 fiduciary benchmarks.
3. Roth 401(k) option. Employee-elected after-tax contributions. Increasingly standard but not universal.
4. Employer match flexibility. Can you set safe-harbor matching? Discretionary profit-sharing? Non-elective contributions? Vesting schedules?
5. Recordkeeper. Empower, Voya, Fidelity, John Hancock, ADP Retirement, Transamerica — recordkeeper quality affects participant experience, plan administration, and rollover handling.
6. Fiduciary structure. Is the PEO operating as a 3(21), 3(16), or 3(38) fiduciary? 3(38) fiduciary structures (most common in PEPs) transfer most investment-selection fiduciary liability away from the participating employer.

PEO 401(k) plans typically win for:

• Companies with 10–250 employees where standalone plan fees are punishing on a per-participant basis
• Companies that want simpler ongoing administration (the PEO handles testing, filings, audits)
• Companies that haven't yet established 401(k) plans and don't want to navigate plan setup
• Industries with high turnover where the PEP/MEP structure simplifies onboarding/offboarding of participants

Standalone 401(k) plans typically win for:

• Companies with 250+ employees that have their own group buying power for recordkeeping
• Companies wanting specific fund lineups or recordkeepers the PEO doesn't offer
• Companies wanting full plan-design control (unique vesting schedules, complex match formulas)
• Companies planning to spin off or sell — standalone plans transfer more easily

Plan-transition handling at PEO exit varies significantly:

• PEP exits are typically cleaner. The Pooled Plan Provider continues administering your account; you select a new participating-employer relationship or set up your own plan.
• MEP exits are more complex. Your participants need to roll funds out of the MEP into a new plan (your standalone 401(k), an IRA, or another MEP). Rollovers typically take 30–60 days.
• Vesting schedule preservation. Best PEPs and MEPs preserve participant vesting credit at exit. Some don't. Ask before signing.

For companies considering exit risk, structure the 401(k) evaluation around exit handling, not just current-state plan quality.