Paychex PEP Doubles in Past Year, Driven by Small Plan Startups

Paychex Inc., one of the country’s largest providers of small 401(k) plans, has seen double-digit growth in its pooled employer plan in the last 12 months, as the majority of its startup plans are flowing into the PEP.

More than 25,000 employers are currently enrolled in Paychex’s PEP, which it started in 2020 as the pooled plan provider. The firm declined to disclose the asset amount within the plan but said it accounts for the majority of its startup plan growth when compared to its individual retirement plan offerings.

“When you are a business owner and you are looking at start plan, you’re looking for simplicity, flexibility and fiduciary support,” says Seth Parise, Paychex’s senior director of national retirement sales. “The majority of startup [plan sponsors] are choosing the PEP because it offers all three of those really well.”

Seth Parise.

Parise says the company’s more than 350 Paychex sales representatives will position the PEP as a strong 401(k) option for businesses by laying out the benefits of the PEP, including what he describes as a simple setup; administrative advantages that include not having to directly file Form 5500 reports at the end of the year; and being able to customize plan design.

Startup retirement plans are getting increased attention due to tax incentives for both plan startups and employer matching offered in the SECURE 2.0 Act of 2022, as well as the proliferation of state-mandated and state-facilitated retirement plans that have brought the total to 18 states as of this year, including heavily populated states such as California, Illinois and New York.

Parise says SECURE 2.0 and state mandates have increased client demand and that the private 401(k) plan will often trump a state-run plan due to the tax incentives and “customization that can be done for the employers.”

Paychex started its PEP about one year after the pooled employer plan option was made available by the original Setting Every Community for Retirement Enhancement Act of 2019. Only businesses using Paychex’s payroll program can participate in the PEP, according to the firm’s website.

The firm added the most defined contribution plans in 2022 with 23,246 plans, according to PLANSPONSOR’s most recent recordkeeper surveying. It was followed by ADP Retirement Services at 17,678 new plans.

ADP Inc., the country’s largest payroll provider, has also seen more new plans sign on in fiscal 2023, which ended June 30, as compared to its fiscal 2022, according to a spokesperson.

“We believe that the uptick is in part due to state mandates, as well as the availability of tax credits for startup plans,” the spokesperson wrote via email.

ADP’s sign-ups have come through individual employer 401(k) plans and SIMPLE [savings incentive match plan for employees] IRAs, according to the spokesperson. The firm does not offer a PEP option, but, like Paychex, has a national team offering its retirement plan services to employers.

“ADP Retirement Services educates businesses on offering retirement plans through our retirement salesforce, which includes both internal and field sales associates, working with our ADP payroll sales partners and through the network of advisors and CPAs we have established,” the spokesperson wrote.

Paychex’s Parise also says much of the firm’s business comes from certified professional accountants who work with small businesses on their payroll and accounting. These advisers will often vet and recommend a retirement plan provider for a business who needs it either to meet state mandates or to offer the benefit to employees, Parise says.

Many small business clients are prioritizing a user-friendly platform for their retirement plan and associated educational resources to help drive employee engagement.

“They want to make the participant experience as simple as possible, so we have that at the forefront of our minds and are constantly looking to improve the process.”

He also believes the tight job market is driving plan growth and will continue to in coming years.

“It used to be a differentiator to have a retirement plan,” Parise says. “But now, it’s quickly becoming a differentiator to not have a plan in place.”

Total DC plan startup leaders as of the latest PLANSPONSOR data, after Paychex and ADP, were Ascensus (11,049), Capital Group (7,142) and John Hancock (6,220). PLANSPONSOR is a sister publication of PLANADVISER.

Corrects the number of plans Paychex added in 2022.