Agility Meets Access: The Dual Value of PEPs for Private Equity

As private equity (PE) sponsors face a cooling M&A landscape, they’re turning to operational strategies that reduce friction and accelerate value creation. One increasingly relevant tool? The Pooled Employer Plan (PEP): a scalable retirement solution introduced under the SECURE Act of 2019. By allowing multiple employers to join a single 401(k) plan without shared ownership or industry nexus, PEPs offer cost savings, reduced fiduciary risk, and streamlined administration—benefits that align perfectly with the fast-paced, complex nature of PE transactions.

Potential Unlocked: Pooled Employer Plans

This operational advantage is becoming increasingly relevant. While large-scale deals have held their value, overall transaction and exit volumes declined during the early part of 2025, according to EY.[1] Sentiment turned up briefly mid-period, but sweeping tariff announcements sparked a near 20% drop in deals over $100 million and 51.3% decline in total deal value. In response, firms are turning to collaborative strategies, like PEPs, to reduce costs, mitigate compliance risks, and enhance agility.

In an era of regulatory hurdles and costly due diligence, PEPs streamline planning by shifting fiduciary duties to a third-party Pooled Plan Provider (PPP). This allows employers to focus on their core operations while ensuring effective compliance and oversight. By lowering audit expenses through consolidation and easing administrative burdens, PEPs provide an attractive option for businesses looking to reduce compliance risks and enhance transaction efficiency.

The Key to Smoother PE Transactions

Retirement plans rarely top the list of dealbreakers, but they can introduce unexpected friction, especially in carve-outs or when legacy plans carry compliance “baggage.” PEPs offer a clean-slate strategy that eliminates delays tied to transitional service agreements (TSAs), enabling faster closings and smoother integrations.

PEPs’ value becomes especially clear during acquisitions and exits. By streamlining plan implementation and minimizing administrative overhead, they help ensure retirement plans are in place at closing, reducing reliance on TSAs and boosting deal efficiency. Plus, a single audit structure saves further time and effort during preparation.

What’s more, PEPs have gained traction in carve-out scenarios for their ability to deliver large-plan pricing, reduce administrative complexity, and shift fiduciary responsibility to the Pooled Plan Provider. These advantages simplify plan management and allow sponsors to focus on improving participant outcomes, particularly through better investment access.

Institutional Access and Risk Mitigation

PEPs unlock institutional investment opportunities by allowing portfolio companies to pool assets, gaining access to pricing and menus typically reserved for larger plans. This collective scale supports more competitive, diversified options aligned with participant goals.

Additionally, PEPs can serve as a strategic alternative when acquiring companies with problematic legacy plans. Sponsors can sidestep compliance or litigation risks by implementing a clean, new plan structure, avoiding the need to inherit or unwind legacy issues.

All of this is music to the ears of PE sponsors, who are eager to eliminate any potential potholes on the road to finalizing a deal. For example, in a survey conducted by KPMG, dealmakers ranked due diligence (39%) and regulatory hurdles (35%) as significant burdens in transactions, only slightly behind valuation (41%).[2]

 

Selecting the Ideal Partner

PEPs have experienced significant growth, surpassing $17 billion in assets with over 39,000 participating employers, thanks to their numerous advantages. This upward trend is expected to continue, as countries like Italy, Denmark, Australia, and New Zealand—which are further along the PEP adoption curve—report participation rates between 80%–100%. With 86% of 401(k) plans serving small employers (1–100 employees), the US is likely to follow suit with widespread PEP adoption down the road.[3]

But what should sponsors look for in a provider?

First, select one experienced in working with smaller plans. They’re more likely to understand this cohort’s unique priorities, including cost effectiveness and streamlined administration. Sponsors should also seek providers who tailor education opportunities. With targeted resources, these providers empower participants to make informed investment decisions, boosting participant outcomes. What’s more, plans increasingly value providers with robust investment advice, as financial guidance has been shown to enhance happiness, productivity, and overall well-being.

Other key factors when looking for a PEP provider? A strong fiduciary commitment and support for sponsors navigating both ERISA regulations and litigation risks. Amid rising litigation pressures, providers can help sponsors avoid costly lawsuits that can reach millions. Finally, a diversified menu of investment options helps participants align portfolios with their risk tolerance and goals. And complimentary benchmarking gives sponsors essential documentation for plan evaluation, reducing liability and ensuring improvement.

The Smart Strategy for Complex Deals

As businesses and investors navigate the current uncertainties in the M&A landscape, PEPs provide a compelling strategy for private equity sponsors. By reducing costs, simplifying administration, and providing access to high-quality investment opportunities, PEPs can play a crucial role in optimizing retirement planning and positioning companies for future success.

M&A complexity isn’t going away, but the right PEP partner can help simplify your next transaction.