In 2026, a big problem for many small and medium-sized business owners will be how to offer competitive employee benefits without spending too much money or getting too much paperwork.
The employment market is still tight, with almost 80% of U.S. employers saying they can’t find enough skilled workers. Also, 81% of job seekers say that retirement benefits are a big factor in their job applications. That means that candidates are looking at PEO 401(k) plans and long-term benefits early on, sometimes even before salary comes up.
A PEO Retirement Plan is worth looking at if you want to offer good retirement benefits but are worried about the cost, compliance, and continuing management. Many PEOs offer pooled or multi-employer 401(k) plans that give employees good retirement alternatives and take a lot of the work off employers’ hands. We’ll explain what a PEO 401(k) plan is and why it’s a good option for firms that want to hire the best people without taking on too much risk.
You don’t have to worry about HR issues because a Professional Employer Organization takes care of them for you. They handle retirement plans, payroll, benefits, and compliance. The typical PEO gives you a 27.2% return on investment (ROI), which indicates that for every dollar you put in, you earn back a lot of savings and increased efficiency.
A PEO retirement plan works differently from one you set up on your own when it comes to retirement. You don’t have to be the only one who sponsors a 401(k) for your 15, 50, or 200 employees. Instead, you join a Multiple Employer Plan (MEP). It’s like a buying co-op, except for retirement benefits.
This pooling buys scale, makes administration easier, and moves some of the fiduciary and operational load to the PEO and the plan’s administrators. The PEO puts together a lot of small companies, which gives the plan access to lower prices, a wider range of investments, and expert plan management that a single small employer would have a hard time paying for.
If you have more than 100 plan participants and need an audit, filing Form 5500 per year can cost between $6,500 and $13,000. You have to deal with a lot of compliance obligations that appear to vary every year, like discrimination testing, loan processing, safe harbor reconciliation, and a lot more.
The Department of Labor put out new rules in 2024 that made it easier for PEOs to sponsor these plans. They did this because they knew that small businesses were struggling. And the outcomes speak for themselves. More than 230,000 businesses in the U.S. work with PEOs, which is 15% of all employers with 10 to 499 employees. That number keeps going up.
Because a PEO plan collects assets from multiple companies, the costs of keeping records and investing are usually lower than what a small business would spend on its own. Lower fees mean that employees will get more money over time. You don’t have to engage a CPA or other financial expert to handle your annual audits, either. The PEO takes care of everything.
PEOs can do audits, 5500 filings, discrimination testing, collecting contributions, managing loans, and integrating payroll—things that would otherwise take up a lot of time or cost a lot of money to hire outside experts to do.
This is a big one. As a plan sponsor, you have a fiduciary duty, which means you could be personally responsible if something goes wrong with the retirement assets of your employees. We’re talking about possible lawsuits, fines, and big money problems.
When you hire a PEO to help you with retirement benefits, they take on that responsibility. They are in charge of choosing investments, keeping an eye on service providers, making sure that employee contributions are deposited on schedule, and keeping the right amount of bond coverage. Always get the exact fiduciary split in writing.
People don’t usually know this regarding PEO 401(k) alternatives. They don’t fit everyone. You can change the age limits, eligibility requirements, vesting schedules, hour requirements, and entrance windows.
Automatic enrollment, auto-escalation, managed accounts, target-date funds, and in-plan Roth choices are all easier to get in a pooled plan since vendors are more likely to add them for plans with more participants.
A competitive PEO 401(k) plan might help you compete with bigger companies. For a lot of candidates, the employer match and retirement savings are very important.
The SECURE Act 2.0 made it mandatory for new 401(k) plans to automatically enroll people starting on January 1, 2025. The amount you give starts at 3% and goes up by 1% every year until it reaches 10% to 15%. If you’re doing this yourself, you have to keep track of all of this, update your plan documents by December 31, 2026, and make sure you’re following a lot of other rules.
Retirement planning is going through some big changes right now. The maximum amount you may put into a 401(k) plan has gone up from $23,500 last year to $24,500 this year. The amount that workers over 50 can put in to catch up went boosted from $7,500 to $8,000.
But here’s the thing. If your employees make more than $145,000 this year, all of their catch-up contributions must go into a Roth account after taxes. To do this right, your payroll system needs to keep track of ages and last year’s wages. If you’re doing something on your own, it gets even harder. If you work with a PEO, they have already upgraded their systems and are taking care of it.
There is also a “super catch-up” option for workers between the ages of 60 and 63. The most they can give is 150% of the normal catch-up allowance. These individuals are usually at the top of their earning potential. Their kids are done with college, and they are almost done paying off their mortgage. They can truly help their retirement savings during these important years, but only if your plan is structured to let them do so.
Choose a PEO retirement plan if:
Think twice about joining a pooled PEO plan if:
A PEO 401(k) solution is something you should really think about if you want to attract and keep good employees, make HR easier, and not have to learn everything about retirement plans overnight. OEM America helps firms clearly and confidently look into PEO retirement benefits.
You can make an appointment with an expert to start saving money and getting your time back. OEM will help you for up to four hours, give you a free look at your current setup, and provide you with a plan that can save you up to $1,000 per employee. Want to know more? Please fill out our contact form or call us at 860.528.5555. OEM America is a proud member of NAPEO and has been accredited by the BBB. Employers trust them to provide practical, compliant, and people-focused HR solutions.
Not necessarily. Many PEO plans let the employer set match amounts, vesting schedules, and eligibility rules, while the PEO handles administration and compliance support. Always confirm control points before joining.
Yes. Participant accounts are portable. The plan should offer rollovers to IRAs or new employer plans. Ask about auto-portability for small balances if employee churn is high.
Costs vary. You typically pay employer match contributions and may share in lower administrative fees than running a small standalone plan. Compare vendor fee disclosures carefully.
1) Ask your PEO for a plan prospectus and fee disclosure; 2) confirm fiduciary roles in writing; 3) run a cashflow and payroll test; 4) schedule participant communications; 5) enroll.