$500 idea · Pattern break · Edition 024
Congress will pay $15,000 for a plan whose published price is $5,000.
26 U.S.C. 45E pays an eligible employer 100% of the cost of establishing and administering a retirement plan — up to $5,000 a year, for three years — once twenty non-highly-compensated employees are eligible to join it. Employee Fiduciary posts $500 to set that plan up and $1,500 a year to run it. The Labor Department counts 167 people in the country registered to collect the difference, and the median one has seven customers.
Every account of the small-business retirement market says the same thing: it is a scale game, the margins are in assets under management, the incumbents are Fidelity, Empower, Vanguard and a handful of venture-funded recordkeepers, and the reason six million American employers have no plan is that they cannot afford one. The last clause is the one the filings contradict, and the contradiction has been sitting in the Internal Revenue Code since 29 December 2022.
Section 102 of the SECURE 2.0 Act rewrote 45E. The old credit paid 50% of a small employer’s startup costs. The new one pays 100% for an employer with no more than 50 employees, and the IRS states it plainly in the instructions to Form 8881, revised December 2025: “for an eligible employer with 1–50 employees, the credit is 100% of the qualified startup costs.” What counts as a qualified startup cost is not the employer’s contribution. It is, in the statute’s words, “any ordinary and necessary expenses” of “the establishment or administration of an eligible employer plan” and of “the retirement-related education of employees with respect to such plan.” That is the administrator’s invoice. Congress is not subsidising the saver. It is paying the vendor.
And it has published the ceiling. The credit for each of three years is “the greater of $500 or the lesser of $250 for each employee who is eligible to participate in the plan” who is not highly compensated, “or $5,000.” So the arithmetic that matters to anyone selling into this market is one line: twenty eligible non-highly-compensated employees is a $5,000 annual ceiling, and $15,000 across the three years.
Now the posted price. Employee Fiduciary, one of the few providers in this market that publishes a fee schedule at all, lists a standard 401(k) at a $500 establishment fee for a new plan and a $1,500 annual base fee, and states that the “base fee covers up to 30 eligible employees” with “each additional employee” adding $30. Three years of that for a thirty-person employer is $500 + $4,500 = $5,000. Against a $15,000 ceiling. The market is charging one third of what the Treasury has already agreed to reimburse, and the ten thousand dollars in between is not a margin anybody is competing for — it is simply not claimed.
The reason is a misalignment nobody has an interest in naming. A recordkeeper does not earn its money on the administration fee; Employee Fiduciary’s own schedule adds a custody fee of 0.08% of plan assets, and the venture-funded platforms layer an asset-based charge on top. Their incentive is to post the lowest possible headline fee and wait for the balances to compound. A credit that reimburses the fee at 100% is worth nothing to a business model that wanted the fee to be small. It is worth everything to one that does not take the assets.
Which is the second thing in the filings. The role that carries the work and the liability — the ERISA section 3(16) plan administrator, signing the Form 5500, running the notices, approving the distributions — is severable, and it is ungated. Under 29 CFR 2510.3-44 a person who wants to offer pooled employer plans files Form PR “at least 30 days before beginning operations.” That is the whole gate. The regulation names no fee, no examination, no net worth, no capital requirement and no departmental approval; it is a registration, not a licence. The Labor Department’s 2026 Pooled Employer Plan Bulletin, built from EFAST2 data pulled on 1 April 2026, counts the result: 167 registered pooled plan providers at the end of 2024, in a country of 6,395,635 employer firms.
And they are not big. Of 143 registered providers, 71 — half — actually operated a plan in statistical year 2023. The median pooled employer plan had 7 participating employers. Sixty-one percent had ten or fewer. One plan had 33,773 employers and accounted for 86% of all participating employers in the country, which is to say the entire visible industry is one firm and a long tail of people with seven customers each.
Seven is the number to hold, because $60,000 a year divided by the $5,000 ceiling is twelve employers. Not twelve thousand. Twelve. The median registered provider in the United States is five customers short of $5,000 a month, and is charging a third of what it could.
The demand is compelled and the government publishes the list. The Bureau of Labor Statistics reported on 25 September 2026 that retirement benefits reached only 55% of private-industry workers in establishments with fewer than 50 workers, against 91% at 500 or more. California finished closing its own gap on 31 December 2025: CalSavers’ fourth wave dropped the mandate to employers with a single employee, which the programme’s 2025 year-end report, dated 19 February 2026 and signed by Executive Director David Teykaerts and Treasurer Fiona Ma, says “expanded the CalSavers umbrella to include an additional 600,000 businesses.” Government Code 100033 prices refusal at “two hundred fifty dollars ($250) per eligible employee,” and “an additional penalty of five hundred dollars ($500) per eligible employee” if it continues.
The counterweight is the shape of the ceiling, not its existence. The $250-per-employee limit means a four-person employer caps at $1,000 a year however good you are, so the 600,000 newly mandated Californian businesses are mostly the wrong customer at this price. The 100% rate is a cliff, not a slope: at the fifty-first employee it halves to 50%, and above a hundred the employer is not eligible at all. And 45E is a general business credit under section 38 — non-refundable. An employer with no tax to offset carries it forward and pays you in cash this year regardless.
The evidence
8 findingsThe credit is for administration, and it is capped at $250 a head
Three provisions do all the work. Subsection (a) sets the credit at 50 percent of qualified startup costs, and subsection (e)(4) — added by section 102 of the SECURE 2.0 Act, enacted 29 December 2022 — substitutes “100 percent” for an employer that would qualify under section 408(p) if “50 employees” were read for “100 employees.” Subsection (b) then caps it, for the first credit year and each of the two following years, at the greater of $500 or the lesser of “$250 for each employee of the eligible employer who is not a highly compensated employee” or “$5,000”; in any other year the limitation is zero. Subsection (d)(1) defines the base: “any ordinary and necessary expenses of an eligible employer” paid “in connection with the establishment or administration of an eligible employer plan” or “the retirement-related education of employees with respect to such plan” — the vendor’s invoice, not the employer’s contribution — and disallows costs for a plan with no eligible non-highly-compensated employee. Subsection (f), the separate employer-contribution credit, is the one that phases rather than cliffs: 100%, 75%, 50% and 25% across four years, capped at $1,000 per employee, “reduced by 2 percentage points for each employee of the employer for the preceding taxable year in excess of 50 employees.” Subsection (e) disallows a deduction for the portion of the costs equal to the credit, so this is a credit against a cost the employer may not also expense.
The agency states the rate and the cliff in one sentence each: 100%, then 50%
The IRS writes the two rates without hedging. “For an eligible employer with 1–50 employees, the credit is 100% of the qualified startup costs.” And: “For an eligible employer with 51–100 employees, the credit remains at 50% of the qualified startup costs.” There is no taper between them. The limitation is restated as “the greater of $500 or the lesser of $250 for each employee who is eligible to participate in the plan” and is not highly compensated as defined in section 414(q), “or $5,000 for the first credit year and each of the following 2 tax years” — “no credit is allowed for any other tax year.” Eligibility is bounded on the other side: the employer must have had “no more than 100 employees who received at least $5,000 of compensation” in the preceding year, and must not have maintained a qualified plan covering substantially the same employees in the prior three tax years, which makes this a one-shot credit per employer rather than a renewable one. The same form carries section 45T, “$500 for the first tax year that an eligible employer first includes an eligible automatic contribution arrangement” and “$500 for each of the following 2 tax years” — a further $1,500 stacked on top, for a feature the plan document can simply contain.
The median pooled employer plan in America has 7 customers
This is the document that makes the route arithmetic rather than a hope, and it is the Labor Department counting its own registrations. “As of the end of 2024, 167 PPPs had registered with the Department to provide PEPs” — 31 in 2020, 88 in 2021, 119 in 2022, 143 in 2023, 167 in 2024, a 17 percent increase in the last year, with 13 ceasing operations across the whole period and 933 Form PR filings in total. Half never start: “71 of 143” registered providers operated an active plan in statistical year 2023. Of 269 pooled employer plans filing a Form 5500, 244 were active. The size distribution is the finding. Across 39,446 unique participating employers reported on Schedule MEP, the median plan had 7 participating employers against an average of 165; 61 percent of plans had ten or fewer; the largest “had more than 33,000 participating employers” and 86 percent of all participating employers in the country were attributable to that one plan. Assets tell the same story — $11,755 million in 2023, with the top 20 percent of plans holding 86 percent of it and “the top 1 percent of PEPs, as represented by two plans,” holding 24 percent. Median active PEPs per operating provider: one.
A registration, not an approval — and the bond is $1,000
The door is one filing and a deadline. The regulation requires that “at least 30 days before beginning operations as a pooled plan provider” the person “file with the Department” a “complete and accurate Form PR,” carrying legal and trade names, address, EIN, websites, a responsible compliance official, an agent for service of process, the expected start date, the services offered and disclosure of certain criminal and civil proceedings. “Only one registration must be filed for each person intending to act as a pooled plan provider,” with a supplemental filing “no later than the initiation of operations” of each plan and updates within the later of 30 days after the quarter or 45 days after a reportable event. What is absent is the finding: the section names no fee, no examination, no bond, no net worth or capital requirement and no departmental approval of any kind. The only money gate anywhere near this role is ERISA section 412, and Field Assistance Bulletin 2008-04 reads it narrowly — a plan official must be bonded for “at least 10% of the amount of funds he or she handles,” the amount “cannot, however, be less than $1,000,” the Department “cannot require a plan official to be bonded for more than $500,000” ($1,000,000 where the plan holds employer securities), and a service provider is subject to bonding “only if that service provider handles funds or other property of an employee benefit plan.” An administrator that never touches the money is outside it. Note what the bond is not: “the plan is the insured party, not the employer or plan sponsor,” and it “must protect the plan against loss by reason of acts of fraud or dishonesty.” It protects them from you.
The posted number the ceiling is measured against: $1,500 a year
Published fee schedules are nearly extinct in this market, which is itself part of the finding; this is one of the few. Standard 401(k): a $500 establishment fee for a new start-up plan ($0 stated separately for conversions, whose base fee is $1,000), a $1,500 annual base fee, and the line that fixes the arithmetic — “base fee covers up to 30 eligible employees,” after which “each additional employee will add $30 to the base fee.” A custody fee of 0.08% of plan assets sits on top, which is where the model actually earns. A solo 401(k), “only for business owners and their spouses,” is $250 to establish and $500 a year. No price is posted for a 3(16) fiduciary service, for Form 5500 audit support, or for safe harbor, and the page’s own calculator returns the solo figures ($500 annual, $250 establishment) where the table says otherwise, so the schedule is internally inconsistent — take the table. Three years of the standard plan for an employer under thirty employees: $500 + 3 × $1,500 = $5,000.
Access stops at the establishment line: 55% under fifty workers, 91% over five hundred
The denominator, counted by the federal government twice over. BLS: “retirement benefits were available to 72 percent of private industry workers in March 2026,” with 52 percent participating, a take-up rate of 72 percent. By establishment size the access rate is 55 percent for fewer than 50 workers, 72 percent at 50–99, 85 percent at 100–499 and 91 percent at 500 or more; participation runs 37, 46, 61 and 76 percent, and the take-up rate is lowest in the middle, 63 percent at 50–99 workers. For the lowest wage quartile, access is 48 percent and participation 22 percent. Against that, the SBA Office of Advocacy, writing in February 2026 from the 2022 Statistics of U.S. Businesses, counts 6,395,635 employer firms with paid employees and 29,811,495 non-employer firms, 36,207,130 small businesses in all. The gap between the 55 percent and the 91 percent is not a willingness-to-pay problem at the employer’s end, because for an employer under fifty the price has been zero since 2023.
One state just conscripted 600,000 more employers
The compulsion that makes the pipeline a list rather than a search. CalSavers’ fourth wave lowered the mandate to employers with as few as one employee, with a 31 December deadline, and the board’s year-end report — dated 19 February 2026, signed by Executive Director David Teykaerts and State Treasurer and Board Chair Fiona Ma — says it “expanded the CalSavers umbrella to include an additional 600,000 businesses.” The programme itself reports nearly 600,000 funded saver accounts, $1.58 billion of saver assets, up 43 percent on the year, and an average funded balance of $2,649 at 31 December 2025, up 29 percent — and “nearly 7,000” employers acting ahead of the deadline, which against 600,000 is just over one percent. Refusal is priced: Government Code 100033 provides a penalty of “two hundred fifty dollars ($250) per eligible employee” after a final notice and “an additional penalty of five hundred dollars ($500) per eligible employee” if noncompliance continues, enforced by the board and collected through the Franchise Tax Board. An employer facing $750 a head is choosing between the state programme and a private plan, and the private plan is the one Congress reimburses.
12 employers, and the plotted points behind the figure
The chart first. Horizontal scale 6 px = 1 employee across 100, vertical 1 px = $50 across $16,000, origin at (90, 380); x = 90 + 6N and y = 380 − D ÷ 50. Credit ceiling, C = 3 × max(500, min(250N, 5000)) at the 100% rate: N=1 → $1,500 → (96, 350); N=2 → $1,500 → (102, 350); N=10 → $7,500 → (150, 230); N=20 → $15,000 → (210, 80); N=50 → $15,000 → (390, 80); N=51, where the applicable percentage halves, → 3 × 0.5 × 5,000 = $7,500 → (396, 230); N=100 → $7,500 → (690, 230); N=101 → $0. Posted price, P = 500 + 3 × (1,500 + 30 × max(0, N − 30)): N≤30 → $5,000 → y 280, so (96, 280) to (270, 280); N=50 → $6,800 → (390, 244); N=100 → $11,300 → (690, 154). The lines cross where 750N = 5,000, N = 6.67 → (130, 280), and again where 7,500 = 5,000 + 90(N − 30), N = 57.78 → (436.7, 230); the shaded polygon runs 130,280 → 210,80 → 390,80 → 396,230 → 436.7,230 → 270,280. The gap C − P: −$3,500 at N=1, +$2,500 at N=10, +$10,000 from N=20 to N=30, +$8,200 at N=50, +$610 at N=51 — a −92.56% collapse across one employee — and −$3,800 at N=100. Now the income. $5,000 a month is $60,000 a year; at the $5,000 annual ceiling that is 12 employers held at once, and because the credit runs three years, a steady book of twelve needs 4 new employers a year, one a quarter. At Employee Fiduciary’s posted $1,500 base the same $60,000 needs 40 plans, 3.33× the work for the same money. Twelve employers is 0.0304% of the 39,446 participating employers DOL counted in 2023, 0.0020% of the 600,000 businesses CalSavers added on 31 December 2025, and 0.000188% of the 6,395,635 US employer firms; it is five more than the median pooled employer plan’s seven. Entry repays itself immediately: one employer’s first-year credit of $5,000 is 10× a $500 door, and the $500 floor under subsection (b) means even a one-employee plan carries $1,500 across three years. Add section 45T and each plan carries a further $1,500. Six things are not hardened. The figure collapses “employees” (the 50-employee test) into “eligible non-highly-compensated employees” (the $250 limit), which overstates the ceiling for any employer with owners or highly-paid staff. 45E is a general business credit under section 38 and therefore non-refundable — an employer with no liability carries it forward and still pays you in cash this year, so the credit is a selling argument, not a payment mechanism. The credit runs three years and is barred if the employer maintained a plan covering substantially the same employees in the prior three, so this is a one-time sale per employer and year four is unsubsidised. The $250-per-head limit caps a four-person employer at $1,000, which is why the 600,000 newly mandated Californian micro-employers are the wrong denominator at this price. No public dataset reports what pooled employer plans actually charge — Schedule C reports fee categories, not amounts — so Employee Fiduciary’s posted schedule is one observation, not a market. And the binding one: section 3(16) is a named fiduciary seat under ERISA, with personal liability for a breach under section 409, and the fidelity bond insures the plan against you rather than you against the plan. The $500 buys the registration. It does not buy the errors-and-omissions cover, and that is the real cost of entry.
The ladder
From $500 to $5,000 a monthSeven rungs. The product is a filing nobody wants to sign, sold at the price the Treasury has already agreed to pay.
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Take the seat that is ungated, not the one that is
Recordkeeping is a scale business with an asset fee. The ERISA section 3(16) plan administrator — who signs the Form 5500, runs the notices and approves distributions — is a separate, severable appointment, and no federal rule requires a licence, an exam or a minimum net worth to hold it. It is also the seat with the liability, which is why it is for sale.
3(16) administrator · no licence · no exam · no net worth -
File the one form, thirty days early
To offer pooled employer plans, 29 CFR 2510.3-44 requires a Form PR filed “at least 30 days before beginning operations,” then a supplemental filing “no later than the initiation of operations” of each plan. The section names no fee, no bond, no examination and no approval. One hundred and sixty-seven people in the country had done it by the end of 2024.
Form PR · 30 days · 167 registered · 71 of 143 operating -
Learn the ceiling before you learn the pitch
Section 45E pays 100% of establishment and administration costs for an employer with 1–50 employees, capped each year at the greater of $500 or the lesser of $250 per eligible non-highly-compensated employee or $5,000, for three years. Twenty employees is the cap. Section 45T adds $500 a year for three years for an automatic contribution arrangement.
max($500, min($250N, $5,000)) × 3 · +$1,500 under 45T -
Do not price like a recordkeeper
The posted schedules are built to look cheap because the money is in the 0.08% custody fee and the asset-based charge behind it. If you do not take the assets, that logic does not apply to you, and pricing under the credit ceiling is simply handing the Treasury’s money back. Three years at the posted $1,500 is $5,000 against a $15,000 ceiling.
$5,000 posted · $15,000 ceiling · $10,000 unclaimed -
Sell between twenty and fifty-eight employees, and nowhere else
Below 6.67 eligible employees the ceiling is under the posted price and you are competing on cash. Above 57.78 the posted price has climbed past the halved ceiling and you are again. The flat $10,000 of unclaimed subsidy sits from twenty to thirty — the employers too small for a national recordkeeper to chase and too large for the $250 cap to bite.
6.67 → 57.78 · flat $10,000 at 20–30 -
Let the government hand you the list
BLS says 55% of workers in establishments under fifty have access to a retirement benefit, against 91% at five hundred or more. CalSavers added 600,000 mandated California employers on 31 December 2025 at a refusal price of $250 then $500 per employee. Form 5500 is a public dataset naming every plan, its size and its current provider.
55% vs 91% · 600,000 mandated · $750/head to refuse -
Budget for year four and for the seat itself
The rung that decides whether this works. The credit stops after three years, is barred if the employer had a comparable plan in the prior three, and is non-refundable — an employer with no tax liability pays you in cash regardless. And 3(16) is a named fiduciary role: section 409 liability is personal, the fidelity bond insures the plan against you, and errors-and-omissions cover is the one bill $500 does not pay.
3 years · non-refundable · ERISA 409 personal liability
Sources
10 primary documents- 26 U.S.C. 45E, Small employer pension plan startup costs — as rewritten by [SECURE 2.0 Act of 2022, section 102](https://www.congress.gov/117/plaws/publ328/PLAW-117publ328.pdf), enacted 29 December 2022
- IRS, Instructions for Form 8881 — Rev. December 2025, page reviewed 30 April 2026
- U.S. Department of Labor, EBSA, 2026 Pooled Employer Plan Bulletin — EFAST2 data pulled 1 April 2026
- 29 CFR 2510.3-44, Registration requirement to serve as a pooled plan provider
- EBSA Field Assistance Bulletin 2008-04 — 25 November 2008
- Employee Fiduciary, 401(k) Plan Pricing — checked 9 October 2026
- BLS, Employee Benefits in the United States, March 2026, USDL-26-1534 — 25 September 2026
- SBA Office of Advocacy, Frequently Asked Questions About Small Business — February 2026
- CalSavers Retirement Savings Board, 2025 Year End Report — 19 February 2026
- Cal. Gov. Code 100033
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