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PEPs are Here: Why Pooled Retirement Plans Are Changing the 401(k) Market

New 401(k) options for employers launched in early 2021. Here’s how busy HR managers and executives can get an edge by understanding their value.

For the past several years, pooled employer plans, or PEPs, have been gaining momentum from global trends. These next-generation, defined contribution retirement plans allow employers to band together instead of going it alone. Doing this means less work, less risk, and lower costs for employers. Employees, too, are reaping the benefits; since they may pay less in fees leading to more assets in retirement and can receive better support leading to improved participant behaviors, which sets them up for better retirement outcomes.  

Now, thanks to new U.S. legislation, American employers are able to join PEPs. These new cost-saving retirement options could not have arrived at a better time as the pandemic and resulting economic crisis have caused some employers to focus on essential work activities and have hindered workers’ financial wellbeing. Nearly 3 in 10 Americans decreased or stopped saving for retirement during the pandemic,[1] according to a recent survey – on top of Aon research that had already found only one in three U.S. workers will save enough to retire comfortably by age 67.[2]


With this backdrop, PEPs have the potential to shake up the retirement landscape the way 401(k)s did when they arrived on the scene in 1978. Already more than 100 PEPs have registered with the Department of Labor. And while it’s early days for American PEPs, looking to the past may provide a clue for how they could grow going forward. When large companies like Pepsi, JC Penney, and Johnson & Johnson adopted 401(k)s in the early 1980s, the floodgates opened. Similarly, Aon predicts more than half of U.S. employers will be using PEPs by 2030.

As organizations begin to assess which PEP may work for their organization, it’s important to keep in mind that not all PEPs are created equal. Many in the first wave are specialized, focusing on supporting the current investment advisor with a focus on small companies looking to leverage the scale of a pooled plan. Others have a broader mandate to bring the large company experience and benefits to small and mid-size companies. Below are some of the benefits to consider as you navigate this new retirement landscape.     


Less Work for HR Teams

With traditional 401(k)s, benefits managers have to function as the quarterback between record keepers, auditors, legal compliance teams, investment teams, and many others. With PEPs, the process is much simpler.

After specifying the plan design and contribution levels, which can happen in a few weeks aided by a conversion team, the HR professional’s job is simply to monitor the plan. The Pooled Plan Provider of a PEP serves as the fiduciary to support the administrative, investment, compliance, consulting, and legal requirements of running the plan.

Some PEPs like Aon’s also provide pre-built communications, financial wellbeing support, and training materials such as videos and emails, so HR professionals have tools to bring employees up to speed quickly. These advantages can be obtained without having to sacrifice the current plan design either. By potentially decreasing the work to manage these retirement plans, HR employees are freed up to focus more on their organization’s mission-critical activities.


Less Risk for Employers

One of the biggest advantages of a PEP is being able to transfer the fiduciary responsibility and liability for investments and administration to a third party. That’s become all the more important in recent years as the risk of litigation with existing defined contribution plans has soared. In 2020 alone, there was a four-fold increase in excessive-fee lawsuits compared to three years ago, and in the last decade, more than $1 billion in settlements has been paid.[3]

The risk is anticipated to drop dramatically with PEPs because the Pooled Plan Providers take on fiduciary responsibility and liability. PEPs offered by large companies like Aon also draw on their experience with retirement solutions and mitigating risk for organizations all the way from Fortune 500 companies to smaller and regional organizations. A PEP can be right for any sized organization that is looking to transfer and reduce risk.


Lower Costs, More Services

The secret to the cost savings for PEPs is economies of scale. Scale enables PEPs to provide lower fees than standalone 401(k) plans to employers for everything from recordkeeping to investment fees. Based on a data survey of over 100 employers as of March 2021, the Aon PEP provides an average cost savings of 44% relative to current 401(k) costs across plans of all sizes. Lower fees, in turn, create more retirement savings and better outcomes for employees.

Aon, for example, leverages its existing expertise in retirement and investment solutions and brought in partners like Voya Financial, the fourth leading record keeper in the U.S.,[4] to collaborate on innovative solutions expected by the largest of employers. Then by allowing small and mid-size companies the ability to join the plan, it provides tools and scale they couldn’t access before. The Aon PEP also works particularly well for specific situations like M&A, with a “pre-built” solution providing the flexibility to handle multiple situations and employers.

Another benefit of scale is that PEPs can offer tools that smaller sponsors could not offer on their own, such as services to help participants manage their student loans or coordinate their retirement plans with health savings accounts. 


PEPs will significantly impact the retirement landscape, and employers and employees can reap the benefits. Learn more to find out if a PEP is the right approach for your organization.

[1] CNBC, Americans are raiding retirement savings during coronavirus pandemic

[2] Aon, Mind the Gap: Only 1 In 3 U.S. Workers Are Prepared for Retirement

[3] Aon FSG tracking of DC plan excess fee lawsuits and January 2021 Client Alert

[4] RPA Convergence, Largest DC record keepers

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