Aon PEP Passes Assets Milestone

The Aon pooled employer plan (PEP) has reached $1 billion in U.S. assets and commitments, providing benefits to more than 30,000 participants from 40 employers, the multinational financial services firm announced.  

The participating employers are diverse. Companies in several industries have joined including from the biotech and life sciences, manufacturing, services, consumer products, energy, and technology and transportation sectors, according to a press release.

Pooled employer plans allow unrelated businesses to participate in one plan managed by a pooled plan provider. Aon, the pooled plan provider, is the plan fiduciary, with discretion for plan administration and investments.   

Aon pooled employer plan participants have benefitted from better performance and a more efficient 401(k) program—after their employer joined the Aon pooled employer plan—“with employees able to accumulate up to 11% more retirement savings during their career due to lower fees compared to typical 401(k) benefit programs,” according to Aon performance modeling data of a hypothetical employee participant’s retirement savings.  

“The benefits of transitioning to a pooled employer plan—half the costs, reduced time commitment from corporate staff, improved governance and high-quality retirement planning options—have become material for employers and their employees,” explains Rick Jones, senior partner, Aon wealth solutions. “We expect more than half of U.S. employers to merge their traditional 401(k)s into pooled employer plans by 2030.”

The 2019 Setting Up Every Community for Retirement (SECURE) Act created pooled employer plans and allowed PEPs to enter the marketplace in 2021. Prior to the act, employers could only join together, under a multiple-employer plan, if the businesses had a common nexus of similar industry or geography.   

Aon, as the plan provider, is the PEP plan sponsor. And the otherwise unaffiliated employers that provide retirement plans—defined benefit or defined contribution—can file a single IRS Form 5500 disclosure document with the Department of Labor.

Employers that have joined a PEP are likely able to lower the amount of staff time and resources directed to plan management, compliance, and governance. Tasks such as regulatory filings and plan audits can be eliminated by outsourcing to the plan provider.

“Lower fees can help participants of all income levels save more for retirement,” said an Aon spokesperson. “The ease [of use] for businesses will allow more to offer 401(k) retirement plans to employees, and delivery platforms in PEPs are and will become more robust—[by] offering more resources and better outcomes to diverse populations.” 

The spokesperson adds that the Aon PEP is among the largest, most prominent in the market, but would not confirm if it is the largest.

“We believe the Aon PEP is one of the largest and most prominent PEPs around, but we will know more after future public disclosures come out,” the spokesperson says.

Aon participating PEP employer West Marine, a marine retailer that operates a chain of boating and fishing supply stores, says company 401(k) costs have come down nearly 65% after joining in 2021.

“Our crew members are saving, we’re saving and it makes it easier to offer bigger and better things that will help us with retention and getting the right talent in place,” says Jasmine Simkins, director of human resource operations at West Marine. “Not only does it help us as a company, but it’s helping crew members understand their investments and they’re having a better experience with the program.”

Pooled employer plans are drawing increased interest from firms of different sizes aiming to capitalize on economies of scale to reduce retirement plan costs.

Research from the American Association of Retired Persons finds that 48% of workers in the U.S.—57 million people—do not have access to an employer-sponsored retirement plan. AARP data shows that employers at small businesses are less likely to have a retirement plan and that access differs substantially by race, ethnicity, and gender.

At the state level, legislation has established state-sponsored retirement plans to expand retirement benefit coverage.

State plans, by comparison, have more individual participants but assets in Aon’s plan are larger than those in all state plans—$533,188,151 combined—according to data from the Georgetown Center for Retirement initiatives. CalSavers is the largest state plan, with $273 million in assets, 331,000 funded accounts and more than 106,000 employers signed up, according to a spokesperson.  

Total 401(k) participant fees in a PEP can be less than half of those paid in traditional 401(k)s, data from Brightscope and current Aon PEP cost shows.

Employers in a PEP being able to secure lower retirement plan costs, for recordkeeping and investment management fees via the combined scale of many employers, could prove a boon to retirement benefit coverage, Byron Beebe, senior partner, Aon wealth solutions, said in a statement.

“The Aon PEP offers a significant opportunity to enhance retirement security for American workers and build a more resilient workforce across the country,” Beebe said. “It provides efficiency and scale while maintaining individual employer autonomy to define matching and other contribution levels, vesting rules and other key plan design features.”

The Aon 401(k) performance model showed a hypothetical employee participating in the Aon PEP would save $1,347,000 throughout their career compared to $1,210,000 for a worker in a traditional 401(k) with higher fees, according to the press release. It assumes a 25-year-old employee with a $50,000 starting salary, $3,000 starting account balance, 4% annual pay increases, age 67 retirement, 3% initial savings rate with auto-escalation to 10%, invested in a diversified S&P through target-date fund and employer matching 100% on the first 3% and 50% on the next 2%.

Income improvement in the Aon PEP assumes a 25-basis points reduction in participant fees and the same modeling parameters.  

The Aon pooled employer plan was launched January 1, 2021.