Benefits March 14, 2024

In PEPs, Attaining Economy of Scale Is Critical, Sometimes Illusive

While the pooled plan providers, sponsors of multiple employer plans, continue to see asset inflows, for sponsors, joining a PEP to realize cost savings can be more difficult than advertised.
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Art by Nadja Zinnecker
In PEPs, Attaining Economy of Scale Is Critical, Sometimes Illusive

Retirement plans that include multiple employers have continued to grow in assets, but the growth of assets necessary to reach the critical size where economies of scale can be achieved may take years. The  forecasted cost savings to plan sponsors of joining a pooled employer plan over using a single employer plan may not materialize, depending on the sponsor’s pooled plan provider.

Pooled employer plans were created by the Setting Every Community Up for Retirement Enhancement Act of 2019 and came into effect in January 2021 to provide an alternative for sponsors to a single-employer plan and are a less restrictive subgroup of multiple employer plans.

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Expanding MEPs to create PEPs was billed as a cost-efficient and less burdensome way for employers to provide a retirement plan, moving the needle to narrow the retirement coverage gap.  

“If you can get the economy of scale where you’re running your PEP efficiently, you can drive costs down,” says Kevin Gaston, director of plan design and institutional consulting at Vestwell. Gaston claims, single-plan sponsors “don’t ever get that scale.”  

Large plans not only have lower average costsper participant but the range of costs across plans is also lower, finds the Investment Company Institute and Brightscope.   

Vestwell is registered with the DOL to offer MEPs, including PEPs. Vestwell representatives did not disclose its assets in MEPs. 

Pooled plan providers must register with the Department of Labor and to date 149 have launched, according to the latest data shows. Among registered PPPs, 121 have at least one registered PEP and 427 total PEPs have registered with the regulator, says Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP. His company tracks PEP registration on the DOL’s EFAST website with the latest data.

PEPs and Retirement Coverage

Joining a PEP allows a group of participating retirement plan sponsors to join a single plan administered by a pooled plan provider, which becomes the named fiduciary responsible for performing most administrative functions for the plan.

For sponsors, joining a PEP “is less work, less risk and better outcomes…due to the economies of scale and the cost savings and we’ve seen that play out,” explains Rick Jones, a senior partner at Aon and head of its wealth solutions division.

“The cost savings that we can drive through the economies of scale and the purchasing power that Aon has in the markets generally means that more money stays in participants accounts rather than being paid in fees and grows for retirement,” explains Jones. “Different employers are attracted to different degrees to all three of those depending on where they’re coming from but they are finding that they’re having to do a lot less work to provide a customized and comprehensive 401(k) program.”

Aon plc is a registered PPP and sponsors a PEP. Aon partnered with Voya to provide recordkeeping services to support PEP sponsors. Aon’s PEP comprised nearly 80 employers, 70,000 eligible employees and $2.3 billion in participant retirement assets, as of the most recent data from Aon.

Aon’s PEP is available to sponsors with 100 employees or more.

Voya serves as a recordkeeper for approximately $90 billion overall in assets within its multiple employer solutions book of business, explains Ginger Brennan, head of multiple employer solutions at Voya.

Effect to Small Businesses

For PEP-participating sponsors, the economies of scale are critical to them realizing cost savings. And the savings are not a given.

At Aon “we were able to offer the buying power and the economies of scale that Aon investments had more broadly, on day one when we launched: Not every organization can do that or say that” Jones adds.

Cost savings may take some time to materialize as new PEPs must reach a significant size, the Center for Retirement Research at Boston College research notes.


Considering Costs of Single Employer Plans vs. PEPs

Plan sponsors considering a pooled employer plan will likely be factoring in the cost comparisons to a single employer plan.

Boston College researchers provided this breakdown of the fees that should be considered:

  • Set-up fees: one-time costs to set up a plan. Single-employer plans may have higher set-up fees if employers want a highly customized plan;
  • Administrative fees: The burden of administrative fees depends on how fees are structured and the level of plan assets. Fees based on a percentage of assets will be limited when plans are new and assets are low. In contrast, flat administrative fees can be burdensome for participants in new plans. However, as plan assets grow over time, flat fees will represent a smaller share of plan assets;
  • Investment fees: Expense ratios for the same mutual fund can differ dramatically, depending on the share class. A recent Pew study found that the expense ratio of a mid-cap fund ranged from 0.75% to 1.45%, varying by share class. Lower-priced share classes are offered to investors with more assets, so small pooled plan providers may not be able to offer the lowest fees on investment ; and
  • Audit fees: Employers with less than 100 participants are not required to conduct an audit if they have a single employer plan. Small employers in a PEP are subject to an audit if the PEP has more than 1,000 participants, but these costs will be shared by all employers in the PEP.

For small businesses, joining a PEP means paying a portion of Department of Labor audit fees, which could be an added cost. For a small employer, the auditing fee “wouldn’t be a deal breaker, but it would just be an additional consideration,” says Barry Salkin, a counsel at the Wagner Law Group.

When it comes to cost by plan size, the “401k Averages Book” provides this breakdown for a single employer plan:

  • For sponsors with a $10,000 plan average account balance, the total average plan cost of bundled investment, recordkeeping and administration as a percentage of assets is 4.16%;
  • For sponsors with a $50,000 average account balance, the total average plan cost as a percentage of assets is 1.84%; and
  • For plans with a $100,000 average account balance, the total average plan cost as a percentage of assets is 1.43%.


Small employers with fewer than 100 employees account for the majority of U.S. businesses and 35% of private sector workers, according to the Bureau of Labor Statistics. About half of small employers offer a retirement plan, compared to about 90% of employers with more than 100 workers, finds the Center for Retirement Research.  

Surveys of small employers show that the two top reasons small firms do not offer a retirement plan are revenue concerns and administrative burden, found the Center for Retirement Research. Some firms may be too small or too new to offer a retirement plan. Among companies that are established enough but may be concerned about costs and administrative burden, PEPs may be able to help, wrote Anqi Chen and Alicia Munnell, authors of the Center for Retirement Research January 2024 report, A Multiple Employer Plans Primer: Exploring Their Potential to Close the Coverage Gap.

But the plans have not had enormous success. 

And efforts alongside SECURE 2.0 and prior to it outside of PEPs, which have aimed to facilitate small business to provide retirement plans have not shown great success, either.

Small business were largely unaware of tax credits available to small employers as a result of SECURE 2.0, finds a survey published by the Employe Benefit Retirement Institute, earlier this year and 24% of employers surveyed in 2022 by ShareBuilder 401k believed 401(k) plans were too costly for their businesses. As a result of lawmakers in Colorado and Oregon passing state auto-IRA mandates, more small business in those states have started to offer 401(k) plans, according to research published in December. 

PEP: Buyer Beware

Key to the success of Aon’s PEP was the company’s ability to take advantage of the size of its overall business — and assets under management — outside the PEP, adds Rick Jones.

“We launched with zero and the first couple entrants were smaller and had millions of dollars as opposed to 10s of millions or hundreds of million dollars of 401(k) assets,” says Jones. “At that point, we were leveraging the purchasing power of Aon investments and we were able to go to leading investment managers and say we’re putting together this PEP help us to devise an investment lineup at costs that are incredibly market competitive and they did just that.”

For sponsors with fewer than 100 employees to achieve lower fees, attain the in a PEP they must select the right PPP provider, Jones says.

“We find that when we price things out and do a side-by-side benchmarking that we generate and are projected to generate cost savings 90% plus of the time,” Jones says. “We are also using the purchasing power of Aon investments and the trillions of dollars of assets under advisement that we have in-house already and the hundreds of billions of dollars of assets under management [at Aon}. We find that the benchmark fees for investment options in [the] Aon PEP are 50%, lower than the benchmarks in the broader industry, again, because of the purchasing power we can offer.”

USI Consulting Group works with sponsors, consulting on their retirement plans to find the appropriate fit.

A USI Consulting Group sponsor client with about $20 million in plan assets joined a PEP but were unhappy. They moved to a single plan and realized cost savings, he explains.

“The fees decreased by about 66% or so, because they were, frankly, a bit too big to be participating in the PEP that they had joined, prior to our engagement with this client,” he says.

For sponsors, joining a PEP can add value in cost savings for “both recordkeeping and administrative services,” but not for every sponsor, he adds.

But sponsors have concerns, about restrictive plan designs and inflexibility in a pooled plan.  

Sponsors joining a PEP are “using a plan document that does not allow for the same level of customization as you can achieve in an individually designed plan document or prototype plan document,” says Lamendola. “For a lot of plan sponsors, that might be okay: They might be looking for something that’s a little bit more vanilla, they’re not looking for something that has much complexity, but many plan sponsors are looking for more flexibility than they can achieve in a PEP and therefore they’re employer route.”

“Depending on the size of a plan that is moving into a PEP or MEP, savings can potentially be realized by remaining as a stand-alone plan—even when taking additional audit fees into account.”

Preset investment lineups can exemplify the experience of sponsors joining a PEP, says Vestwell’s Gaston.

For sponsors PEPS [are] “like using [the meal-prep delivery service] HelloFresh, [because] everything comes to your door, everything’s already exactly what you need and that’s great for a lot of sponsors,” he says. “On the flip side, the more you need your individual things—maybe you have allergies, maybe you have choices that are different—then [sponsors may] start looking towards whether you’re going to be a single employer plan.”

Eric Droblyen, CEO and president of Employee Fiduciary, a third-party administrator, says the firm does not “get a lot of interest from employers,” in joining PEPs.

“Nobody’s saying, ‘Hey, I’d love to pool my assets with a bunch of other small employers, but we have advisers that that will ask,” he says. [For sponsors], it made sense 15 or 20 years ago, when plans needed lots of assets to access low-cost investments, but index funds have made that whole argument moot.”

Administration February 1, 2024

Beyond the Basics: When and Why a Second Retirement Plan Committee Makes Sense

Bigger organizations are more likely to need multiple standing or ad hoc groups to govern their plan or plans.
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Art by Andrea D'Aquino

Designing a retirement plan structure that ensures efficient decisionmaking and smooth execution of initiatives is crucial for employers—but that ideal plan structure depends on many factors, including an organization’s size and needs.

While some organizations have a single retirement committee that covers decisions about the plan’s investments and administrative matters, others divide the tasks among two committees. Generally, larger organizations are more likely to have multiple committees, says Mikaylee O’Connor, a principal in PGIM’s defined contributions solutions division.

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“When you’re talking about billions and billions of dollars, it’s good to kind of separate those functions, because you are going to have enough to talk about solely with investments and solely with benefits and administration,” O’Connor says.

In late 2022, research and education forum Callan Institute surveyed 99 large defined contribution plan sponsors and found that a slight majority (54%) of respondents have a single committee to monitor and manage their DC programs, with the other 46% splitting the responsibilities between separate investment and administrative committees. The survey also found that plans with greater asset levels were more likely to have separate committees, with only 25% of sponsors that manage assets less than $1 billion utilizing separate committees.

Those organizations with a smaller asset size “have much smaller workforces, and perhaps [fewer] divisions, so they don’t need as many committees to do the same work,” says Greg Ungerman, a senior vice president and Callan’s defined contribution practice leader. They have fewer resources and perhaps defer to the HR or benefits team to manage many of the administrative tasks, he adds.

Committee Makeup

While organization size is a major factor in the decision to have more than one retirement plan committee, so is division of labor, says Marla J. Kreindler, an attorney and partner in Morgan, Lewis who advises clients on fiduciary governance, regulatory and investment matters.

“It’s pretty common for large employer plan sponsors to have different plan administration committees and investment committees, often because different people at the company will be working on those matters,” Kreindler says. “For example, you might expect people in the treasury department of companies will be working on the investment matters, whereas you might expect folks in the HR department will be working on the plan administrative matters, although it is also common for those in the treasury department to work on plan administrative matters and vice versa.”

What do these committees look like? The Callan survey found that investment committees have an average of 6.5 members, while administrative committees have an average of 5.5. At employers with a single committee, they have an average of 4.8 members.

As might be expected, the investment committees are typically made up of members focused on the investment and finance side of the plan, while the administrative committee is made up of those focused on benefits. However, respondents with a single committee say the average proportion of the committee makeup is 40% executives, 38% members from the investment and finance aspects of a company, 31% benefits staff, 27% HR or payroll and 17% legal.

Benefits and Challenges

While having two committees may help cover more ground for larger companies, it can come with obstacles.

“A challenge that we often see in the two-committee governance structure is that they don’t talk to each other or they don’t have overlap in membership,” O’Connor says. “When you have retirement solutions that bridge both areas, it can be very clunky or not executed as efficiently as when everyone is working together.”

In fact, one of the biggest benefits of having a single committee is the ability to have real-time discussions with everyone involved in retirement plan decisions at once, says Martha Munhall, vice president of human resources at the nonprofit Jackson Laboratory in Bar Harbor, Maine. Her organization’s one committee is made up of fiduciaries—including the chief operating officer, chief human resources officer, chief financial officer, controller and chief legal counsel—and non-fiduciary members like the benefits administrator and employees from across the organization.

The structure has worked well for the Jackson Laboratory, because all members are able to get first-hand information and hear feedback from one another before making decisions, as opposed to having to hear any second- or third-hand information that risks getting lost in translation, Munhall says: “It is very efficient.”

However, she agrees that a larger company may require a different committee structure, which can also vary depending on whether a plan is defined benefit or defined contribution, especially since some organizations may be weighing multiple plans and vendors.

The benefits of having a separate committee dedicated to administrative needs include that it frees up the members of the investment committee to focus specifically on their fiduciary responsibilities, Ungerman says. Forming the administrative committee can also allow for a wider distribution of voices.

“HR staffs do a great job of administering, but it is nice sometimes to hear from other areas within the organization, as it might affect various different attributes of the retirement plans,” he adds.

Ad Hoc Options

While an organization may not have a permanent second committee dedicated to administrative needs, Ungerman says it is common for ad hoc committees to tackle a specific task, such as a recordkeeper search, which requires a lot of time, effort and a specific knowledge base. Such a project-based, impermanent group may include additional staff who can do research and bring their findings and recommendations to the main committee, he adds.

There is no silver bullet-like rule to determine when ad hoc committees make sense, which is also true of whether organizations should have separate retirement plan committees. However, it is important for companies to periodically review their governance structure and ensure that it still makes sense for their size and needs, Kreindler says.

As companies undergo changes, such as corporate transactions or adjustments to their philosophies, it is useful to have an updated governance structure in place that allows the organizations to operate and administer the plan more efficiently and help with risk management, she adds.

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