Collective Retirement Plans Create Value in a Changing Landscape
Employer-provided retirement programs have become more complex to administer. Collective plans can help to ease the burden.
The idea of collective plans is not new, but growing in popularity
By joining a collective plan, companies of all sizes can serve both the business and its employees.
Compared to traditional plans, pooled employer plans and master trusts can mean less work, less risk and better overall outcomes.
Retirement saving has never been more complex. For earlier generations, a defined benefit plan (like a company or union pension) provided a predictable retirement income. But as the first generation to rely more on defined contribution retirement plans starts to retire, inflation and economic volatility add a level of worry to the process. Governments are stepping up regulation, reporting requirements and compliance activity on retirement savings plans. In response, organizations looking to offer their employees the best possible retirement outcomes have been turning increasingly to solutions like pooled employer plans (PEP) in the U.S. and master trusts in the UK and Europe.
A Global Pattern of Collectivization
Due to a variety of factors, including private company actions and the reduced power of unions, the burden of securing retirement savings has shifted to employees. Retirement savings can also been affected by government regulation, such as the SECURE and SECURE 2.0 Acts in the U.S., changes in pension regulations in Ireland, and the rise in retirement age in the UK. These localized pressures are driving a global pattern of movement to collective plans.
Even though retirement planning has become more of an individual endeavor, companies are still sponsoring plans, which are increasingly complicated and highly regulated. Finance leaders must navigate increased regulation and macroeconomic volatility, resulting in a renewed focus on building a sustainable finance strategy. As a result, more employers are turning to collective plans.
The benefits of collective retirement structures, such as PEPs and master trusts, are well established. They can reduce a company’s administrative costs by handling many of the associated tasks, like employee communications and the selection of individual funds available for investment. They also transfer some of the risks that a company would ordinarily have to account for on their balance sheet to the plan provider. Increased efficiency from the economies of scale generally lead to reduced administrative fees and more available participant money for investments. In short, collective benefits are designed to provide access to a level of service that wouldn’t ordinarily be available to a single employer, with the end result of less work and less risk to the employer, and better outcomes for employees.
Wellbeing, ESG and Collective Plans
Retirement structures like PEPs and master trusts enable finance leaders to address short-term financial pressures, such as cost savings and improved operational efficiency. They can also support leadership more broadly by creating long-term environmental, social and governance (ESG) value. Offering access to a high-quality retirement plan option can help a company meet its goals and obligations under the social aspect of ESG. Transparency and compliance aspects of a collective plan will also be important for companies looking to improve governance.
Lower costs and more opportunity for investment, combined with the access to expertise that employees may not otherwise have, allow pooled plans and master trusts to provide better retirement outcomes. This is especially important in an era when employees are worried that they won’t have enough savings to retire. Use of a master trust or PEP can contribute to a company meeting its commitment to better financial wellbeing for employees.
Everything Old is New Again
Collective plans aren’t necessarily a new concept, though the current wave of plans has a few significant differences. In the U.S., the PEP, which has only been available since 2021, is an evolution of the Multiple Employer Plan, which had limitations that precluded widespread acceptance. Across Europe, there have been variations on these types of plans for some time. In fact, nearly 20 percent1 of retirement plan members are in collective plans, with about 210 billion euros ($230 billion) of assets under management2. Many trade unions sponsor plans for their members, leveraging the economies of scale inherent in their large membership bases. Unlike those plans, however, master trusts and PEPs can be customized to a greater degree and extended to more people in the company.
The Evolution of Collective Plans
Although smaller companies were the first to take up collective retirement plans such as PEPs and master trusts, many larger companies are also catching on. For multinational organizations with a large presence in one country and additional operations in other regions, collective plans allow employers to deliver the same offerings and experiences to their employees across markets.
Outsourcing management of regulatory and compliance issues across multiple jurisdictions through a collective plan can relieve substantial operational burden for employers. This is especially true in an increasingly litigious landscape like the U.S.
Master trusts have evolved significantly in the UK and Europe. In response to regulatory pressures and the opportunity to deliver better outcomes, PEPs are also rapidly growing in both their scale and reach. It has been suggested that in Ireland, the current regulatory environment makes it difficult for smaller companies to administer their own plan.
As more and more countries create conditions that drive companies toward collective plans, the demand for master trusts and PEPs is expected to grow. Additionally, regulators in the European Union are considering guidance on plans that operate across borders, which may lead to more plans operating in multiple countries.
Protecting and Growing Capital
PEPs and master trusts also offer an inherent advantage when protecting and growing capital in both the short- and long-term. Collective plans can identify and switch out underperforming funds faster and more seamlessly than traditional plans, helping to maximize the opportunity for growth. Access to expertise that would otherwise be beyond the reach of individual companies is another way PEPs and master trusts can position their investments for progress. Companies large and small can benefit from the economies of scale that these plans bring.
Join the Collective Retirement Plans Trend
PEPs and master trusts are growing quickly. For business leaders, taking advantage of opportunities to reduce operational burdens and costs, while positioning investments for growth can be transformative. When selecting a provider, considering scale and scope, underpinned by leading expertise, will make all the difference. Master trusts and PEPs enable leaders to make better decisions about retirement planning options. The resulting benefits are far-reaching for all parties involved.
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