The Benefits of Pooled Employer Plans for Retirement Outcomes

The Benefits of Pooled Employer Plans for Retirement Outcomes
January 3, 2025 6 mins

The Benefits of Pooled Employer Plans for Retirement Outcomes

The Benefits of Pooled Employer Plans for Retirement Outcomes

Pooled employer plans offer a streamlined, cost-effective retirement solution for employers and employees, reducing administrative burdens and improving long-term retirement outcomes.

Key Takeaways
  1. PEPs have demonstrated a significant positive impact on employee behaviors, with increased participation and savings rates.
  2. PEPs provide substantial cost savings and reduce administrative workload for employers by pooling resources, lowering management fees and simplifying compliance processes, allowing HR teams to focus on employee engagement.
  3. Participants in PEPs benefit from lower investment fees and access to a diverse range of professionally managed investment options, leading to better long-term retirement outcomes and potentially translating into additional years of retirement income.

A pooled employer plan (PEP) is a type of qualified 401(k) plan that allows multiple employers to join a single, pooled retirement plan while each maintaining their own plan design. 

PEPs have been gaining popularity due to their potential to streamline administration, reduce risk and reduce costs for employers and their employees. These benefits allow companies to focus on providing their employees with the best chance to understand and achieve their retirement goals.

Forty percent of U.S. households are projected to run out of money in retirement, according to the Employee Benefit Research Institute.

The key question remains: How can PEPs improve the retirement experience for both employees and employers, ensuring better retirement outcomes while reducing the administrative burden? 

Improved Employee Plan Behaviors

PEPs have shown a positive impact on employee plan behaviors. According to a 2024 Aon analysis, organizations in the Aon PEP saw an 11.4 percent increase in participation rates after 12 months and a 5.2 percent average increase in savings rates for participants after 24 months. 

PEPs have the ability to produce scale, provide flexibility and enhance efficiency. This allows employers to offer more robust programs while simplifying the process, ultimately leading to better retirement outcomes compared to traditional retirement plans. 

PEPs can improve the efficient frontier by lowering costs. This means that better investment returns, net of costs, are possible at the same risk level. PEPs achieve these benefits by pooling assets, which helps reduce management fees and enhance overall investment efficiency, thereby delivering better long-term outcomes for participants. By combining resources, PEPs can lower the costs associated with managing the same investment funds, ultimately improving returns for participants.

40%

Forty percent of U.S. households are projected to run out of money in retirement.

Source: Employee Benefit Research Institute

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The cost efficiency of going with the Aon PEP is astounding. We were spending thousands of dollars with external auditors. Now we just don’t have to worry about it because it's getting done by Aon PEP professionals.

Ahnaf Bashir
Head of Human Resources, Advance Financial

Overall, PEPs offer more robust platforms for participants to save and invest, ultimately leading to better retirements.

Benefits for Employers

PEPs offer several advantages for employers, providing significant cost savings, reduced administrative burdens and minimized fiduciary risks. These advantages include: 

  • Time Savings - The Aon PEP also simplifies plan management for employers by offering features like automated payroll integration and streamlined compliance processes. This reduces administrative burdens and allows HR teams to focus on employee engagement and support.
  • Reduced Risk - PEP providers assume many of the fiduciary responsibilities, further reducing the risks and obligations that employers face. 
  • Cost Savings - Employers that join a PEP typically experience lower administrative and management costs, which allow them to reinvest savings into employee benefits and other strategic initiatives, such as covering rising healthcare costs or expanding wellness programs. Reallocating these savings can help businesses better manage the increasing costs of employee benefits, while still enhancing the overall benefit package.

11.4%

Organizations in the Aon PEP saw an 11.4 percent increase in participation rates after 12 months.

Source: 2024 Aon Analysis

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I would say we’ve saved 80 to 90 percent of the time that we used to spend on 401k management and we get that time back.

Eric Neumann
Sr. Director of Compensation, Benefits & HRIS, APTIM Corporation

PEPs streamline administration, reduce fiduciary risk and deliver significant cost savings, making them a smart choice for employers. "We expect more than half of U.S. employers to merge their traditional 401(k) into pooled employer plans by 2030,"   said Rick Jones, senior partner in Aon's Wealth Solutions. 

Access to Institutional Investment Options and Lower Fees

One of the major benefits of PEPs is access to lower investment fees. Aon PEP participants typically pay fees that are half of those in traditional 401(k) plans, resulting in up to 11 percent more savings over the course of a career. This can translate into two additional years of retirement income for participants. 

 

11%

Aon PEP participants typically pay feeds that are half of those in traditional 401(k) plans, resulting in up to 11 percent more savings over the course of a career.

Quote icon

Moving over to the PEP, being able to take that off of our shoulders, I get to sleep a heck of a lot better at night. I also get to tell my employees that we’re delivering them a better experience.

Eric Neumann
Sr. Director of Compensation, Benefits & HRIS, APTIM Corporation

Employers and participants also gain access to a diverse range of professionally managed investment options, such as target date funds, active management strategies and integrated brokerage account services. This professional management helps ensure participants' investments are more effective and better suited to their retirement goals, leading to improved long-term results.

The Future of Retirement Planning with PEPs

PEPs represent a transformative shift in how employers approach retirement planning, offering a streamlined, cost-effective way to manage benefits while improving outcomes for employees. 

As more businesses embrace this model, the positive impact on both employers and employees becomes increasingly clear. With lower fees, simplified administration and enhanced participation, PEPs are poised to become a cornerstone of modern retirement solutions, helping millions secure a brighter financial future.

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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