What is a Pooled Employer Plan?
A pooled employer plan (PEP) is a 401(k) retirement plan that allows unrelated businesses to participate in one plan managed by a pooled plan provider (PPP). The PPP is the fiduciary of the PEP and has discretion over plan administration and investments, which can reduce the administrative burden and risks for participating companies. Streamlining and delegating retirement plan administration to experts allows employers to focus on their core business and more strategic priorities.
The PPP is also responsible for selecting and monitoring any third-party vendors hired to deliver services for the PEP, including trustees/custodians, recordkeepers, investment managers and external advisors such as plan auditors. PEPs have emerged as an attractive alternative to traditional 401(k)s – reducing the work and risk involved in sponsoring a plan and offering significant opportunities for economies of scale and improved retirements for American workers.
What is the SECURE Act? And who can Join a PEP?
The SECURE Act, formally known as the Setting Every Community Up for Retirement Enhancement Act, allowed PEPs to enter the market in 2021. Before this law, employers could only join together under a multiple employer plan (MEP) if they had some commonality with other participants (e.g., similar industry or geography). Essentially, the SECURE Act broadens access to pooled 401(k) plans to any employer operating in the U.S. It also protects individual plan sponsors who join a PEP from being jointly and severally liable for issues that arise with other plan sponsors participating in the PEP (i.e., the SECURE Act legislation protects organizations from the historic "one bad apple" rule).
In 2022, Congress passed the SECURE 2.0 Act of 2022. Key themes of the legislation include:
- Supporting effective and prudent use of defined benefit pension plan assets
- Increasing retirement savings through automation, incentives and flexibility
- Improving outcomes in 403(b) plans by allowing access to PEPs, and potentially collective investment trusts in the future
What are the Benefits of a PEP?
There are plenty of good reasons to consider a PEP for your organization, including:
Improved retirement outcomes and lower costs for employees
Less work for management teams
Reduced risk for employers and fiduciaries
Overall, joining a PEP will allow your team to focus more energy on building a resilient workforce while shifting key administrative tasks to your provider, including:
- Audits and Form 5500 preparation
- Communication and education
- Compliance requirements
- Fiduciary oversight
- Financial wellness
- Investment decisions
- Nondiscrimination testing
- Participant experience
- Plan documents and SPDs
- Quarterly reporting
- Regulatory updates
- Vendor selection and monitoring
How Does the Aon PEP Work?
The Aon PEP is designed for companies with at least 100 employees participating in the 401(k) plan. In our PEP model, Aon operates as the pooled plan provider (PPP) and named fiduciary. This means we are responsible for all plan operation and compliance and oversee and monitor all related service providers. Key elements of our model include:
As the PPP, Aon's responsibilities include serving as the 402(a) fiduciary, ERISA 3(16) plan administrator and ERISA 3(38) investment advisor.1
Aon partners with the following service providers to deliver our PEP:
- Recordkeeper and trustee: Voya
- Auditor: Grant Thornton
- Investment managers: State Street, Invesco, Dodge & Cox, PIMCO, T. Rowe Price and more
- Self-directed brokerage window (SDBW): TD Ameritrade
Flexible Plan Design
We offer employers the flexibility to define 401(k) eligibility for employees, vesting provisions, employer matching and other contribution levels.
Participants can also choose from pre-tax, after-tax and Roth contribution opportunities.
Finally, we offer a range of target date, index funds and active management investment options, as well as access to the broader market through the TD Ameritrade platform.
Most importantly, employers will be able to define their own plan design – ensuring they have the right benefits to effectively compete for talent in today’s competitive and dynamic employment environment. In addition, your organization will be able to transfer most fiduciary obligations and ongoing administrative duties to Aon as the PPP. However, you will still need to retain the fiduciary role of selecting a PEP and overseeing and monitoring the PEP and its performance.
1 Investment advice and consulting provided by Aon Investments USA Inc.
Watch our Q&A with Munu Gandhi, President & COO of ITsavvy, for a business’ firsthand account of why they decided to go with a pooled employer plan, what the process was like for their organization and how the Aon PEP helped.
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. 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.”