Several major retirement plan service providers are diving into the pooled employer plan market with high hopes that small and midsize employers will jump in, too.
Pooled employers plans, or PEPs, were established under the Setting Every Community Up for Retirement Enhancement Act last year and go live Jan. 1. PEPs make it easier for employers in unrelated businesses to join a collective or pooled retirement plan for their workforces, with the intention that companies will be able to reduce administrative burdens and lower retirement plan costs through economies of scale as well as attract employers that currently do not offer plans.
PEPs have the opportunity to transform the retirement landscape much like 401(k) plans transformed the pension landscape, said Paul Rangecroft, Princeton, N.J.-based North America retirement practice leader for Aon PLC.
That's a major reason why Aon in June said it will launch a PEP on Jan. 1.
"PEPs are going to take the beginning of the transformation that 401(k)s started, and especially with small- and midsize employers and gig workers, will create a sustained vehicle where people can move jobs without losing all of their retirement savings, where they can save money without giving a lot of it to investment advisers or administrators, where they can make choices in an informed way, and actually give coverage to lots of people," Mr. Rangecroft said.
Aon will serve as the pooled plan provider, the entity that administers the PEP, with Aon Investment Services USA Inc., the company's investment services group, serving as a 3(38) fiduciary adviser. Aon selected Voya Financial Inc. as the record keeper.
The Aon PEP will offer various target-date funds, three core passive funds and five active funds, Mr. Rangecroft said. "We're going to encourage people to make decisions based on their level of comfort and knowledge in a way that drives the right outcome for them rather than a typical plan these days offering 30 funds with not enough knowledge of how to pick them," he added.
Jeff Cimini, Windsor, Conn.-based senior vice president, retirement product management at Voya, said he and his colleagues are currently working with Aon on the "unglamorous" behind-the-scenes work "so that on Jan. 1 we can start accepting plans into the PEP."
Voya, which is no stranger to the pooled plan space — it serves as the record keeper for multiple employer plans offered by the American Bar Association and ADP — thinks PEPs can help close the retirement coverage gap, Mr. Cimini said. PEPs "have the potential to allow (employers) to offer a retirement benefit at an economical price with limited legal liability to do so," he added.