The global professional services firm has announced that its pooled employer plan—the Aon PEP—has reached $2 billion in 401(k) assets under administration and commitments since its inception in 2021 and has doubled during the last year.
According to the firm’s announcement, the Aon PEP currently services more than 70 employers providing 401(k) benefits to over 50,000 employees, helping those employers shape better retirement decisions.
The firm also reports that participating employers reflect a diverse mix of industries, including biotech and life sciences, manufacturing, services, consumer products, energy, technology, and transportation. Large brand name organizations are also utilizing the Aon PEP for merger and acquisition activities and other corporate transactions.
“Participants are benefiting from a higher performing, more efficient 401(k) program, with employees able to accumulate up to 11% more retirement savings during their career due to lower fees,” said Rick Jones, senior partner in Aon's Wealth Solutions. “The advantages of switching to a pooled employer plan—potentially half the cost, reduced time commitment from corporate staff, improved governance and high-quality retirement planning options—have become substantial for employers and their employees.”
Jones adds that they expect more than half of U.S. employers to merge their traditional 401(k)s into pooled employer plans by 2030.
Citing data from BrightScope and current Aon PEP costs, the announcement contends that within the Aon PEP, “all-in” participant fees can be less than half of those paid in traditional 401(k)s. In addition, the combined scale in PEPs helps to lower plan costs, including record-keeping and investment management fees, the firm notes.
“The Aon PEP offers the chance to advance retirement security for workers and build a more resilient workforce across the U.S.,” said Byron Beebe, senior partner in Aon's Wealth Solutions. “It provides efficiency and scale while maintaining individual employer autonomy to define matching and other contribution levels, vesting rules and other key plan design features.”
Established in 2019 through the SECURE Act, PEPs were first introduced to the market in large part to help close the retirement plan coverage gap. As one of many provisions introduced within the SECURE Act, the creation of PEPs allows for unrelated small businesses to join open MEPs, providing greater access to a 401(k) or similar workplace retirement savings plan to more individuals.
As to the claims that participants would save more due to lower fees, Aon’s performance modeling shows a hypothetical employee participating in the Aon PEP would save $1,347,000 throughout their career compared to $1,210,000 for a worker in a traditional 401(k). This assumes a 25-year-old employee with $50,000 starting salary, a $3,000 starting account balance, a 4% annual pay increases, age 67 retirement, a 3% initial savings rate with auto-escalation to 10%, invested in a diversified S&P through a target date fund, and an employer matching 100% on first 3% and 50% on next 2%. In addition, income improvement in the Aon PEP assumes a 25-basis points reduction in participant fees and the same modeling parameters.
