Collective Retirement Plans Create Value in a Changing Landscape

Collective Retirement Plans Create Value in a Changing Landscape
August 4, 2023 8 mins

Collective Retirement Plans Create Value in a Changing Landscape

Collective Retirement Plans Create Value in a Changing Landscape Hero Banner

Employer-provided retirement programs have become more complex to administer. Collective plans can help to ease the burden.

Key Takeaways
  1. The idea of collective plans is not new, but growing in popularity
  2. By joining a collective plan, companies of all sizes can serve both the business and its employees.
  3. 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.

Collective Benefits

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. 

Find out more about the Aon Master Trust UK, Ireland MasterTrust, and PEP.

 

1 https://www.eiopa.europa.eu/system/files/2023-03/EIOPA-BoS-23-071_CP-advice-IORP-II-review.pdf

2 https://www.eiopa.europa.eu/system/files/2023-03/EIOPA-BoS-23-071_CP-advice-IORP-II-review.pdf

General Disclaimer

Consulting services provided by Aon Consulting, Inc. (“ACI”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto. This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, investment, and/or tax advice and is based on ACI’s understanding of current laws and interpretation. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon ACI’s preliminary analysis of publicly available information unless otherwise noted. The content of this document is made available on an “as is” basis, without warranty of any kind. ACI disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. ACI reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of ACI.

Terms of Use

Aon Consulting, Inc. 200 E. Randolph Street Chicago, IL 60601 Suite 700 ATTN: Aon Investments Compliance Officer © Aon plc 2023. All rights reserved.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Labs

Stay in the loop on today's most pressing cyber security matters.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
View All
Subscribe CTA Banner