Three Ways Collective Retirement Plans Support HR Priorities

Three Ways Collective Retirement Plans Support HR Priorities
Employee Wellbeing

02 of 09

This insight is part 02 of 09 in this Collection.

May 29, 2024 6 mins

Three Ways Collective Retirement Plans Support HR Priorities

Three Ways Collective Retirement Plans Support HR Priorities

Collective retirement plans are growing in popularity and improving employees’ financial wellbeing in the process. Other advantages that haven’t been as widely explored include how these retirement structures allow HR to shift its focus to strategy.

Key Takeaways
  1. Pooled employer plans and other collective retirement arrangements are gaining popularity because they reduce costs and improve retirement outcomes.
  2. Another added benefit is freeing up the HR function to focus on other strategic priorities.
  3. The list of strategic priorities is long — from attracting talent with specialized skills to ensuring pay transparency compliance and best practices.

Pooled employer plans (PEPs) in the United States and other collective retirement plans, such as master trusts in Europe, are becoming more well-known for saving employers time, costs and administrative resources on their defined contribution (DC) plans. In turn, these time and cost savings are allowing human resources (HR) teams to focus their attention on a growing list of strategic priorities.

HR professionals continue to become more involved in an organization’s overall strategy. From responsibly using artificial intelligence tools to integrating wellbeing into a company’s strategy, HR is leading the way. And as the function juggles myriad priorities, HR leaders are looking for ways to offload administrative tasks.

Here are three ways that collective retirement plans can help HR focus on strategic priorities.

1. Attract and retain talent by providing enhanced retirement plans.

With competition for talent still high, employers know that offering the right benefits can make a big difference. A PEP or other collective retirement plan provides an attractive retirement solution and helps HR with its strategic goal of attracting and retaining talent. A lack of enhanced benefits are frequently cited as a reason why people leave jobs.1 A PEP provides employees with investment options and day-to-day support more cost-effectively than traditional retirement plans. This results in lower fees for companies of any size, and more opportunity to improve member engagement and address financial wellbeing. A company can experience additional cost savings through increased retention. Gallup estimates the cost of replacing a worker that voluntarily departs is one-half to two times more than the employee's annual salary.

2. Improve employee wellbeing outcomes with better retirement security.

Employees with poor financial wellbeing may be negatively affected in other areas of their health. The stress of worrying about not having enough retirement savings, or not being able to retire when you want, can take a physical, mental and emotional toll. More than three quarters of U.S. employees in an Aon survey said they were not saving enough for retirement.2 Part of this retirement readiness gap is caused by poor plan design and investment options. Through its scale and design, a PEP is built to address this issue and enhance the financial wellbeing of participants. This reduced administrative burden may also allow HR professionals to focus on their employees’ more immediate financial concerns by using the immediate cost savings to fund other programs.

80%

HR used to spend 80 percent of their time on administrative tasks. Today, these same teams spend over 60 percent of their time on strategic initiatives.

Source: Aon research

Over time, the cost savings from collective retirement plans can add up to two more years of retirement income for plan participants when compared to a traditional plan.

3. Focus on transparency across compensation and benefit plans.

Reducing the fees and time in administering a DC plan enables HR to focus on making compensation and benefit plans more transparent, equitable and aligned with employee needs. This topic has received even more attention lately, partly due to the European Union Pay Transparency Directive. As a result, we’re seeing more employers examine and address gender pay gaps that exist within their employee benefit and retirement savings.

On average, women who are 65 years or older receive only 74 percent of the retirement income from the pension system that men receive.3 This difference is statistically significant in almost every retirement system globally. Furthermore, women have a longer average lifespan than men, which means they may need to save more to have enough funds during retirement. 

Quote icon

If retirement plans are transparent and efficient, there is a greater opportunity for all stakeholders to address gaps. Employers would be encouraged to level the playing field, and employees would have more incentive to be engaged in the plan.

Rick Jones
Senior Partner, Wealth Solutions, North America

Collective Retirement Savings Plans Help HR Make Better Decisions

By reducing plan costs and enhancing investment options, collective retirement plans help HR leaders deliver on their strategic priorities, including attracting and retaining talent, improving employee wellbeing and ensuring pay and benefits are transparent and equitable.

“Put simply,” concludes Rick Jones, a senior partner in Aon’s North America Wealth Solutions practice, “a PEP allows companies to do right by people in many different ways.” 

* Aon analysis of PEP costs comparing Aon PEP administrative and investment fees to average 401(k) fees for similar plans. Base fee may not reflect all ancillary services selected by the employer. There is no guarantee that results or savings will be achieved if you should select AIUSA and/or its affiliated entities to provide services to you.

1 Over half of US workers have left jobs after finding better benefits offerings
2 2021 Employee Financial Wellbeing and Defined Contribution Survey Report | Aon
3 Assessing the gender gap in retirement savings arrangements | Towards Improved Retirement Savings Outcomes for Women | OECD iLibrary (oecd-ilibrary.org)

44%

PEPs produced an average cost savings of 44 percent* relative to current 401(k) costs.

Source: Aon analysis

Aon’s Thought Leaders
  • Rick Jones
    Senior Partner, Wealth Solutions, North America
  • Tony Pugh
    DC Proposition Leader, Wealth Solutions, Europe, the Middle East and Africa

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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