Aon jumps into pooled employer plan market

Aon will sponsor one of the first pooled employer plans allowed under the SECURE Act, the company announced Wednesday.

The company, which sold its affiliated record-keeping business several years ago, selected Voya Financial as the plan record keeper after a bidding process, according to Aon’s announcement.

Pooled Employer Plans, or PEPs, represent the “open” multiple-employer plan design the retirement services industry has sought for years. Under the SECURE Act enacted last December, employers can participate in PEPs without being a sponsor to the plan, and companies do not need to be related in order to be part of the same PEP. Rather, an outside firm, such as Aon, is the “pooled plan provider.”

Currently, there are limits on multiple-employer plans, as companies have generally had to have some affiliation, such as membership in an industry group, to participate.

Both types of plans can potentially benefit employers, particularly small businesses, as they can achieve economics of scale that single-employer plans often cannot. That results in lower overall fees for workers, proponents have said.

“There’s a compelling value proposition really to employers of all sizes,” said Rick Jones, senior partner at Aon.

Employers are interested in PEPs for three reasons, in general, he said: economy of scale; risk management; and outsourcing responsibilities that lets them focus on their core business.

“The stream of lawsuits in the 401(k) space suggest the risks are ramping up, and plan sponsors are taking note of that,” Jones said.

Aon has been in discussions with numerous employers about the forthcoming plan, though it had not been able to move forward with offers, he said. Now that the plan record keeper has been announced, it can provide more specific price information to prospective clients, Jones said.

The arrangement with Voya will result in “very competitive” record-keeping fees, he said. The plan’s investment menu will include a mix of actively managed and passively managed mutual funds, and potentially collective investment trusts, from a variety of managers, according to Aon. Those options, including the target-date series manager, have not been disclosed.

The investment menu will be selected by Aon Investments.

“Aon Investments has over $150 billion in assets ... and buying power it can leverage,” Jones said. “We will pick what we think are best-in-class options for a particular asset class.”

The plan will allow employers to opt for automated features, such as automatic enrollment for their employees, Jones said. Employers will also be able to set their own levels of matching contributions and profit sharing, he said.

This month, the Department of Labor issued a request for information on PEPs. The regulator is considering a class exemption to address prohibited transactions in such plans, as well as in MEPs, according to a notice in the Federal Register.

The DOL is asking for comments on the entities involved in and potential conflicts of interest that could arise in the establishment and operation of PEPs. Those comments are due by July 20.

“Specifically, for [pooled plan providers], prohibited transaction considerations are central to how they can be paid for their services, including whether they can include proprietary funds and other products,” law firm Faegre Drinker wrote Tuesday in a post on the company’s site.