Are PEPs Reshaping the Retirement Plan Market?

By Scott Carroll and Jamie Kasabian

Section 101 of the SECURE Act of 2019 introduced Pooled Employer Plans (PEPs), a new type of retirement plan that became effective on January 1, 2021. PEPs are a form of Multiple Employer Plan (MEP) that allow unrelated employers to join together so they all can benefit from economies of scale and reduced fiduciary risk.

In a PEP, the Pooled Plan Provider (PPP) replaces the lead employer as the plan sponsor and administrator, and assumes most fiduciary responsibilities. The structure and services of PEPs vary widely, with different offerings and solutions available throughout the marketplace. PPPs range from large consulting firms, recordkeepers, and payroll providers to third-party administrators and investment advisors serving different segments of the market.

The Growth of Pooled Employer Plans

PEPs have accumulated $9.41 billion in assets and surpassed one million participants as of December 2023, according to publicly available filings on the U.S. Department of Labor’s EFAST 5500 Database. Approximately 39,000 employers had adopted a PEP by the end of 2023.

Pooled Employer Plans — Form 5500, 2023

Global adoption of multiple or pooled employer arrangements has been strong, particularly in mature markets where these structures have been in place since the 1990s. In these markets, it typically takes about 10 years for widespread adoption to occur after a policy change. This transition period reflects the time needed for employers to become aware of new retirement plan options, evaluate their benefits, and implement them in their organizations. Adoption tends to grow gradually as businesses gain a better understanding of these arrangements and service providers refine their offerings to meet market needs. Our team at Gallagher conducts a semiannual PPP market survey to track real-time growth and plan adoption trends. By cross-referencing our December 31, 2024 survey data with known PEPs from the 2023 filings that did not participate in the latest survey, we estimate that PEP assets have grown to more than $17 billion as of December 31, 2024.

Not All PEPs are the Same: Align Selection with Goals and Needs

The idea behind PEPs sounds simple: Employers pool their resources to leverage collective buying power, reduce costs, and improve efficiency. However, in practice, PEPs vary widely depending on the provider’s focus. Understanding these variations is crucial — choosing a PEP that aligns with a company’s needs and goals requires careful consideration of both the company’s size and its workforce dynamics.

These are some of the PEP design features and considerations for employers.

• Minimum Assets/Number of Participants: PEPs vary greatly in their asset and participant requirements, from no minimum to more than $10 million in assets.
• Fee Structures: Most PEPs charge a combination of asset-based fees and per-participant fees, but the exact structure can differ. Some PEPs might have a higher per-participant fee, while others might charge more based on assets.
• Industry Considerations: Employers in industries with high employee turnover and low participation rates (e.g., restaurants or hospitality) may face higher costs.  Some PEPs might even decline to work with these industries at all.
• Loan Features: Many PEPs limit loans, often restricting the number of loans to just one or even prohibiting them altogether.
• Merging Existing Assets: While most PEPs allow the transfer of assets from existing plans, a few have restrictions on accepting new assets.

The design and fee structure of a PEP directly influence which employers find them attractive. As the market evolves, we see a diverse range of employers adopting PEPs — from small start-ups launching their first retirement plans to established companies transitioning from standalone 401(k) plans.

Comparing Two Large PEPs

To illustrate the variety of PEP structures, let’s examine two of the largest PEPs in the market. By the end of 2023, these two PEPs demonstrated starkly different demographics, showcasing the flexibility of this model:

• PEP A focuses on larger employers with existing plans and generally accepts asset transfers. The average adopting employer has $28 million in assets and approximately 800 eligible participants, spread among around 60 employers.  The majority of adopting employers in PEP A previously sponsored their own 401(k) plan.

A recent article by Plan Adviser — Cerulli Associates indicated the top reasons defined contribution plan sponsors between $25 million to $250 million consider PEPs are:

• 1. Lower plan administrative costs
  2. Simplification of investment selection and monitoring
  3. Simplification of plan administration and compliance
  4. Lowering investment costs
  5. Outsourcing fiduciary responsibility

• PEP B, on the other hand, targets smaller employers. It has more than 33,000 adopting employers, each with an average of less than $50,000 in total assets, and only 15 eligible participants.

According to Transamerica, many small and mid-sized employers have joined PEPs as their first employee retirement plan, citing affordability, reduced administrative burden, and fiduciary outsourcing as primary benefits.

Fee Structure: An Important Consideration

An important consideration in choosing a PEP is the fee structure. The market offers a wide range of options, usually involving a combination of annual base fees, asset-based fees, and per-participant fees. Which structure is the best for a particular company? Well, once again, it depends.

Adopting employers with a higher average account balance and fewer participants may be priced more competitively under a PEP with a higher annual base fee and per-participant fees, but lower asset-based fees. Conversely, adopting employers with lower average account balances, but higher headcounts will generally fare better in PEPs with a higher asset-based fee, but lower per-participant costs. Intentionally or not, the design of each PEP will naturally influence the kinds of employers that are drawn to them. Over time, as PEPs grow and gain more participants, the cost structure is expected to become more competitive. However, there are likely to be widespread variations in the cost structure, depending on the target audience for the various PEP offerings.

Competition Will Continue to Drive Down Costs and Improve Services

If a company was an early adopter of a PEP, it’s natural to assume that they have locked in the best possible deal. However, the PEP marketplace is evolving, and new players are coming in all the time, offering new features and pricing structures. Based on the current growth trajectory, it is likely that PEPs will approach $25 billion in assets by the end of 2025.

While many PPPs are still recouping their start-up costs, increased competition is generally good for the consumer, helping to drive down costs and improve service quality.  Adopting employers who joined their PEP more than three years ago may benefit from looking at the state of the marketplace by conducting a Request for Information (RFI) to ensure their current fee structure remains competitive.

Each PEP’s fee schedule is unique and can change over time. Many PEPs include breakpoints in their fee schedules that adjust as assets in the plan grow.  Over time, PEPs with healthy cash flows will experience changes to their overall fees, which warrants attention to ensure participants continue to pay reasonable expenses for the services provided under the PEP.  Conducting a formal fee analysis provides the necessary benchmarking data to negotiate fees in good faith.

The Future of PEPs: Looking Ahead

In a recent article for the National Association of Plan Advisors (NAPA), Fred Reish, a partner at the law firm Faegre Drinker, predicts the adoption of PEPs is expected to continue growing, with projections indicating that PEPs could match single-employer plans within the next five to 10 years.

Reish points to the primary benefits of reducing fiduciary risk and potential cost reductions as powerful catalysts for change. He acknowledges that it will take some time for employers to become comfortable with the new design, but estimates that 80% of small- and mid-sized employers could find that their needs are best met by a PEP.

The global adoption of multiple or pooled employer offerings for defined contribution benefits has been strong after policy changes. In a recent webinar, Mercer illustrated that countries with mature multiple or pooled employer arrangements, such as Italy, Denmark, Australia, and New Zealand, have achieved 80–100% adoption. In less mature markets, like Austria, Switzerland, the United Kingdom, and Ireland, adoption rates range from 35%–70% but are growing. Given that 86% of 401(k) plans serve small businesses (1–100 participants), the U.S. could follow a similar trajectory, with PEPs reaching widespread adoption within the next decade.

Scott Carroll is a Senior Consultant, Gallagher.

Jamie Kasabian is Senior Analyst, Gallagher.

April 2025, 2025-01