Exploring the pros and cons of multiple-employer plans 

This traction is in light of several trends, including a heightened compliance burden, fewer in-house investment specialists, and the need to drive efficiency and leverage economies of scale. As a result, a notable 31% of employers are prioritizing updates to their cost management strategies to ensure that plans remain affordable for the organization and its employees in 2025, while 42% plan to do so within the next three years.¹

Simultaneously, employees expect more supportive employment contracts and greater financial protection. Ultimately, they want to save for retirement across multiple career stages without fragmented pension arrangements. In response, employers are pressured to adopt a more paternalistic approach, providing not just retirement savings options but education and resources that foster financial literacy, security, and flexibility. 

A multiple-employer plan is one solution. While it can offer cost efficiency, potentially enhance investment options and may provide access to a better online member experience, employers must also be mindful of the potential drawbacks. Some unknowns remain: The real test of whole-of-life DC provision is just beginning, with ‘Generation DC’ the first to retire solely with DC plans, particularly in the US and Europe.²  As DC becomes the vehicle of choice for post-retirement benefits across most employers in these markets, fund sizes and related governance burdens are growing.

With these trends in mind, employers must weigh up the pros and cons of multiple-employer plans. By examining both sides of the pooling equation, organizations can make an informed decision that aligns with evolving workforce needs.

The shift to multiple-employer plans is a global phenomenon. Almost two-fifths (39%) of executives believe that investing more in benefits related to retirement savings and financial well-being is a key People priority that may deliver a return on investment in 2025.³

In the European Union, cross-border pension plans organized by single multinational employers have garnered attention. One example is the Pan-European Pension Product ('PEPP'), a ‘passportable’ personal pension.⁴  Its regulation focuses more on financial services providers than employers. Although these arrangements could enhance labor mobility, they have seen limited adoption due to legal, cultural, and tax differences among EU member states. 

The Netherlands, the top-rated pension system according to our 2024 Global Pension Index, has moved to pooled DC and collective DC plans, potentially driving further consolidation in the retirement savings landscape. Meanwhile, the success of the UK’s government-established Nest workplace pension scheme sets a precedent for other countries considering auto-enrolment and other means to increase occupational DC pension savings.⁵  In the US, interest in pooled employer plans is surging, with over $10 billion in assets and more than 24,000 employers participating.⁶

Multiple-employer plans can offer several potential advantages for employers:

1. Cost efficiency

By leveraging economies of scale, organizations can potentially reduce administrative costs and access lower investment management fees. By outsourcing administration and compliance risks, employers can also claw back hours of in-house management time. 

2. Simplified compliance and risk management

Pooling plans via a specialist provider can streamline compliance and risk management processes and may ultimately reduce individual employer liability and fiduciary responsibility. This is good news for risk professionals, who see the benefit of minimizing financial risk while maintaining valuable DC benefits.

3. Seeking enhanced investment options

Multiple-employer plans could provide broader access to institutional investment funds, leading to improved potential returns through diversified portfolios. Executives see the potential, with 43% planning to review and adjust their defined contribution plan investment options in 2025.⁷

4. A members-first approach 

Multiple-employer plans offer regular monitoring and evaluation of investment performance to help ensure positive outcomes for members. The evolution of employment law has influenced a growing duty of care on employers to support employees' financial well-being. Yet only a third of HR believes ensuring employees have the financial resources to retire when they want is a benefit plan priority for the next three years.⁸ The small but growing number of decumulation options within multiple-employer plans gives employees more freedom in accessing their retirement savings based on their unique needs. 

5. Helping to address longevity risk

Increased plan flexibility creates greater responsibility to educate and support employees in their financial decisions, particularly in the context of the longevity economy and an increase in the average retirement age.

In most countries, multiple-employer DC plans resemble larger versions of single-employer DC plans, and the pooling of assets creates the scale needed to contemplate mechanisms to protect members against longevity risk. 

The Netherlands’ transition from DB to collective DC is one way to address longevity protection, offering pooled decumulation options in some cases: Lifetime pensions may commence within a 15-year age range, and in the future, plan members can take up to 10% of the benefit as a lump sum at retirement. The UK’s regulatory framework could lead to greater longevity protection for members, too. The Royal Mail has led the way in setting up a collective DC plan for its employees — in theory, this approach could be extended to multiple-employer plans.

6. Employee value proposition benefits

A multiple-employer plan is one way for an employer to reinforce their commitment to supporting their workforce throughout retirement, as it can demonstrate a focus on employee welfare and long-term financial security. Two-thirds of companies already brand themselves as supportive of employees at all life stages, but fulfilling this commitment calls for a greater focus on financial resilience across key life events.

Despite the advantages, employers need to consider the following:

1. Impact on longevity protection

Questions remain about whether DC plan aggregation helps to address the lack of retirement adequacy. As more people retire solely with DC plans, particularly in Europe and the US, the picture will become clearer.⁹

Employers are less likely to subsidize arrangements involving the employees of other firms, so solutions need to be found to address pension adequacy gaps and longevity protection for members.

2. Less control

While relinquishing control of plan management is good news for cost-saving and efficiency, employers may be concerned about complete dependence on a third-party provider. There is a risk of reputational damage for the employer through the outsourced provider's action or inaction, and some providers may limit plan customization and investment options.

Flexibility and the ability to accommodate complex plan features vary significantly across pooled plan offerings. Employers will want to scratch beneath the surface to understand the level of customization available. 

Effective due diligence before choosing a multiple-employer plan can help mitigate this risk.

3. Potential for higher fees 

Ultimately, the reduction in costs that pooling can offer should be felt by members in improved investment results, quality of administrative support, and lower fees.

But some cost savings can be offset if third-party plan management leads to higher fees. 

While excessive consolidation is unlikely in major markets such as the US, it can transfer pricing power to dominant providers – something for regulators and employers in smaller markets to bear in mind. To maximize value, stay close to the numbers and ensure fee structures are transparent. 

4. Investment performance risks

Employers may have to contend with underperforming investments within pooled structures. Most employers carry out extensive due diligence on the investment manager oversight processes of potential pooled structures at the point of initial selection, including how the provider approaches lifestyling and decumulation. But to mitigate the risk of underperformance, it is equally important that this due diligence is kept current, as the provider's circumstances may change.

5. Complexity in transition

Transitioning to a multiple-employer plan can present challenges, including potential confusion among employees regarding their benefits. Yet only 35% of HR prioritize improving communication and transparency of their benefit plans and associated outcomes.¹⁰

Given the substantial transfer of risk from employers to Generation DC in recent years, plus the risk of retrospective action should a generation retire into inadequate savings pools, employers and providers mustn't be complacent in their member communication surrounding benefits, investment risk/reward, and adequacy.

Most multiple-employer plans offer design flexibility and can accommodate complex features, making them a viable option for many employers. But while we believe the benefits of multiple-employer plans often outweigh the drawbacks (particularly for smaller employers), it is essential for organizations to implement strategies that mitigate the risks to help ensure the best results.

• Conducting regular and thorough due diligence on candidate providers
• Maintaining ongoing communication with members during the transition process and beyond
• Ensuring that the default investment strategy is appropriate by understanding employee behavior and perspectives, supported by periodic reviews as capital markets, regulation, life expectancy and other circumstances evolve 
• Ensuring that the provider has robust controls and risk management processes that focus on the members
• Monitoring investment performance and comparing investment and admin fees
• Embedding good-quality online tools so employees can easily navigate their benefits
• Educating employees about their benefits and the options available to them