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Next-Generation 401kRetirement Plans:PooledEmployer PlansSeptember 2021Nothing in this document should be construed as legal or investment advice. Please consultwith your independent professional for any such advice. To protect the confidential andproprietary information included in this material, it may not be disclosed or provided to any thirdparties without the approval of Aon.Proprietary & Confidential
Evolution of Employer-Sponsored DC Plans1970s1990s2010sBirth of the 401(k)Investmentresponsibility shifts toemployeesSponsors outsourceresponsibility forinvestments (TDFs,managed accounts)1970s1980s1980s1980sAdd employer match;outsource recordkeepingProprietary & Confidential September 20211990s2000s2000s2000sDC becomes morecommon than DB2010s2020s2020s2020sEmployers join PEPs tooutsource DC planmanagement
Pooled Employer Plans Change America’s Retirement SystemToday, US employers sponsor over 500,000 individual 401k plans that can be complicated, risky, and costlyto manage. The SECURE Act encourages employers from all industries and sizes to band together to createa new type of 401k plan, the Pooled Employer Plan (PEP) that offers:Less workfor HR teamsPEPLess riskfor fiduciariesLower costsand improved outcomes for employeesEmployers may now participate in a PEP 401k instead of sponsoring a traditional 401k planProprietary & Confidential September 20212
PEPs Bring Together Partners in a More Efficient Ecosystem 3(38) outsourced investment Investment lineup is fixed for alladopting employers Fiduciary Committee Operations RegulatoryCompliance Recordkeeping servicesnegotiated by PooledPlan ProviderRecordkeepingand CustomerServicePooled PlanProvider andFiduciaryTrustee &Custodian Often provided by planrecordkeeperInvestments Design featuresBehavioral analyticsLifetime incomeInclusion & diversityInnovationAuditor External auditor chosen byPooled Plan ProviderEmployers can focus on their core business while experts run the retirement programProprietary & Confidential September 20213
Less WorkPEPs Provide a Simpler Way to Sponsor a Retirement ProgramTraditional e Plan Design andContribution LevelsEmployerRecordkeeperInvestmentsSend Payroll Ps5500AuditMonitor PEPCommunicationEducationBenefitDesignProprietary & Confidential September 20214
Less RiskPEPs Mitigate Fiduciary Risks for EmployersPEPs ProvideDC Plan Litigation on the Rise87Number DC plan excess fee lawsuitsbased on the year initially filed35241520322011201220132014Nearly 210excessive feelawsuits filedsince 201120152016Over 1B insettlementsover the lastdecade2017182018 Transfer of fiduciary responsibilityand liability for investments andadministration2320192020 Low fees, reviewed and marketadjusted annually4x increasein lawsuitsfiled in 2020compared toprior 3 yearsFiduciary liability insurance marketplaceexperiencing double digit increases inpricing and reduced capacitySource: Aon FSG tracking of DC plan excess fee lawsuits and January 2021 Client AlertInvestment advice and consulting services provided by Aon Investments USA Inc.Proprietary & Confidential September 20215
Improved OutcomesLowering Fees Leads to More Retirement Savings for Employees25 year-old paying 0.25% lower fees in a 401k plan across a lifetime may lead to Projected Total Retirement Incomeincreases by 137,000 (11%)401k 1,210,000Retirement incomelasts 2 years longerAge 85PEP 1,347,000Age 87Note: Inflation-adjusted dollarsTotal Retirement Income is the cumulative annual income collected starting from age 67The performance modeling featured is for Illustrative purposes and is not a guarantee of future results. Modeling assumes a 25 year old employee with 50,000 starting salary, 3,000 starting account balance, 4% annual pay increases, age 67 retirement, 3% initial savings rate with auto-escalation to 10%, investedin a diversified S&P through target date fund, and employer matching 100% on first 3% and 50% on next 2%. Income improvement in the Aon PEP assumes a 25bps reduction in participant fees and the same modeling parameters. Total Retirement Income is the 50 th percentile outcome using 5,000 stochastic trials based onx c d u s us gQ2 2020 10 Y a a a Ma kssus as f 3/31/2020 a d’s R aa sd gd gy. There is no guarantee thatresults or savings will be achieved if you should select Aon provide services to you. The experience described does not represent all recommendations made toclients nor does it represent the experience of all clients. Investment return and principal value of an investment will fluctuate; therefore, there may be gain or lossexperienced by the investor.Proprietary & Confidential September 20216
PEPs Offers Each Employer a Unique, Yet Streamlined Plan DesignFreedom Investment choices Contribution types Loans and withdrawals Eligible group Employercontribution levels Distribution optionsFlexibleFixed Participation Automation Vesting Service CompensationNote: Still subject to qualification rules; provisions must be nondiscriminatory for by participating employerInvestment advice and consulting services provided by Aon Investments USA Inc.Proprietary & Confidential September 20217
Common Questions Are PEPs appropriatefor plans of all sizes oronly smaller plans?Size PEPs provideefficiencies for plans ofall sizes. We expectearly adopters to beplans under 500M inassetsProprietary & Confidential September 2021 Is it easy to transition inand out of a PEP?Transition Transition to a PEP issimilar to a change inrecordkeeper, but witha commoninfrastructure andassistance from PEPresources, it will takeless time from HR staff Do plan sponsors losecontrol over plan designwhen joining a PEP?Control In the Aon PEP, plansponsors control plandesign (contributionlevels and eligibility),but in order to mitigaterisk, plan sponsors giveup control of therecordkeeper decisionand the selection ofinvestments Do PEPs really share oreliminate fiduciary riskfor plan sponsors?FiduciaryExposure Because the PEP takesfiduciary liability forselection ofrecordkeeper,administrativeoperations andinvestments, plansponsor exposure islower
Global Trend of Employers Moving to Pooled Retirement Savings VehiclesEuropean UnionUnited Kingdom 75B in cross border planscovering DB and DC3 Master Trusts arefastest growing market1 73 active plans (53% DB,33% DC, 14% DB/DC)3 Aon launched MasterTrust solution in 2016Australia Multiple Employer Plansdominate the marketUnited States Aon smartMondaysolution covers 186,000participants with over 4B in assets2 SECURE Act allowsPooled EmployerPlans starting 2021 Aon launched theAon PEP effective1/1/2021Aon predictsover half of USemployers will utilizePEPsby 20301BroadridgeNavigator UK Defined Contribution and Retirement Income 2019of June 30, 20203As of December 31, 20192AsProprietary & Confidential September 20219
PEPs Offer Advantages for Employers and EmployeesAdvantages for Employers Less work and reduced timecommitment from fiduciarycommittees and HR staff Less risk via offloading fiduciaryresponsibilities and liability to expertsAdvantages for Employees Lower fees compounded across theworking career for improved retirementoutcomes Quality investment funds and access tobrokerage window for even moreinvestment options* Better governance with access toretirement plan administration experts Plan design selected by eachemployer*Aon 2021 AnalysisOver100Pricing AnalysesCompleted44%Average total plancost savings*Not all PEPs offer brokerage windows or flexibility in plan designProprietary & Confidential September 202110
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Legal Disclosures and DisclaimersInvestment advice and consulting services provided by Aon Investments USA Inc. (Aon Investments). The information containedherein 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 datehereof 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. Any accounting, legal, ortaxation position described in this presentation is a general statement and shall only be used as a guide. It does not constituteacc ug, ga , a d ax adv c a d s bas dI v ss’ u d s a d g f cuaws a da.Aon Investments disclaims any legal liability to any person or organization for loss or damage caused by or resulting from anyreliance placed on that content. Aon Investments reserves all rights to the content of this document. No part of this document may bereproduced, stored, or transmitted by any means without the express written consent of Aon Investments.Aon Investments USA Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AonInvestments is also registered with the Commodity Futures Trading Commission as a commodity pool operator and a commoditytrading advisor, and is a member of the National Futures Association. The Aon Investments ADV Form Part 2A disclosure statementis available upon written request to:Aon Investments USA Inc.200 E. Randolph StreetSuite 700Chicago, IL 60601ATTN: Aon Investments Compliance Officer Aon plc 2021. All rights reserved.Proprietary & Confidential September 202112
Proprietary & Confidential Nothing in this document should be construed as legal or investment advice. Please consult . (PEP) that offers: Employers may now participate in a PEP 401k instead of sponsoring a traditional 401k plan Less work for HR teams Less risk for fiduciaries Lower costs and improved outcomes for employees 2 PEP.
