In a landscape that is continually evolving based on economic trends and workforce dynamics, the role of a CFO or financial leader is not just about numbers, but is also about shaping a futureproof benefits strategy.
The construction industry, known for its resilience and adaptability, is now at the forefront of a shift in retirement planning, underlined by the advent of pooled employer plans (PEPs), which are designed to streamline and strengthen the retirement readiness of its workforce.
The Rise of the PEP
As an answer to market volatility and challenges, many forward-thinking organizations are re-evaluating their options when it comes to 401k benefits, as delivering benefits can be a daunting task in any industry. PEPs are a specific solution that have already gained traction with employers across industries globally as a way of mitigating risk, improving organizational bottom lines, and lessening the workloads of overburdened teams.
With changing jobsites, varying employment statuses, and high turnover rates, ensuring all employees receive their benefits and contributions can be a time-consuming and complex process. Furthermore, the construction industry often operates on tight margins, making the cost of establishing and maintaining a 401k plan a significant financial burden for many organizations.
In addition to the time and cost required, offering 401k benefits also comes with inherent risks. The industry is known for its fluctuating demand, which can impact the financial stability of both employers and employees. This volatility can lead to unforeseen challenges in meeting contribution obligations or potential loss of investments.
According to the 2023 PLANSPONSOR Industry Report, more than 97% of companies in the construction and building industry offer a 401k plan, so it is generally a “table stakes” benefit like most industries.1 In addition, these employers ranked in the lower 50% of plan sponsors from a broad variety of U.S. industries when examining key plan areas like participation rate (73%) and average account balance ($83,580), among other factors.2
As such, organizations in the construction industry must carefully navigate these challenges and ensure compliance with complex regulations to avoid penalties or legal issues.
Key Features, Eligibility Criteria & Benefits
PEPs operate by pooling the assets and participants of multiple employers into a single retirement plan that is typically administered by a third-party service provider that specializes in retirement plan management (Exhibit 1).
While PEPs offer a host of advantages, one of the most significant benefits is the access to size and scale for a broad range of investment options. Pooled resources allow for economies of scale, reducing costs, and more diversified portfolios, ultimately reducing risk and potentially increasing returns. Additionally, PEPs can negotiate lower fees and better service levels.
All of this ensures that employers minimize work and cost, and employees’ hard-earned money is working as efficiently as possible in 401k accounts.
From an employer’s perspective, it all comes down to cost and risk. Managing these important employee benefits through PEPs can eventually produce less work, less risk, and better retirements.