OECD Pensions Outlook 2024

2. Improving access to asset-backed pension plans through arrangements pooling multiple employers

Stéphanie Payet

Abstract

This chapter discusses the extent to which multi-employer pension arrangements increase access to asset-backed pension plans by encouraging or facilitating employer provision of pension plans. It looks at the characteristics, advantages and disadvantages of the different models of multi-employer pension arrangements.

The involvement of employers in the provision of asset-backed pension plans presents several advantages. Employers can facilitate employee savings through payroll deductions and contribute on behalf of their employees. They can tailor the design of occupational pension plans to match the preferences of their employees and select features that can facilitate decision-making for employees, such as by introducing default options. Employers may also bear some of the investment and longevity risks, as well as some of the costs associated with operating the plan. They can also provide financial education to their employees, thereby increasing awareness among employees of the need to save for retirement (OECD, 2022[1]).

However, employers may find it difficult to sponsor and administer an occupational pension plan for their employees. Barriers preventing employers from sponsoring a plan include concerns over business profitability, the complexity of establishing and administering a plan, as well as the associated costs and administrative burden (OECD, 2022[1]). These barriers are likely to affect small employers more.

Pension arrangements pooling multiple employers have the potential to increase the number of workers having access to asset-backed pension plans by encouraging or facilitating employer provision of pension plans. These arrangements, which are called “multi-employer pension arrangements”1, may reduce costs by achieving scale and alleviate the administrative burden on employers (OECD, 2022[1]).

This chapter discusses the extent to which these pension arrangements pooling multiple employers increase the number of workers having access to asset-backed pension plans by encouraging or facilitating employer provision of pension plans. The chapter looks at the characteristics of these arrangements and covers all types of pension plans and funds where employers have a role to play in pension provision, beyond just deducting and paying contributions. That is, they may establish the plan or fund, administer the plan, select the plan administrator or fund manager, or enrol employees into the plan. This includes occupational pension plans and workplace personal pension plans, but excludes personal pension plans that individuals join without their employer’s intervention (e.g. mandatory individual account systems in Chile or Latvia).

The analysis shows that multi-employer pension arrangements have features that may encourage or facilitate employer provision of asset-backed pension plans, especially among small employers. There are two main models of multi-employer pension arrangements depending on which stakeholders establish them, either financial institutions (“financial institution model”), or employer and worker representatives (“representative model”). The different models lead to different management and governance structures, employer and worker levels of access, and onboarding processes. Multi-employer pension arrangements have advantages over single-employer arrangements. In particular, achieving scale by pooling multiple employers can reduce costs and the administrative burden on each employer, improve governance and provide more diverse investment opportunities. However, multi-employer pension arrangements also come with challenges, such as excluding certain types of employers or workers, or providing fewer options to employers to tailor the plan to their needs. Depending on the model, some of the advantages and challenges vary in importance.

Countries willing to promote employer provision of asset-backed pension plans may consider introducing a mix of different models of multi-employer pension arrangements complementing each other to provide access to all types of employers and workers. As multi-employer pension arrangements established by employer and employee representatives through collective agreements can usually only be accessed by those covered by such agreements, there is a need for multi-employer pension arrangements established by financial institutions to cater to the needs of other employers as well as the self-employed. Moreover, a public provider of last resort could be useful for small employers when existing multi-employer pension arrangements fail to appropriately serve their needs.

The chapter describes in Section 2.1 the different models of multi-employer pension arrangements and their management and governance structures. Section 2.2 analyses which employers and workers may have access to these arrangements, while Section 2.3 describes the onboarding process for employers. Sections 2.4 and 2.5 discuss, respectively, the advantages and challenges these arrangements may bring, focusing on the policy objective of improving access to asset-backed pension plans. The final section concludes.

2.1. Different models of multi-employer pension arrangements

This section describes the two main models of multi-employer pension arrangements, as well as the management and governance structure of the arrangements. Multi-employer pension arrangements are vehicles pooling together different employers to offer occupational pension plans or workplace personal pension plans. They allow related or unrelated employers to join forces and pool resources to administer the pension plans and manage the assets. A multi-employer pension arrangement may include only one pension plan for all employers covered, with the same plan parameters for all employees covered. Employers within the same multi-employer pension arrangement may also decide to have several pension plans for different categories of employees. Alternatively, each employer within the same multi-employer pension arrangement may have its own pension plan with specific plan parameters.

The two main models of multi-employer pension arrangements are the “representative model” and the “financial institution model”. In the former, worker and employer representatives, such as trade unions, associations of self-employed workers, groups of employers and business associations, establish jointly or separately multi-employer pension arrangements on behalf of workers and employers. In the later, financial institutions establish multi-employer pension arrangements, which different employers can join.2 Multi-employer pension arrangements exist in many OECD countries and in some the two models co-exist (Table 2.1).

Table 2.1. Models of multi-employer pension arrangements in selected OECD countries

Country	Pension plan / fund	Model of multi-employer pension arrangement	Establishment
Australia	Industry superannuation funds	Representative	Through collective agreements at the industry level
	Retail superannuation funds	Financial institution	By financial institutions
Austria	Multi-employer pension funds	Financial institution	By pension companies
Belgium	Sectoral pensions	Representative	Through collective agreements at the sector level
Canada	Multi-employer registered pension plans (RPP)	Representative	By a group of employers or by trade unions and participation requires a collective agreement at the firm level
	Pooled registered pension plans (PRPP)	Financial institution	By licensed administrators
	Group Registered Retirement Savings Plans (RRSP)	Financial institution	By banks, credit unions, trusts or insurance companies
Denmark	Occupational pensions	Representative	Through collective agreements at the sector level or through profession-wide agreements for the self-employed
		Financial institution	By life insurance companies
Finland	Statutory earnings-related pensions (1)	Representative	Through collective agreements at the industry or firm level
		Financial institution	By pension insurance companies
Germany	Occupational pensions (1)	Representative	Through collective agreements at the industry level
		Financial institution	By financial institutions
Greece	Occupational Insurance Funds (TEA) (1)	Representative	By a group of employers that do not need to be in the same sector
Iceland	Occupational pensions	Representative	Through collective agreements at the industry level or profession-wide agreements for the self-employed
Ireland	Master trusts	Financial institution	By insurance companies or employee benefit consultancy firms
Italy	Contractual pension funds	Representative	Through collective agreements at the national level
	Open occupational pension funds	Financial institution	By banks, insurance companies, investment firms and asset management companies
Japan	Fund-type corporate pension plans 1	Representative	By a group of employers and participation requires a collective agreement at the firm level
	Contract-type corporate pension plans	Financial institution	By trust banks, life insurance companies or pension management organisations
Korea	Retirement pension plans	Financial institution	By retirement pension trustees
Netherlands	Industry pension funds	Representative	Through collective agreements at the industry level
	Professional pension funds	Representative	Through profession-wide agreements for the self-employed
	General pension funds	Financial institution 2	By financial institutions
New Zealand	KiwiSaver	Financial institution	By KiwiSaver scheme providers
Norway	Occupational pensions 1	Representative	By a group of employers and participation requires a collective agreement at the firm level
		Financial institution	By life insurance companies, banks or mutual funds
Poland	Employee capital plans (PPK)	Financial institution	By investment funds, pension funds or insurance companies
Portugal	Closed pension funds 1	Representative	By a group of employers
	Open pension funds	Financial institution	By pension fund management companies or life insurance companies
Slovenia	Open mutual pension funds	Financial institution	By banks, pension companies and insurance companies
Spain	Simplified occupational pension plans	Representative	Through collective agreements at the sector level, or by associations of self-employed workers, public administrations, cooperatives or labour societies
	Joint-promotion occupational pension plans	Representative	By a group of employers
		Financial institution	By pension fund management companies
Sweden	Occupational pensions	Representative	Through collective agreements at the national level
Switzerland	Common foundations	Representative	By professional associations
	Collective foundations	Financial institution	By insurance companies, banks or trustee companies
Türkiye	Automatic enrolment system	Financial institution	By pension companies
United Kingdom	Master trusts	Financial institution	By pension providers
	Group personal pensions	Financial institution	By pension providers
United States	Multiemployer pension plans	Representative	Through collective agreements at the industry level
	Multiple-employer pension plans	Representative	Through collective agreements at the industry level
		Financial institution	By banks or insurance companies
	Employer-sponsored individual retirement accounts (IRAs)	Financial institution	By IRA providers
	State-based auto-IRAs	Financial institution	By public institutions in selected states

Notes:

1. This type of pension plan / fund may also be promoted and established by single employers.

2. In theory, general pension funds can be established by any party, but all the currently existing ones have been established by financial institutions.

Under the representative model, when social partners establish a multi-employer pension arrangement, collective bargaining agreements are necessary at the level of the firm, at the level of the industry or sector, or at the national level to establish or join the arrangement. In 10 countries out of the 25 included in Table 2.1, the social partners (i.e. employee and employer representatives) jointly establish multi-employer pension arrangements at the industry or sector level. For example, in Belgium, when the initiative to establish an occupational pension plan comes from a sector rather than one employer, the plan is established through a collective labour agreement concluded within a commission with employee and employer representatives of the sector. When one side of the social partners establishes alone a multi-employer pension arrangement, collective bargaining agreements may need to take place at the firm level to join the arrangement (e.g. Canada, Japan, Norway). For example, in Canada, trade unions representing the employees of unrelated employers in a specific industry can establish multi-union occupational pension plans. Negotiations to join such a plan are conducted at the firm level as there is no obligation for the employers of the industry to participate in it. By contrast, in Greece, an employer can establish an occupational insurance fund with other employers or join an existing one without the need to enter into a collective agreement with its employees. Finally, the social partners can establish multi-employer pension arrangements through collective bargaining at the national level, as in Italy and Sweden. In Italy, contractual pension funds are agreed in the framework of national labour contracts and applicable at the industry level. In Sweden, central employer organisations and unions conduct collective agreements. In the private sector, the Confederation of Swedish Enterprises has established a pension plan for blue-collar workers with the union LO and another pension plan for white-collar workers with the union PTK.

The representative model also includes multi-employer pension arrangements for self-employed workers. For example, in Denmark and the Netherlands, profession-wide agreements establish mandatory occupational pension funds for certain professions, such as notaries, general practitioners, or medical specialists. In Spain, associations of self-employed workers can voluntarily establish simplified occupational pension plans for their members and other self-employed workers.

Under the financial institution model, banks, insurance companies or asset managers may directly administer pension plans and manage pension assets, or may establish a subsidiary with the sole purpose of running that business.3 Employers do not need to have any kind of relationship to join the same multi-employer pension arrangement. The financial institution splits the arrangement between different sections for the different occupational pension plans of the employers covered. Employers are usually responsible for selecting the financial institution for their occupational pension plan.

The governance structure of multi-employer occupational pension arrangements usually reflects their ownership structure. Under the representative model, employers and employees nominate representatives in the governing body. By contrast, under the financial institution model, the governing body is composed of financial professionals. Employer and employee representatives may take part in a stakeholder body with advisory and consent rights, as is the case for general pension funds in the Netherlands, for example.

There are cases where the two models of multi-employer pension arrangements intersect. Under the representative model, the social partners may delegate the management of multi-employer pension arrangements to financial institutions. In Belgium for instance, the commission establishing a sectoral pension plan must delegate the management of the plan to a pension fund or an insurance company. In Spain, the social partners establishing simplified pension plans for private-sector employees through collective agreements need to attach the plans to one or more occupational pension funds established and managed by pension fund management entities. In Sweden, the social partners in the private sector have established two pension administration companies for the occupational pension plans covering blue-collar and white-collar workers, respectively, but they procure the insurance companies that employees can choose for the management of their assets.

Under the financial institution model, the selection of a multi-employer pension arrangement may require a consultation or an agreement with employee representatives at the firm level. For example, in Austria, joining a multi-employer pension fund requires the conclusion of a collective agreement with the sector union. In Poland, employers must conclude a PPK management agreement with a financial institution in agreement with the trade union organisation in their company. If there is no trade union organisation in the company, employers need to agree with employee representatives.

The governing body of certain multi-employer pension arrangements combines employer and employee representatives with financial professionals. This is the case for example for selected commercial pension companies in Denmark (e.g. PFA Pension). In Finland, the supervisory board and the board of directors of pension insurance companies, which are financial institutions, have to include members chosen among the persons suggested by the central labour market organisations that represent employers and employees. There must be an equal number of such representatives for the employees and for the employers, and their combined number must be at least half of the total number of members in the supervisory board and board of directors, respectively. In Spain, while pension fund management entities and their board of directors are responsible for the management of occupational pension funds to which occupational pension plans are attached, employer and employee representatives are part of supervisory bodies at the plan and fund levels.4

In the case of multi-employer pension arrangements with defined benefit (DB) plans, employers may share biometric and financial risks, or transfer the risks to the provider of the arrangement. Under the representative model, employers usually share risks collectively. For example, in Canada, if a DB plan in an arrangement with more than one participating employer or union is underfunded and one of the participating employers goes bankrupt, regulators will not force a plan termination as long as at least one participating employer or union remains. Under the financial institution model, multi-employer pension arrangements running DB plans may allow employers to transfer risks to a third party. For example, in the United Kingdom, employers can transfer their DB plan to a DB superfund, allowing them to pass on the responsibility of guaranteeing pension payments to plan participants to the superfund, which uses a capital buffer to secure the pension commitments.

Finally, some countries provide financial incentives to employers to encourage them to contribute to multi-employer pension arrangements (OECD, 2023[2]). In Belgium, sectoral pension plans benefit from an exemption of the 4.4% premium tax on contributions. In Germany, employers contributing at least EUR 240 per year to an occupational pension plan on behalf of a low-income employee (i.e. earning less than EUR 2 575 per month) receive a tax credit of 30% of the contribution, up to a maximum contribution of EUR 960. This tax incentive applies to multi-employer and single-employer occupational pension plans. In Spain, employers can deduct from corporate income tax 10% of their contributions into an occupational pension plan in favour of employees with an annual gross remuneration of less than EUR 27 000.5 In addition, employer contributions are not subject to social security contributions, up to a contribution limit of EUR 135.30 per worker and per month. These financial incentives are not specific to multi-employer pension arrangements, but they were introduced at the same time as a package to promote occupational pension plans.

2.2. Access to multi-employer pension arrangements

2.2.1. Employer access

Employers’ access to multi-employer pension arrangements tends to be more restrictive under the representative model. Table 2.2 describes for selected OECD countries which employers can access multi-employer pension arrangements and the extent to which their participation is mandatory or voluntary. In Belgium, Korea, the Netherlands, Spain and Sweden, not all employers have access to multi-employer pension arrangements. Except for Korea, multi-employer arrangements in these countries are part of the representative model and their access is restricted to employers in certain industries or sectors, or to employers covered by a collective bargaining agreement. In Australia, Canada, Denmark, Finland, Iceland, Japan, Norway, Portugal, and the United States, multi-employer pension arrangements accessible to all employers complement other arrangements having more restricted access. For example, in Australia, retail funds and most industry funds allow any worker to join, while some industry funds are restricted to workers in specific industries. In Canada, pooled registered pension plans were introduced in 2012 to make it easier for employers not already offering an occupational pension plan to do so. The United States has been gradually allowing access to multiple-employer pension plans. The latest version of multiple-employer pension plans, called pooled employer plans, was introduced in 2021 and is accessible to any employer. Other countries, such as Austria, Ireland, Italy, New Zealand, Poland, Slovenia, Türkiye and the United Kingdom, only have multi-employer pension arrangements with unrestricted access to all employers. Except for Italy, these are part of the financial institution model.

Table 2.2. Employers’ access to multi-employer pension arrangements in selected OECD countries

Country	Pension plan / fund	Employers with access	Employer participation
Australia	Industry superannuation funds	Any employer although some funds are restricted to employers in specific industries	Mandatory employer contributions to fund selected by employee or stapled fund
	Retail superannuation funds	Any employer	Mandatory employer contributions to fund selected by employee or stapled fund
Austria	Multi-employer pension funds	Any employer	Voluntary
Belgium	Sectoral pensions	Restricted to employers covered by a collective agreement at the sector level	Mandatory for employers in the sector but certain exemptions and possibility to opt out
Canada	Multi-employer registered pension plans (RPP)	Restricted to employers establishing the plan or belonging to the industry covered by the union plan	Voluntary
	Pooled registered pension plans (PRPP)	Any employer	Voluntary
	Group Registered Retirement Savings Plans (RRSP)	Any employer	Voluntary
Denmark	Occupational pensions	- Representative model: Restricted to employers covered by a collective agreement at the sector level or to certain self-employed professionals - Financial institution model: Any employer	Mandatory for employers covered by a collective agreement at the sector level and for self-employed workers covered by a profession-wide agreement
Finland	Statutory earnings-related pensions	- Representative model: Restricted to employers covered by a collective agreement at the industry level - Financial institution model: Any employer	Mandatory
Germany	Occupational pensions	Any employer	Mandatory or voluntary depending on the collective agreement
Greece	Occupational Insurance Funds (TEA)	Any employer	Voluntary
Iceland	Occupational pensions	Any employer although some funds are restricted to employees in specific unions	Mandatory
Ireland	Master trusts	Any employer	Voluntary
Italy	Contractual pension funds	Any employer based on industry, sector or geographical area	Mandatory under national labour contract
	Open occupational pension funds	Any employer	Mandatory under national labour contract
Japan	Fund-type corporate pension plans	Restricted to employers establishing the plan	Voluntary
	Contract-type corporate pension plans	Any employer	Voluntary
Korea	Retirement pension plans	Restricted to employers covered by a collective agreement	Voluntary
Netherlands	Industry pension funds	Restricted to employers covered by a collective agreement at the industry level	Mandatory for employers in the industry but certain exemptions and possibility to opt out
	Professional pension funds	Restricted to certain self-employed professionals	Mandatory for self-employed workers covered by a profession-wide agreement
	General pension funds	Restricted to employers targeted by the fund	Mandatory for targeted employers
New Zealand	KiwiSaver	Any employer	Mandatory
Norway	Occupational pensions	- Representative model: Restricted to employers establishing the plan - Financial institution model: Any employer	Mandatory
Poland	Employee capital plans (PPK)	Any employer	Mandatory
Portugal	Closed pension funds	Restricted to employers with a business, association, professional or social link between them	Voluntary
	Open pension funds	Any employer	Voluntary
Slovenia	Open mutual pension funds	Any employer	Voluntary
Spain	Simplified occupational pension plans	- Sector plans: Restricted to employers covered by a collective agreement at the sector level - Other plans: Restricted to employers targeted by the plan	- Sector plans: Mandatory or voluntary for employers in the sector depending on the collective agreement and possibility to opt out when mandatory - Other plans: Voluntary
	Joint-promotion occupational pension plans	- Representative model: Restricted to employers establishing the plan, but new employers may join it if the specifications of the plan so provide - Financial institution model: Any employer	Voluntary
Sweden	Occupational pensions	Restricted to employers covered by a collective agreement at the national level	Mandatory for employers covered by the collective agreement
Switzerland	Collective foundations	Any employer	Mandatory
	Common foundations	Restricted to members of professional associations	Voluntary for the self-employed
Türkiye	Automatic enrolment system	Any employer	Mandatory
United Kingdom	Master trusts	Any employer	Mandatory
	Group personal pensions	Any employer	Mandatory
United States	Multiemployer pension plans	Restricted to employers covered by a collective agreement at the industry level	Voluntary
	Multiple-employer pension plans	Some plans are accessible to any employer (pooled employer plans) while others are restricted to employers with some level of association (e.g. geographic location, trade or industry)	Voluntary
	Employer-sponsored IRAs	Any employer	Voluntary
	State-based auto-IRAs	Any employer	Mandatory in selected states for employers not already offering a pension plan

Participation is mandatory for employers in most countries when access to a multi-employer pension arrangement is restricted to employers covered by a collective agreement at the sector, industry or national level. For example, in Belgium, sectoral pensions are in principle mandatory for all employers of the sector (and their employees). The collective labour agreement setting up the plan may, however, exclude certain companies. In the Netherlands, although there is no obligation for employers to offer an occupational pension plan, if a representative group of employers and employees establishes an industry-wide pension plan, they can request the Minister of Social Affairs and Employment to declare that plan mandatory for all employers in the industry. In Italy, all employers hiring their employees under a national labour contract must establish a pension plan in line with their industry.6 In Spain, participation in a simplified plan established by a statutory sectoral collective agreement is only mandatory for employers covered if the collective agreement requires it. Similarly, in Germany, participation in industry-wide occupational pension plans may be compulsory for employers depending on the collective agreement.

Employers may be allowed to opt out of the plan established through collective agreement if they offer their own, single-employer occupational pension plan of at least similar quality as the sector plan. This is the case in Belgium, the Netherlands and Spain.

In some countries, smaller industries may be allowed to join the multi-employer pension arrangement created by a larger related industry. In Italy for instance, the contractual pension fund for the steel industry also covers employers in the manufacturing, metal and machinery industries.

A multi-employer pension arrangement can play the role of default option or provider of last resort. In Italy, there is a contractual pension fund of last resort for employers in industries not attached to a specific fund by collective agreement. This fund used to be a public entity, but now one of the private providers plays that role. In the United Kingdom, Nest was set up by the government and has an obligation to accept all employers that want to use it for their automatic enrolment duties. In Switzerland, if an employer does not establish or join a pension institution, all the covered employees of this employer are affiliated by law to a pension institution known as the Substitute Occupational Benefit Institution, which was established by the employer federations and trade unions. In Sweden, the social partners procure the insurance companies members can choose, but for white-collar private sector workers, Alecta is the default option. In New Zealand, the government selects several default KiwiSaver providers by procurement for employees automatically enrolled by their employer. These employees are randomly allocated to the default fund offered by one of the selected default providers, except if they actively choose a fund or if their employer has chosen a provider.

2.2.2. Worker access

Membership in multi-employer pension arrangements may be restricted to certain workers. In Canada, multi-employer registered pension plans established by trade unions may require union membership for workers to be able to join the pension plan. If the local union agrees, non-unionised employees may be able to join the plan if the plan also counts unionised members of the same employer. In Iceland, around 60% of workers cannot choose their pension fund because they have to contribute to the pension fund corresponding their union based on their job. An employer may, therefore, have to pay pension contributions to different pension funds depending on the employee. Similarly, in Denmark and Sweden, blue and white-collar workers are covered by different collective agreements, and therefore different pension funds.7 In Australia, some industry funds are only open to workers in specific industries. Moreover, in several countries, public sector employees have separate pension schemes. For example, Sweden has one scheme for local government employees, including municipalities, county councils, and regional and municipal companies, and another scheme for central government employees. In Norway, KLP is the pension provider for local government employees and was jointly created in 1949 by the Union of Norwegian Cities and the Norwegian Association of Rural Municipalities. In Spain, public administrations such as municipalities can establish a simplified pension plan for their employees.

Multi-employer pension arrangements do not usually cover the self-employed, and when they do, it is usually on a voluntary basis. Under the representative model, some multi-employer pension arrangements target the self-employed. Participation is mandatory for all self-employed workers in Iceland, while it is mandatory for certain professions only in Denmark and the Netherlands. In the Netherlands, this applies mainly to high-income professionals, such as doctors, notaries and dentists, but also, for instance, to self-employed painters. In Spain, self-employed workers may have the possibility to adhere voluntarily to the sectoral plan that corresponds to their activity if the collective agreement establishing the plan allows it. Besides, associations of self-employed workers can establish, on a voluntary basis, an occupational pension plan for their members in Italy, Norway, Spain and Portugal.8 In Switzerland, the self-employed can join common foundations, the pension institution established for their employees, or the Substitute Occupational Benefit Institution on a voluntary basis. In Australia, the self-employed can voluntarily contribute to superannuation funds open to the public. However, when the social partners establish multi-employer pension arrangements through collective agreements, the self-employed are usually excluded as agreements between employees and employers are not binding for them. Under the financial institution model, the self-employed may be able to join a multi-employer pension arrangement on a voluntary basis. In Canada and New Zealand, self-employed workers can voluntarily opt into an automatic enrolment scheme by contracting directly with a provider. Pooled employer plans in the United States can cover any employer, including self-employed workers, even if they share no common relationship or association with each other. In the United Kingdom, the self-employed can join Nest, which was established by legislation with the public service obligation to accept the self-employed.

Workers moving from dependent employment to self-employment may be able to keep contributing into the same plan. In the Netherlands, if employees are no longer covered by the same collective agreement, they may opt to defer their accrued rights until retirement age. A pension provider may accept voluntary contributions from deferred members for up to three years. When the deferred member becomes self-employed, this period is extended to 10 years. While 85% of pension funds provide the possibility of voluntary continuation in the pension scheme for the self-employed, two barriers may prevent take-up: the application and the voluntary continuation of contributions must be made shortly after termination of the employment contract (within 9 months and 15 months, respectively), and the self-employed must pay the sum of employee and employer contributions.

2.3. Onboarding process for employers

The first step for onboarding employers and employees into a multi-employer pension arrangement is usually to reach an agreement between employer and employee representatives to create an occupational pension plan. This agreement may be signed at the national, industry, sector or firm level (see Table 2.1). In Austria, Poland and Slovenia, a collective agreement is necessary even though a financial institution establishes the multi-employer arrangement (financial institution model).

Employers usually need to select a provider and sign a contract with that provider under the financial institution model. This is the case for example in Austria, Canada (PRPP), Finland (pension insurance companies), Korea, Poland, Portugal and the United Kingdom (master trusts). In Poland, employers have to conclude a PPK management agreement with a financial institution and a PPK contract in the name of and on behalf of each employee eligible for automatic enrolment. In some cases, employers only select a provider and then each employee joining the plan must directly sign a contract with that provider. This is the case for workplace personal pension plans, such as in the United Kingdom (group personal pensions) and the United States (employer-sponsored IRAs). To assist in the selection process, employers may hire a consultant to study the market and make proposals of financial institutions based on the needs of the employer. This is usually what employers do in the United Kingdom.

The onboarding process is, by contrast, smoother under the representative model. In Belgium, the social partners establishing a sectoral pension plan need to designate a plan organiser run by employer and employee representatives. This plan organiser is then responsible for the pension promise, the selection of the pension institution and the payment of the contributions to the pension institution. Each employer covered by the collective agreement only needs to pay the contributions to the plan organiser. In Denmark, if an employer is a member of the business association part of the collective agreement, then participation in the collective occupational pension plan is automatic. This is the same in Sweden, however, if an employer is not part of the Confederation of Swedish Enterprises, the employer needs to sign a collective agreement directly with the unions representing the employees of the company or, in the case of blue-collar workers, to make a direct agreement with the corresponding pension administration company. In Spain, employers only need to adhere to the plan established at the level of the industry or sector by the social partners to offer a simplified occupational pension plan to their employees.

Some providers have fully online onboarding processes. This is the case for example of Nest in the United Kingdom. When an employer selects Nest for its enrolment duties, signing up with it is straightforward.9 The employer first needs to create an online Nest account and then complete five tasks:

1. Read and accept Nest’s terms and conditions.

2. Provide business information.

3. Give details about any delegates or third-party administrator (e.g. payroll administrator) that will help run the account.

4. Inform about how contributions will be paid (bank or credit card details).

5. Enter pay information and contribution rates.

2.4. Advantages of multi-employer pension arrangements

One of the key advantages of multi-employer pension arrangements is their potential to reduce costs through economies of scale. Although large employers can establish their own occupational pension plan and achieve scale, this may be more difficult for medium and small employers. Multi-employer pension arrangements allow businesses to pool resources and increase their negotiation power with service providers. Small employers are the ones who can benefit the most from economies of scale. Multi-employer pension arrangements should lead to lower costs for employers related to the establishment and administration of occupational pension plans, and lower fees for plan members. Sweden takes advantage of scale in two ways. First, plan administration is carried out by only two pension administration companies for all private sector employees. Second, insurance companies are put in competition to reduce fees for plan members. The advantage of pooling many employers becomes stronger when the expected number of plan members is large, either because plan membership is compulsory for employees (e.g. Australia, Belgium, Denmark, Finland, Iceland, the Netherlands, Norway, Sweden and Switzerland) or automatic with an opt-out option (e.g. Canada, New Zealand, Poland and the United Kingdom).

Another advantage of multi-employer pension arrangements is to reduce the administrative burden for employers by transferring part of it to a third party. For example, in Belgium, plan organisers, not individual employers, are responsible for sectoral plans and for ensuring that pension commitments are fulfilled. These plan organisers are set up at the level of the sector with employee and employer representatives. In the United States, pooled employer plans allow unrelated employers to outsource a large part of their fiduciary duties to the financial institution sponsoring the arrangement. This reduces the compliance burden on employers, as well as the risk of litigation in case of mistakes, although employers retain some responsibilities for selecting and monitoring the plan provider, submitting payroll files, and funding contributions timely.

Multi-employer pension arrangements are well suited to cover small employers. Indeed, the administrative and financial burdens involved in running a pension plan can be better distributed. Belgium introduced sectoral pensions with the primary objective of expanding coverage for employees in small and medium-sized enterprises. Sectoral pensions exist for example in the construction sector, the food industry, the chemical industry and the non-market sector. In Denmark, PensionDanmark is the pension provider for all blue-collar workers covered by a collective agreement and around 80% of its active members work in companies with less than 10 employees.

Multi-employer pension arrangements can also improve plan governance. Under the financial institution model, the governing body is usually composed of financial professionals who are subject to tight “fit and proper” criteria. Under the representative model, the pool of potentially suitable candidates for the governing body is usually larger than in the case of a single-employer arrangement.

Size also provides more diverse investment opportunities. By pooling resources, multi-employer pension arrangements may allow pension entities to invest in more complex asset classes through higher-skilled investment teams and increased ability to negotiate lower fees with asset managers. For example, only large investors can access direct unlisted equity investment in infrastructure projects as these investments require scale, good governance to oversee the programme and a long-term investment horizon (OECD, 2022[3]).

Multi-employer pension arrangements may also improve portability. This is particularly the case for multi-employer pension arrangements established through collective agreements and covering an entire industry or sector. Employees changing jobs within the same collective agreement automatically remain in the same plan. Under the financial institution model, frictionless portability may not be guaranteed, however. For example, in the United Kingdom, Nest merges the accounts of members enrolled through different employers, but some master trusts cannot consolidate the accounts of members covered under different sections of their arrangement.10

Multi-employer pension arrangements under the representative model may bring additional advantages. Plans established by the social partners may have more stable rules as they should represent a long-term commitment from employees and employers in a particular industry, and thereby may be less subject to changes in governments. Additionally, the institutions managing the plans may run on a non-for-profit basis, as it is the case for example in Australia, Denmark and Italy. Finally, plans agreed at the level of an industry may better fit the needs of workers in that industry. For example, in Australia and Denmark, pension funds also offer insurance products and adjust their product coverage to the characteristics of their members.

2.5. Challenges associated with multi-employer pension arrangements

Multi-employer pension arrangements may provide fewer options to employers and reduce the possibilities of tailoring the plan to their needs when compared to single-employer occupational pension arrangements. Under the representative model, the same plan rules apply to all employers and employees covered by the same collective agreement (“one-size-fits-all”). In Belgium, the Netherlands and Spain, employers can opt out of the sectoral plan if they offer an occupational plan of at least similar quality. In Belgium, the employer may also offer an occupational pension plan in addition to the sectoral plan. This is called “opting up”. Under the financial institution model, employers can usually select some of the design parameters, such as the contribution rate and the investment options. For the latter, however, the financial institution may limit the number of available options to reduce costs.

Financial institutions may not pass on economies of scale to employers and plan members under the financial institution model.11 For example, the Australian Productivity Commission found that fees charged by industry funds (representative model) are well below those charged by retail funds (financial institution model) (Productivity Commission, 2018[4]). Similarly, the Italian pension supervisor shows that the average synthetic cost indicator for a representative member with a holding period of 10 years is lower for contractual pension funds (representative model) than for open pension funds (financial institution model), at 0.47% versus 1.35% in 2022 (COVIP, 2023[5]).

Additionally, multi-employer pension arrangements may not avoid unequal participation rates across different types of workers when participation is voluntary. For example, in Italy, multi-employer pension arrangements are mandatory for employers but voluntary for employees. Employees are enrolled automatically when they join the labour market, but they can opt out. Employee participation rates are much higher in industrial sectors, such as energy, chemicals and pharmaceuticals (between 70% and 90%) than in the retail, tourism and services sectors (around 10%) (Jessoula, 2018[6]). The fact that firms tend to be larger and to have greater union representation in the industrial sectors may lead to more efforts to foster employee participation. Additionally, the retail, tourism and services sectors tend to have smaller firms and more vulnerable workers, such as women, younger workers and low-income earners. Moreover, employer contributions into occupational pension plans come from their mandatory severance pay contributions (called Trattamento di Fine Rapporto, TFR). Smaller employers may encourage employees to opt out of occupational pension plans to keep these contributions in the company, as they may provide readily accessible financing. Meanwhile, vulnerable workers may be more likely to opt out of occupational pension plans as they may prefer to keep the TFR as a severance allowance, which provides a guaranteed rate of return and is accessible when leaving the company.

Small employers may be at a disadvantage under the financial institution model. For example, in the United Kingdom, some master trusts refuse to serve small employers because they are less economically beneficial. By contrast, Nest is a master trust with a legal requirement to accept all employers. Moreover, some master trusts establish their price based on the number of members, the membership age structure and the expected contribution flows. Smaller employers, therefore, are charged relatively higher given the lower number of covered employees. Finally, some master trusts also offer fewer options to smaller employers as they are reluctant to set up specific products for a small number of potential members. By contrast, they tend to offer more bespoke options to larger employers to attract them.12

Another challenge with multi-employer pension arrangements relates to the composition of the governing body and the suitability of its members. Under the financial institution model, the governing body usually lacks employee and employer representatives, and this may reduce its accountability towards these stakeholders. Under the representative model, the governing body is not likely to represent the interests of the whole range of employers and employees covered given that they may have very diverse characteristics. In addition, employer and employee representatives may lack sufficient skills and knowledge to properly administer and manage the scheme.

Under the representative model, the behaviour of a subgroup of employers participating in a multi-employer pension arrangement may negatively affect the other participating employers. For example, when an arrangement runs a DB pension plan, the funding position of the plan may be weakened by employers leaving the arrangement. For instance, in the United States, employers can exit a multiemployer plan at any time, and when they do, they have to pay a withdrawal liability corresponding to their share of the underfunding, if any. However, the withdrawal liability may be insufficient to cover the full cost of the vested benefits of their workers who remain in the plan, creating a financial burden for remaining employers (Munnell, Aubry and Crawford, 2017[7]). Another example is when one employer failing to comply with certain legal requirements of a multi-employer pension arrangement can penalise all the other participating employers. This is the case for instance in the United States for multiple employer plans, which may lose their tax-qualified status if only one employer is not compliant.13

Multi-employer pension arrangements established through collective agreements between social partners may raise fairness issues. Indeed, they may exclude workers outside collective agreements. This concerns self-employed workers but also employees in companies not interested in entering collective bargaining agreements. For example, in Sweden, IT companies with young employees may not be covered by collective agreements. In Denmark, around 10% of employees do not have an occupational pension plan. Moreover, when occupational pension plans also offer disability insurance, pension funds covering blue-collar workers may not be able to provide as large retirement pensions as those covering white-collar workers because the former may face higher costs related to disability pensions (e.g. Iceland).

Contributions may be lower in multi-employer pension arrangements established through collective agreements compared to single-employer plans. In sectors with small employers and low wages, employers and employees may have few resources to pay pension contributions. In Belgium, employees participating in a sectoral pension plan had an average contribution rate of 1.5% and a median contribution rate of 0.9% in 2019. In the case of employer-sponsored occupational pension plans, the average and median contribution rates stood at 5.2% and 3.6%, respectively (Sigedis, 2021[8]). This may reflect the fact that sectoral plans mostly concern less productive sectors paying low wages (e.g. construction and hospitality sectors).14 Indeed, sectoral plans were introduced by the Act on Supplementary Pensions in 2004 to boost access to occupational pension plans, which at the time were mostly offered by large companies in productive sectors (e.g. the chemical industry and the banking sector). In Spain, employers can decide to pay higher contributions to a simplified pension plan than those specified in the collective agreement.

Finally, there may be challenges related to the transition from single-employer to multi-employer pension arrangements, in particular under the financial institution model. Although single-employer pension funds may be cost-efficient and well governed, in particular with large employers, some countries with many small single-employer occupational pension funds may want some of them to consolidate and transition to multi-employer pension arrangements. For example, in Ireland, the transposition of the IORP II Directive of the European Union led to increased governance requirements and a consolidation of occupational pension plans within master trusts, which have governance structures in line with the new requirements. Even though the transition to a master trust is smooth for most pension plans, those with complex assets or benefit structures may be difficult to replicate in a master trust.15 Moreover, employer inertia may limit the development of master trusts as employers may lack good understanding of the new governance requirements and may not realise that a master trust could be more cost-effective for their plan. In addition, data challenges related to members’ contact details may prevent a smooth transition to a master trust.

2.6. Conclusion

This chapter shows that pension arrangements pooling multiple employers have features that may encourage or facilitate employer provision of asset-backed pension plans, especially among small employers. It discusses the extent to which these multi-employer pension arrangements improve access to asset-backed pension plans by encouraging or facilitating employer provision of pension plans. It also analyses the characteristics of these multi-employer pension arrangements.

There are two main models of multi-employer pension arrangements depending on which stakeholders establish them, either worker and employer representatives (representative model), or financial institutions (financial institution model).

Under the representative model, a multi-employer pension arrangement for employees requires a collective bargaining agreement at the level of the firm, at the level of the industry or sector, or at the national level. The governing body comprises employer and employee representatives, but the management of the arrangement may be delegated to a financial institution. Only employers in certain industries or sectors covered by a collective bargaining agreement have access to the arrangement and participation is usually mandatory for employers. Membership is also usually restricted to certain employees depending on their union membership, industry or sector. Onboarding into the arrangement is automatic for employers covered by a collective agreement, or requires simple adherence to the plan in case of voluntary participation. The self-employed tend to be excluded as agreements between employees and employers are not binding for them. However, some arrangements specifically target these workers.

Under the financial institution model, a multi-employer pension arrangement can cover employers without any kind of relationship between one another. The governing body comprises financial professionals, although a mixed governance structure with employer and employee representatives exists in some countries. The employer is usually responsible for selecting the financial institution for its pension plan. Nevertheless, a consultation or an agreement with employee representatives may be required at the firm level. The arrangement provides unrestricted access to all employers, but some providers may refuse to cover selected employers (e.g. small employers). Onboarding into the arrangement requires the employer to select and sign a contract with the provider of the arrangement. The self-employed may be able to join the arrangement on a voluntary basis.

Multi-employer pension arrangements have advantages over single-employer arrangements that may encourage a broader range of employers to offer a pension plan to their employees, in particular small employers. They also bring challenges. Table 2.3 shows that these advantages and challenges vary slightly depending on the model.

Table 2.3. Main advantages and challenges of multi-employer pension arrangements

	Representative model	Financial institution model
Advantages	Reduce costs through economies of scale
	Reduce the administrative burden on employers
	Improve plan governance
	Provide more diverse investment opportunities
	Improve portability
	Can be run by non-for-profit institutions
	Can fit the needs of workers in the industry
Challenges	Provide fewer options to employers to tailor the plan to their needs
	May not prevent unequal participation rates across different types of workers when participation is voluntary
	Governing body less representative of specific employers and employees
	Employers can be negatively affected by the behaviour of other participating employers
	Exclude employees outside collective agreements
	Contribution rates may be low
	Members of the governing body may lack sufficient skills and knowledge
		Economies of scale may not be passed on to employers and plan members
		Small employers may be excluded, charged higher prices or provided with fewer options
		Transition may be complex

Countries contemplating multi-employer provision of asset-backed pension plans may consider introducing a mix of different models so that they complement each other to provide access to all types of employers and workers. On the one hand, while multi-employer pension arrangements established by employer and employee representatives through collective agreements can cover a wide range of employers and employees across sectors and industries, they tend to exclude employers not covered by collective agreements as well as the self-employed. Multi-employer pension arrangements established by financial institutions and by associations of self-employed workers may fill that gap. On the other hand, multi-employer pension arrangements established by financial institutions can cover a wide range of unrelated employers but may not serve well small employers. Multi-employer pension arrangements established through collective agreements in industries with many small employers or public providers of last resort could better serve the needs of small employers.

References

[5] COVIP (2023), Supplementary pension funds in Italy at end-2022: Main data, https://www.covip.it/sites/default/files/relazioneannuale/supplementary_pension_funds_in_italy_at_end_2022_-_main_data.pdf.

[6] Jessoula, M. (2018), “Pension multi-pillarisation in Italy: actors, ‘institutional gates’ and the ‘new politics’ of funded pensions”, Transfer: European Review of Labour and Research, Vol. 24/1, pp. 73-89, https://doi.org/10.1177/1024258917748275.

[7] Munnell, A., J. Aubry and C. Crawford (2017), Multiemployer pension plans: Current status and future trends, Center for Retirement Research at Boston College, https://crr.bc.edu/wp-content/uploads/2017/12/multiemployer_specialreport_1_4_2018.pdf.

[2] OECD (2023), Annual survey on financial incentives for retirement savings, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/asset-backed-pensions/Financial-incentives-retirement-savings-2023.pdf.

[1] OECD (2022), “How best to involve employers in the provision of asset-backed pension arrangements”, in OECD Pensions Outlook 2022, OECD Publishing, Paris, https://doi.org/10.1787/41f6fe2a-en.

[3] OECD (2022), Strengthening Asset-backed Pension Systems in a Post-COVID World, OECD Publishing, Paris, https://doi.org/10.1787/288cb3cf-en.

[4] Productivity Commission (2018), Superannuation: Assessing Efficiency and Competitiveness, Inquiry Report, https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report/superannuation-assessment-overview.pdf.

[8] Sigedis (2021), La constitution d’une pension complémentaire chez les salariés en Belgique: Participation et montant des cotisations en 2019, https://pensionstat.be/file/cc73d96153bbd5448a56f19d925d05b1379c7f21/e32f207825d09109e17dcd1037e39cd8c11c0315/Rapport%20th%C3%A9matique,%20La%20constitution%20d%E2%80%99une%20pension%20compl%C3%A9mentaire%20chez%20les%20salari%C3%A9s%20en%20Belgique.pdf.

Notes

← 1.  Pension arrangements pooling multiple employers may have different names in different countries, such as industry funds, multi-employer plans, multiple-employer plans, pooled employer plans, group personal pensions, or master trusts. This chapter uses the term “multi-employer pension arrangements” to encompass all.

← 2.  The term “financial institution” does not imply that all financial institutions establishing multi-employer pension arrangements are for-profit.

← 3.  In some cases, pension administration and asset management may be carried out by different pension services providers, such as in Korea.

← 4.  In the case of publicly promoted occupational pension funds, the Special Control Commission is in charge of supervising all pension funds and comprises members appointed by a public body on the proposal of the most representative trade union organisations, the most representative employers' organisations and the Ministry of Inclusion, Social Security and Migration.

← 5.  When the worker earns more than EUR 27 000, the deduction applies to the proportional part of the employer contribution that corresponds to a remuneration at that threshold.

← 6.  In Italy, employers may decide not to use a national labour contract, but this is rare.

← 7.  In Sweden, collective agreements usually apply to non-unionised employees, except when the agreement states otherwise.

← 8.  In Spain, a simplified plan sponsored by an association of self-employed workers may not restrict membership to workers who are members of the association.

← 9.  See https://www.nestpensions.org.uk/schemeweb/nest/employers/set-up-your-workplace-scheme/how-to-sign-up/what-you-need.html.

← 10.  Each employer has its own, separate section in the master trust.

← 11.  By contrast, competition between financial institutions may lead some of them to offer features below market price to attract employers. However, they may have issues to deliver.

← 12.  In Australia, some industry superannuation funds also tend to offer more bespoke options to larger employers.

← 13.  The SECURE Act created a statutory exception to that rule for certain types of multiple employer plans from 2021.

← 14.  Another potential explanation is that employers participating in sector or industry-wide plans may agree on the smallest common denominator for the contribution rate. It may be difficult for employers of different sizes and with different interests to agree on a common contribution rate.

← 15.  For example, some plans may include with-profit annuities that are no longer sold in the market.