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Colleges narrowing retirement plan options

Regulations now make tax-exempt 403(b) retirement plans more like 401(k) plans
University Business, July 2013

The prospect of employees with more money to invest, easier-to-understand investment options, more personalized customer service, and lower fees has colleges and universities rethinking their retirement plans and moving toward a single retirement services vendor.

When mutual funds became popular in the 1980s and ’90s, many colleges and universities expanded retirement investment plan options for participants. But a different trend has emerged in the last few years, as increasing numbers of institutions are moving to a single-recordkeeper model—which means employees have a single point of contact and one platform for investing.

A major catalyst in moving to that model has been regulations that make tax-exempt 403(b) retirement plans more like 401(k) plans by requiring greater fiduciary oversight by the IRS, says Deborah Pont, a spokesperson for Fidelity.

“Reducing the number of investment options in the plan enables sponsors to simplify decision-making for their participants,” she says. “Institutions are consolidating to streamline their investment offering, simplify their plan administration, and improve savings outcomes for participants.”

David Ray, managing director and national sales manager for TIAA-CREF’s higher education division, notes that historically, sole recordkeeping was unable to offer multiple options from different providers. Now, the prevalence of open architecture software eliminates this shortcoming.

Here’s what having a single retirement recordkeeper looks like at a number of higher ed institutions.

Singles experience
The Pennsylvania State University made the transition to a single retirement-plan recordkeeper in 2011. Susan McGarry Basso, vice president for human resources, says the move has met a number of objectives, including greater institutional compliance with retirement plan requirements, lower fees, and an improved enrollment process for faculty and staff.

“We’ve experienced significant reductions in fees for many funds on the plan’s investment lineup due to increased volume of investment dollars,” Basso says. “Many are at the lowest-fee, institutional share class available. Less fees translates into faculty and staff having more money to invest for retirement.”

Penn State has also seen greater plan participation. “There has been an increase in the number of faculty and staff taking advantage of supplemental savings,” Basso notes. “This can be attributed to on-site group meetings, one-on-one counseling, and dedicated advisors who help our employees understand the importance of saving for retirement.”

After years of working with multiple vendors, Johns Hopkins University is also making a change. The university will move from the current five to three vendors by July 2014, and then to a single one by 2017, says Heidi Conway, senior director for benefits and HR shared services.

Although not dissatisfied with the services provided previously, officials see advantages to reducing the number of providers.

“We know that too much choice can be debilitating,” she says. “Having a streamlined menu that is monitored makes it a lot easier for participants to narrow in on their selection. We think this is a good solution that will benefit our employees.”

The end result will be the JHU Core Menu, which will be monitored by a consulting firm. While there will only be one recordkeeper, employees will still be able to choose from three of the existing vendors. They also can use a “brokerage window,” which gives investors the ability to trade stocks, mutual funds, and other exchange-traded funds that aren’t part of their retirement plan, Conway adds.

At Gettysburg College (Pa.), HR leaders have found they can have it both ways by dealing with a single provider while also adding alternative investment options.
Earlier this year, Gettysburg implemented a new investment platform that has five options from TIAA-CREF along with funds from Vanguard, T. Rowe Price, Eaton Vance and more. An investment committee was formed to evaluate performance, diversity, and the reasonableness of fees. At the same time, TIAA-CREF was selected as the single recordkeeper.

Along with the benefits of having access to outside funds, the college was able to streamline its single-platform menu to reduce some of the fiduciary liability associated with monitoring different funds on different platforms.

Having one recordkeeper helps in allowing campus plan administrators to negotiate reduced fees and provide administrative efficiencies, says Regina Z. Campo, the college’s co-director of human resources and risk management. “By making the decision to work through a single provider and by streamlining the investment lineup to less than 20 investments, we are able to monitor investments much more closely and provide a better experience for participants.”

Mount Holyoke College (Mass.) moved to a single recordkeeper to streamline reporting and better coordinate the execution of regulatory requirements, explains Cindy Legare, benefits manager.

“We also wanted to base the selection of investment options on criteria that measure a fund’s performance, but we did not necessarily want to be limited by the requirement to use a particular vendor’s fund options,” she says. To this end, the college selected ING Financial Partners, a vendor with the capabilities of record keeping other providers’ funds and who could partner in meeting other fiduciary responsibilities.

The results following the move have been positive. “Our participants’ experience has been much better,” Legare says. “The funds offered are selected based on nonvendor-specific criteria, so the participants have expressed that they have more confidence in the advice provided by our vendor’s representatives.”

Retirement readiness
“With the sole-vendor model, the vendor doesn’t have to compete for business,” says Ray of TIAA-CREF. “That means vendors can concentrate on service.”
Such an approach fits well with the needs of campus constituencies.

“From a faculty/staff perspective, the conversation is all about retirement readiness, not a sales pitch,” says Brodie Wood, vice president and national practice leader for not-for-profit plans at Transamerica Retirement Solutions. “The new model is, we’re your administrator; how can we help you get ready for retirement?”

In fact, with some companies, the emphasis on service has led to a new compensation model for retirement plan providers working with colleges. At Transamerica, for example, clients are surveyed and the company reviews the ratings and then awards bonuses to its employees based on service performance, according to Wood.

The single-provider model may also support closer working relationships among campus staff. “We have found that campus administrators are looking for providers that operate as an extension of their HR department and can offer value-added solutions that make it easier for them to administer their plan,” says Jamie Ohl, president of tax-exempt markets for retirement solutions at ING.

Two examples of those efforts by HR are offering employees ongoing updates about regulatory changes and creative suggestions for plan design.

Educational value
Ray says the movement toward single-source providers is timely, considering the influx of baby boomers nearing retirement and their need for information and preparation. “There will be more faculty retirements in the next 5 to 10 years than we have seen in our lifetime,” he says. “Education at this stage matters more than ever before. It’s important to have the right programs in place.”

Johns Hopkins has worked with its recordkeeper, TIAA-CREF, to offer what Conway calls “a really terrific financial education series.” Introduced in 2010, the program has covered the university’s plans, the market, investing, and retirement planning. Some 140 sessions have been offered to date, attracting more than 3,000 attendees and targeting employees at various stages of their careers. Those target audiences include younger employees who are saving now for tomorrow, mid-career employees who need to know if they are on target with savings, and employees nearing retirement who need concrete information about the big transition ahead. Online versions of the information sessions are available, and the series is updated yearly with new topics.

“This has been highly successful and most helpful to our participants,” Conway says. “Participation across all of our employees has increased as a result.”

Smooth transitions
Communication plays a critical role in the transition to a single provider, says Basso. In Penn State’s case, a detailed brochure called “The Power of One” announced the change to the entire faculty and staff.

“The brochure highlighted how a single retirement plan helps participants pursue their savings goals,” she says. HR also delivered this message through live and recorded webinars and face-to-face meetings between plan participants and vendor representatives.

“When considering consolidation of vendors and/or funds, communicate with your participants early and often,” says Legare.
Once any plan is in place, working closely with providers is paramount.

“The financial vendors have a lot to offer and they can be great partners,” says Conway. “Developing a strong partnership with them can go a long way and will help guide the tools and education that are right for your employees. Ultimately, we will have more employees that are more prepared for retirement.”

Eaton Vance Investment Managers,
ING Financial Partners,
ING Retirement Plans,
Johns Hopkins Financial Education Series,
“Plan Design in Higher Education” (Fidelity),
“Prepared for a Lifetime: Managing Your Plan to Drive Retirement Readiness,” (TIAA-CREF),
“Recordkeeping Options and Retirement Readiness (TIAA-CREF),”
TIAA-CREF 403(b) Resource Center,
Transamerica Retirement Solutions,
T. Rowe Price,