A Plan Sponsor’s Wellness Mission Spurs Retirement Plan Changes
A Need for Change
Since the IRS issued new 403(b) regulations in 2009, many public universities have established a fiduciary process for their retirement plans. The updated 403(b) regulations reinforced that a plan sponsor is the fiduciary for the plans they offer, not the recordkeeper(s). This was news for many retirement plan sponsors at public universities, who traditionally offered multiple recordkeepers by design (to provide choice) or by state law (“payroll slots”). Since the updated 403(b) regulations were issued and the availability of open architecture recordkeeper investment platforms, most public universities have begun to reduce the number of recordkeepers offered to take advantage of economies of scale and to offer plan participants a more streamlined set of investment options to improve fiduciary oversight and simplify the participant’s investment selection process.
Like many of their public university counterparts, Oklahoma State University (OSU) found itself with multiple recordkeepers (10) available for its retirement plan. OSU identified the need for a transition from multiple recordkeepers to a single vendor through a wellness mission on its campus. The “wellness wheel” they developed included traditional areas of wellness, but also had a financial wellness component. Quoting Henry Albrecht, a thought leader in wellness engagement and incentive management, “Investing in financial wellness boosts the overall well-being of employees, increasing their health, productivity and engagement.” Many employees are stressed financially, trying to pay off student loans, purchasing a home, putting kids through college and helping care for elderly parents. Albrecht’s message was fundamental in steering the campus committee to take a deep dive into the retirement plan.
The Transition Process
With 10 recordkeepers, the OSU plan was not efficient. One plan had more than 80% of the plan assets, there were 282 investment options for plan participants from which to choose, and no limit on the number of loans permitted. Plan administration was decentralized across multiple campuses, fiduciary responsibilities were not clear, and there was no transparency in the fees being charged by the recordkeepers.
OSU decided to tackle this endeavor by establishing a transition team. A dedicated administrative team was appointed, and employees were given time off from some of their normal duties to allow them to focus on the task at hand. Duties not performed were backfilled by other staff, which allowed for growth opportunities for staff stepping in to cover the backfill duties. In addition to the transition team, an investment advisor/consultant was hired and a retirement committee was established. Working together, a recordkeeper search and selection process was conducted and a single recordkeeper was chosen.
Communication & Engagement
Making administrative decisions was not easy, but the harder part of this transition was the need to communicate the upcoming change to employees. Employees needed to know why the change was taking place and how it would affect them going forward. OSU utilized focus groups, surveys, videos, webinars and workshops to engage employees on the retirement plan transition. OSU developed a custom brand for its retirement plan and produced a transition guide to facilitate employee understanding of the new plan options available to them. The recordkeeper provided a microsite to employees for online information and offered onsite employee meetings (group and one-on-one) to assist employees with enrollment, investment advice and potential consolidation of their OSU retirement accounts.
To further engage employees on their financial well-being, OSU utilized gaming to increase employee education and outcomes. Competitions were held across campuses, results were tracked, and prizes were offered to the campus with the highest level of participation.
OSU reduced the number of recordkeepers from 10 to 1. The number of retirement contracts being utilized was reduced as well. A loan policy was developed, allowing plan participants to have only two loans at any given time. To make the plan more efficient and to improve plan economics, a small balance cash-out provision was added. These provisions resulted in larger average account balances for current employees and lower recordkeeping fees. Additionally, the number of investments offered was reduced from 282 to 22, making investment choices clearer for each asset class.
In summary, OSU established a fiduciary process for its retirement plan. The need was derived from a deep dive into financial wellness for employees. When employees are provided a more focused retirement plan offer and fewer funds to choose from, better outcomes can be expected. Lower recordkeeping and investment fees can provide higher retirement account balances, thus improving retirement readiness. Helping relieve the financial stress employees encounter can also be an improvement to their overall well-being.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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