Delivering Retirement Benefits to Healthcare and Higher Education Employees
Recently I had the pleasure of speaking at a Pensions and Investments webinar with David Kaleda of Groom Law Group and Michael Davis of T. Rowe Price. The webinar examined best practices for delivering retirement benefits to higher education and healthcare employees and provided a goldmine of information for plan sponsors and those who work with them, and I’m not just saying that because I was a speaker! Some key takeaways from that webinar were as follows:
- Having a single primary retirement plan with a sole recordkeeper used to be ahead of the curve. Now, having multiple plans/recordkeepers is likely well behind it. — Increasingly, plan/recordkeeper consolidation has become the norm. It is easy to see why; though there is a lot of work involved, few, if any, higher education/healthcare plan sponsors have regretted their decision to consolidate. For these sponsors, consolidation has greatly reduced costs, simplified compliance, and enhanced the participant engagement experience.
- It has become increasingly important to “meet employees where they are” when it comes to retirement plan engagement — Employees are not going to save or otherwise act unless plan sponsors and their recordkeepers make it easy for them to do so. This means meeting them where they are, whether that is in-person, on the internet, in an app, or via text message. The message also needs to meet the employees where they are in terms of content related to their individual circumstances. For example, a millennial who believes that they cannot save for retirement due to crushing student loan debt requires very different content than, say, an employee who is closer to retirement and more focused on the timing of that event and the decumulation of assets.
- Employees nationwide have a greater interest in financial health, often due to poor financial circumstances. — This interest is directly related to retirement savings, since many employees believe that they simply cannot afford to save for retirement. If such employees were provided assistance with student loan repayments, debt management and budgeting, such assistance can have a direct impact on retirement savings. Thus, retirement plan sponsors—and the recordkeepers who work with them—are becoming increasingly involved with these areas.
- Don’t sleep on your investment policy statement (IPS). — More and more plan sponsors are adopting such statements, but not fully incorporating them into their governance process. The IPS is only as good as the plan sponsor who follows it, so committees should be paying close attention to this document to ensure that it fully conforms with the review process.
- Fees are important, but low fees are not a panacea. — Even in the litigation that has been focused on retirement plan fees, plan sponsors are not obligated to always choose the lowest-cost recordkeeper, or the lowest-cost fund. And, in actual process, value is important; if your retirement plan’s fees are low, but your plan’s asset growth and median account balance are well below your peers due to low participant utilization, then you may be doing your employees a disservice, especially if, as a result, they are not financially prepared to retire.
- The number of investments in healthcare/higher education retirement plans continues to decrease. – Not a surprising development due to ongoing recordkeeper consolidation, but even plan sponsors with a single recordkeeper are streamlining their fund arrays into a best-in-class investment lineup. Often, that means the minimum amount of investments necessary to provide as much asset class coverage as is prudent.
- There is a continued migration from individual annuity contracts/custodial agreement to group contracts. — There is a simple reason for this trend: control. With individual contracts, plan sponsors don’t have it, which makes it difficult for them to fulfill their fiduciary responsibilities with respect to such plan assets. Although, by definition, employers cannot fully divest themselves of such contracts, they can “stop the bleeding” by restricting future contributions to group contracts only.
- As plans mature and more employees enjoy larger account balances as they approach retirement, there has been a greater emphasis on decumulation. — As recently as a few years ago, there was little discussion amongst plan sponsors and recordkeepers regarding helping to ensure that those who are retiring are able to spend down their assets in a prudent fashion. However, many large plan sponsors are now working with their recordkeepers on decumulation strategies, including retirement income solutions such as annuities, bond-ladders, target-date funds, and endowment-like solutions.
- Collective Investment Trusts (CITs) could be a viable investment option sooner rather than later for 403(b) plans. — Some public higher ed entities have already piloted CIT offerings, and efforts are underway to convince Congress and/or the SEC that ERISA-covered 403(b) Plans should be allowed to invest in CITs as well (current investment by ERISA 403(b)s in CITs is complicated by securities law and SEC requirements).
- Litigation continues to be a threat. — Over 20 retirement plan lawsuits involving healthcare/higher education organizations have been filed, and it would not be a surprising development if the number of cases continues to grow. Plan sponsors should continue to follow these cases closely and work with counsel to adjust their governance procedures accordingly if necessary.
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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