PEPs Demonstrate Benefits for University Plan Sponsors

When it comes to higher education institutions, pooled retirement plan structures offer a wide range of benefits, including exposure, as well as fewer administrative functions and more opportunities to provide educational resources, according to new research.

Pooled employer plans are more likely than single-employer plans to enable university faculty and staff, particularly for those who work part-time, to take part in retirement plans; as found in a recent study, “Retirement Plan Trends in Higher Education 2023,” by Transamerica Corp.

According to a survey of 99 respondents from multiple different educational institutions, Transamerica was able to discover that 83% of institutions had a majority of their participants in a single-employer plan, although only 13% reported most of their participants make use of a pooled solution.

The survey included responses from institutions offering 457(b), 403(b), 401(k), and 401(a) defined contribution plans. It was found that 87% of respondents offered a 403(b) plan, while 13% offered a 401(k) plan. Senior Vice President at Transamerica, Laura Gaynor, suggests that there can be an overlap since some providers may be offering more than one type of plan.

Pooled 403(b) Plans Face Slow Acceptance Despite Clear Advantages

Most institutions that offer a single-employer plan responded that they have not ventured into the possibility of a pooled solution and have no intentions of doing so despite the benefits that come with pooled plans. A significant factor to consider, stated by Gaynor, is that certain pooled employer plans for 403(b)s have only been available since the 2022 passage of the Secure 2.0 Act.

“Like pooled solutions in the 401(k) space, which took time to get traction, we expect the same here,” Gaynor says. “Additionally, there are some nuances in the 403(b) space that need to be considered, such as individual contracts and information sharing.” It was found that most institutions that have chosen to join a pooled solution did so because of lower costs and less administrative responsibilities. Supporters of pooled plans contend that they can provide workers with lower 401(k) fees, diminish liability, and enable employers to delegate plan operations. Additionally, they may offer features not typically available through a single-employer plan, including both insured and non-insured retirement income options.

Retirement Readiness Concerns | Pooled Solutions Emerge with Urgency

71% of institutions expressed concern about the retirement readiness of their soon-to-be retirees. This percentage was slightly lower for plan sponsors that provide pooled solutions, though, as 62% of them consider it to be an urgent problem. Meanwhile, 77% of sponsors of pooled solution plans said they were extremely or very concerned about how inflation would affect their retirement savings.

Sponsors of pooled plans have also reported feeling more accountable to participants’ financial security than sponsors of single-employer plans. Furthermore, according to 23% of pooled sponsors, they were worried about the individual participants’ debt levels. “Household budgeting, spending, and saving level” was identified by the majority of pooled sponsors (62%) as one of the participants’ top challenges. The report stated that, “The level of concern expressed by higher education pooled solution sponsors about faculty and staff financial well-being may indicate recognition of the value of pooled solutions in mitigating the fiduciary burden associated with retirement plans.”

Transamerica argued that by choosing a pooled approach to fiduciary concerns, employers could be more free allowing them to concentrate more on offering benefits related to financial wellness rather than worrying about how to manage their retirement plans. Another important document that plan advisors often draft is an investment policy statement, which can influence the plan’s investment decisions. 65% of the institutions stated they use pooled solutions, even though there are still plans without an IPS.

Since fiduciary support is a common feature in pooled structures, it is not surprising that all plan sponsor respondents in a pooled solution mentioned using a financial advisor or consultant. Transamerica claims that advisors and consultants for plans are essential for universities, beginning with assessing if a pooled solution is appropriate in the first place. Plan sponsors of higher education institutions may want to take into consideration pooled options for 403(b) plans, as they can reduce costs and administrative burdens.

Sources :
Advisory Services offered through The Ascent Group, LLC, an SEC-registered investment adviser. Securities offered through Triad Advisors, LLC, Member FINRA/SIPC. The Ascent Group, LLC; Alera Group, Inc.; Summit Group of Virginia, an Alera Group Company; and Summit Group 401(k) Consulting, an Alera Group Company, are not affiliated with Triad Advisors, LLC. Representatives do not provide tax or legal advice. Please consult with your tax advisor or attorney regarding your situation. 

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