By Cyril Tuohy
Retirement plans for academic faculties and staffs working at higher education institutions outperform the corporate sector due to automatic enrollments, default contribution rates and plan changes in plan design, according to a new study by Transamerica Retirement Solutions.
The average deferral rates for faculty and staff among the institutions interviewed for the survey was 13.4 percent. By comparison the average pretax deferral rates for the corporate sector were between 5.5 and 7 percent.
By the end of the year, usage of automatic enrollment in higher education savings plans will increase to 57 percent and usage of automatic deferral increases will shoot up to 17 percent, according to the Transamerica report.
“Through plan design features like automatic enrollment and automatic deferral increases, plan sponsors are able to positively drive better retirement savings outcomes for their faculty and staff,” Danny Carr, vice president and national practice leader of higher education for Transamerica Retirement Solutions, said in a news release.
Among the 90 higher education sponsors of 403(b) and Roth 403(b) retirement plans in the survey, 41 percent offer automatic enrollment options.
Carr said that changes to higher education retirement plans over the past two years have included offering participants more options, like adding the Roth 403(b) variant. After tax contributions into a Roth 403(b) are withdrawn tax-free.
“We’re encouraged to see these institutions improving the potential for retirement security of their faculty and staff by adding important plan features like auto enrollment and escalation, hiring advisors and improving education,” Carr said.
Corporations are also adding automatic enrollment options for workers. In 2011, 45.9 percent of profit-sharing and 401(k) plans offered automatic enrollment options, up from 23.6 percent in 2006, and 55.2 percent offered automatic escalation of deferrals, up from 31.2 percent in 2006, according to the Plan Sponsor Council of America.
Transamerica Retirement Solutions conducted the survey last December and collected data from 58 public and 32 private institutions, the majority of which were four-year colleges.
Cyril Tuohy is a writer living in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].
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