By Cyril Tuohy
Colleges and universities are streamlining their 403(b) and Roth 403(b) retirement plans, and higher education institutions are about evenly split between institutions using a single retirement plan provider and those using multiple providers, according to a report from Transamerica Retirement Solutions (TRS).
The change is taking place as many colleges and universities look to cut plan administrative costs and shift from individual to group contracts with plan providers, and because of changes to the Employee Retirement Income Security Act (ERISA), the report said.
Brodie Wood, vice president and national practice leader, not-for-profit for TRS, said that like for-profit businesses, colleges and universities must cut costs while maintaining their services.
“The survey indicates the growing trend is these institutions are actively seeking retirement plan providers that can administer all their retirement plans to achieve administrative efficiencies and cost reduction,” he said in a news release.
A decade ago, it was more common for a school to rely on several retirement plan companies to administer their 403(b)s. Today, however, only 52 percent of schools use a single retirement plan company, the report found.
In addition, 44 percent of higher education institutions with more than one retirement plan vendor rely on only two vendors, the survey of 90 institutions also found.
Only 31 percent of schools offer individual contracts, and 28 percent have abandoned individual contracts completely, the TRS report said. “Exclusive use of individual contracts occurs more often among smaller institutions (43 percent) and those not using an advisor (37 percent),” the report said.
School employees also have fewer investment options than they did several years ago. On average, staff has access to 21 investment options, whereas as school employees once had access to “hundreds of choices,” according to TRS. Fewer choices are due to 2009 changes in ERISA, TRS also said.
Colleges and universities are often attractive to companies that manage retirement plans because above-average numbers of college and university employees contribute to their plans, and do so at higher-than-average contribution rates.
On average, employees defer 13.4 percent of pay in their defined contribution plan.
Many institutions also offer benefits to part-time workers, and age and service requirements are often nonexistent. In addition, as many as 88 percent of all colleges and universities contribute to employee plans.
The 403(b) is the nonprofit sector’s 401(k) equivalent in the corporate sector.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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