Pooled Plans Demonstrate Benefits for Higher Education Plan Sponsors

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For higher education institutions, pooled retirement plan structures offer a plethora of benefits, such as exposure, fewer administrative functions and additional opportunities to provide educational resources, according to new research.

Transamerica Corp.’s recent study, “Retirement Plan Trends in Higher Education 2023,” found that pooled employer plans are more likely than single-employer plans to enable university faculty and staff, especially those who work part-time or as adjuncts, to participate in retirement plans. According to survey results, that is largely because simplified employee pension plans—SEPS—are less likely to extend to these workers.

Transamerica found that 83% of institutions had most of their participants in a single-employer plan, whereas only 13% reported most of their participants utilizing a pooled solution, according to the survey of 99 respondents from a variety of higher education institutions.

The survey included responses from institutions offering 457(b), 403(b), 401(k) and 401(a) defined contribution plans. Specifically, 87% of respondents noted that they offered a 403(b) plan, with 13% offering a 401(k) plan. Laura Gaynor, a senior vice president at Transamerica, says via email that there could be an overlap, as some providers may offer more than one type of plan.

Despite Advantages, Uptake is Slow

Despite the benefits of pooled plans, most institutions offering a SEP responded that they have not explored the possibility of a pooled solution and have no plans to do so. Gaynor says certain pooled employer plans for 403(b) plans have only been available since last year’s passage of the SECURE 2.0 Act of 2022, so this is a significant factor to consider.

“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.”

Asked why they had chosen to join a pooled solution, the majority of institutions who reported having done so identified lower costs and less administrative responsibility.

Proponents of pooled plans argue they can offer lower 401(k) fees for workers, reduce liability and allow employers to outsource plan operation. They can also offer some features a company might not offer through a SEP, such as insured or non-insured retirement income options.

Financial Wellness Concerns In Higher Ed

According to the report, 71% of institutions reported concern about retirement preparedness for their near-retirees. However, this figure was slightly less for plan sponsors offering pooled solutions, of whom 62% see it as a pressing issue. Meanwhile, 77% of pooled solution plan sponsors expressed they were very or extremely concerned about the impact of inflation on retirement savings.

Pooled plan sponsors also expressed feeling more responsible for the financial well-being of participants than SEP sponsors. In addition, 23% of pooled sponsors said they were extremely concerned about the personal level of debts of their participants.

The majority (62%) of pooled sponsors also cited “household budgeting, spending and saving level” as one of the most pressing challenges for their participants.

“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,” the report stated.

Transamerica argued that selecting a pooled solution to address fiduciary concerns may allow employers to focus more on providing financial wellness benefits, rather than spending time worrying about the management of their retirement benefits.

An investment policy statement, often produced by plan advisers, is also particularly important, as it can guide the plan’s investment decisions. While there are still plans with no IPS, 65% of institutions reported that they have one, and among pooled solutions.

All plan sponsor respondents in a pooled solution cited using a financial adviser or consultant, likely because pooled structures typically include fiduciary support. According to Transamerica, plan advisers and consultants play a critical role for higher education institutions, starting with evaluating whether a pooled solution is a good fit in the first place.

With pooled options now available for 403(b) plans, plan sponsors of higher education institutions may want to consider them to ease administrative burdens and lower costs.

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