A new study on retirement plans in higher education institutions likens the past year’s challenges to those during the COVID-19 pandemic and highlights how continuing economic fallouts has marred retirement planning for participants.
According to Transamerica’s latest Pulse survey, 71% of institutions say retirement preparedness is one of their top concerns, yet 86% cite cost of living and inflation as their leading worry. Other reported pressing issues include saving for healthcare (65%), household budgeting and saving (54%), basic money management (44%), comprehensive financial planning (44%), child and elder care (36%), and saving for children’s education (35%).
On average, institutions said they feel “somewhat concerned” over participants’ retirement readiness. This was more prominent among faith-based institutions, who reported feeling highly concerned about offering the right services for those nearing retirement (53%) and about participants’ contribution levels (53%).
Additionally, 61% of all respondents said motivating faculty and staff to save for retirement was one of their primary challenges in managing a retirement plan. When broken down by plan type, 68% of institutions whose largest plan is a 403(b) say motivating savings is a top concern, compared to 36% for 401(k) plans, 33% for 401(a) plans, and 25% for 457 plans, reported Transamerica.
“While higher education institutions provide successful retirement plans and financial wellness programs, there is still more work to do,” said Laura Gaynor, defined contribution practice leader at Transamerica. “To better support their faculty and staff retirement goals, higher education retirement professionals can use this research to find creative ways to encourage plan participation and financial wellness, increase default contributions, implement measures to assess retirement readiness, and explore pooled plan arrangements.”
Transamerica’s research finds that more public and private sector institutions are now likely to offer wellness tools. The public sector is likelier to provide student debt assistance (21% vs. 10%) and basic money management tools (26% vs. 20%), while private institutions are prone to offer financial planning education, seminars, or webinars (52% vs. 26%), health savings accounts (69% vs. 42%), and employee discount programs (66% vs. 42%).
Among not-for-profit institutions, 86% offer reimbursement or assistance programs, along with employee discount programs (72%), health savings accounts (66%), and financial planning education (57%).
Provider relationships
Most higher education institutions (86%) reported working with a financial professional. This figure was higher among not-for-profit institutions and private schools, at 92% and 94%, respectively. All for profit and faith-based plans surveyed said they work with a retirement plan advisor or consultant.
Services offered by a provider ranged from vendor selection and oversight (44%), participant education (70%), and plan compliance (79%).
Only a minor number of institutions (27%) work with multiple providers to administer their retirement plan. Of the 22% of not-for-profit institutions who use several providers, 82% have two and 9% have either three or four. Of 403(b) sponsors who work with multiple, nearly three-quarters (74%) said they utilize the services of two.
Institutions were also surveyed on their relationships with recordkeepers. Fifty-nine percent of schools said their recordkeeper provides a dedicated participant counselor, full-time (13%), part-time (10%), or shared with other institutions (36%). At 95% of schools, there is one participant counselor provided by the recordkeeper, and 5% have more than one.
TDFs rule as default
The most common qualified default investment alternative (QDIA) used by institutions is the target-date fund (TDF), with 61% of institutions utilizing it as a default. Forty percent of for-profit schools reported using a custom TDF, while 8% of not-for-profit institutions use a managed account as their default investment.
Managed accounts were quite popular among institutions, as 75% say they include them on their investment menu and 3% plan to do so in the future. This was especially true for 403(b) plans, with 75% of ERISA-covered 403(b) plans and 100% of non-ERISA 403(b) plans including them on the investment menu, along with not-for-profit schools at 71% offering or planning to offer managed accounts.
Other popular funds and tools among higher education institutions include ESG funds (with 28% offering them and 7% planning to do so), and lifetime income and annuity options (with 60% currently offering one and 7% planning to).
Responses to Transamerica’s survey came from 99 institutions, including 58 not-for-profit, 19 public, 17 faith-based, and five for-profit institutions. More information on the research can be found here.
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