Only 6% of Higher Ed Institutions to Join Pooled Plan Solutions

Transamerica

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A new report issued today by Transamerica analyzes how pooled plan provisions under SECURE 2.0 could increase retirement readiness for higher education institutions, finding that only a short number are planning to implement one soon.

Transamerica’s research reports that the majority (86%) of plan participants in higher education institutions are enrolled into single employer plans (SEPs), with 6% of institutions considering a pooled solution, and 9% planning to explore one soon. Nearly one-in-five (19%) of faith-based institutions said they plan to look into pooled solutions in the future.  

The brief, “Examining Pooled Plan Arrangements in Higher Education,” uses data from Transamerica’s 2023 higher education survey to examine how pooled retirement plan solutions can support universities, and surveyed 99 respondents from 58 public, 17 faith-based, and five for-profit institutions who were enrolled in either 457(b), 403(b), 401(k), and 401(a) defined contribution (DC) plans.

The report focuses on several types of pooled plan arrangements, including pooled employer plans (PEPs), group of plans (GoPs), and multiple employer plans (MEPs).

Increased access

Institutions, who typically employ part-time and full-time staff, face similar retirement challenges as other plan sponsors, including effectively demonstrating the value of retirement benefits, minimizing risk when offering a plan, and enhancing participant engagement, notes Transamerica.

Data from the organization found that part-time workers were likelier to participate (62%) in a pooled plan compared to single-employer plans (SEPs), where 49% of part-time staff and 48% of adjunct or part-time faculty may participate.

When asked why they chose to join a pooled solution, most plan sponsors cited lower costs (47%), administration assistance (47%), and fiduciary liability (41%) as their top reasons. Another 29% also said they received better service when enrolling into a pooled plan.

While higher education institutions who participate in a pooled solution were more likely to consider adding automatic enrollment within the next 12 months than SEPs (15% vs. 9%), these institutions overall were less likely than SEPs to automatically enroll participants (31% vs. 40%).

According to Transamerica, among plans using automatic enrollment, pooled solutions are more aggressive about their default contribution rate than their SEP counterparts, with 50% of pooled solutions auto-enrolling at 5% of compensation.

The most common default contribution rate for SEPs was 3% of compensation (34% of respondents), followed by 22% of respondents who set their default rate lower than 3%. Just 35% of SEPs said their default contribution rate is 5% or higher, and 6% were unsure.

Advisor’s impact

Transamerica’s report shows that plan sponsors, especially those enrolled into a pooled solution, depend heavily on financial advisors to act as a fiduciary and support them and their participants.

According to the survey, all plan sponsors who join a pooled solution use an advisor or consultant. The data shows that plan advisors act as 3(38) investment managers for 42% of pooled solutions and 25% of SEPs; 58% have a 3(16) administrative fiduciary, while another 58% have a 3(21) fiduciary investment advisor.

Among institutions whose largest plan is a SEP, 30% have a 3(16) administrative fiduciary and 34% have a 3(21) fiduciary investment advisor.

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