If the smart guys use 401(k) and 403(b) advisors, shouldn’t everyone?
To stay competitive with other employers, colleges and universities are turning to plan advisors to help turn their retirement benefits into more effective recruitment and retention tools for top talent.
According to a research report released Wednesday by Transamerica Retirement Solutions, institutions of higher learning that rely on a plan advisor are far ahead in terms of retirement readiness of employees, approach to investment selection, plan design and adoption of innovations such as automatic enrollment, ability to allow loans and range of services outsourced to the recordkeeping service provider.
“To better help their employees prepare for retirement, more higher education institutions are looking to hire advisors than ever before,” Brodie Wood, senior vice president of not-for-profit markets, Transamerica Retirement Solutions, said in a statement. “Our report shows that 38 percent are looking to hire an advisor in next 12 months.”
The Advisor’s Role
The research report, titled “Retirement Plans for Institutions of Higher Education,” finds higher education institutions primarily rely on their plan advisor to assist with investment selection, investment monitoring and plan compliance. For instance, four in five institutions with advisors tend to have an investment policy statement in place (81 percent), compared to 56 percent for plan sponsors that do not have an advisor. Smaller institutions (5,000 or fewer participants) tend to often rely on their advisor for an even broader range of services, such as acting as a plan fiduciary or assisting with plan design changes.
Higher education institutions that hired advisors had them play a stronger role in 2015 than in 2014, as more institutions had advisors engaged in investment selection (61 percent in 2015 vs. 40 percent in 2014), ongoing investment monitoring (55 percent vs. 31 percent), plan compliance (50 percent vs. 42 percent), development of the investment policy statement (36 percent vs. 22 percent) and selection of vendors (25 percent vs. 11 percent).
Benefits of Hiring an Advisor
Advisors have been instrumental in helping higher education institutions improve retirement readiness, increase employee matches and institute auto-enrollment. Institutions with plan advisors also are more likely than others to:
- Monitor retirement preparedness of staff and faculty (63 percent vs. 39 percent).
- Expand eligibility for part-time staff and faculty (28 percent vs. 19 percent).
- Invite part-time staff to participate (20 percent vs. 9 percent).
- Outsource services such as paperless enrollments (26 percent vs. 18 percent) and loan approval (35 percent vs. 24 percent).
As a result, institutions with plan advisors are more likely than others to show average participant contributions of $5,000 or more (56 percent vs. 37 percent) and to have more than half of their employee population on track for a successful retirement (41 percent versus 36 percent). As a result, most plan sponsors who use an advisor are very satisfied (56 percent) or somewhat satisfied (35 percent).
“We’ve seen advisors make important recommendations about plan design that can go a long way in helping more employees join the plan and save for retirement,” Wood continued. “Now more higher education institutions are recognizing how advisors are able to help employers make the retirement plan a more effective benefit.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
