Higher education institutions are increasingly adopting practices more commonly seen in the corporate sector.
That is the central findings in the “Retirement Plans for Institutions of Higher Education” study from Transamerica Retirement Solutions, which also found that the 403(b) plan is “now often the primary retirement funding tool — if not the only retirement funding tool — available to staff and faculty.”
The study also said that “the retirement plan market of Higher Education institutions, once dominated by a small group of service providers that enjoyed a favored status, is moving in the direction of exclusive arrangements with a single service provider selected for its capabilities and merits.”
The retirement outlook in higher education isn’t great: Just a third of higher education institutions estimate that “half or more of their employees are on track to achieve a successful retirement.”
In other words, that’s just one out of every two employees in only one out of every three institutions of higher learning.
In response, these institutions are increasingly streamlining plans, reducing the number of plans offered (13 percent, compared with 12 percent last year), consolidating investments (11 percent in 2014, compared with 9 percent in 2013) and streamlining recordkeeping for multiple plans (11 percent compared with last year’s 6 percent).
Automatic features also are on the increase, with 44 percent of plans offering automatic enrollment compared with last year’s 41 percent, while 23 percent are offering automatic increases in contributions when last year only 8 percent did so.
But for participants, salary deferral is falling and is nowhere near what retirement experts believe is necessary for successful retirements. In 2013, approximately 56 percent of higher ed employees contributed less than $5,000 to their retirement accounts. In 2014, that number rose to about 67 percent — not a good trend.
The study pointed out that “(t)he decline in employee contribution occurs as many institutions eliminate defined benefit plans or cut the fixed percent of salary they contribute to the plan.”
One way to boost contributions, according to the study, is for these institutions to “emulate stretch-the-match formulas that have proven so successful in other sectors of the economy.”
Lastly, there’s good news for advisors in the report. It found that institutions that partner with a plan advisor are more likely to make changes aimed at improving employees' retirement readiness.
Fifty-five percent of institutions with an exclusive arrangement with a single retirement plan provider monitor the retirement readiness of their plan participants compared to 23 percent of institutions that work with multiple providers, the study said.
Among the institutions that partner with a financial advisor, nearly half estimate that 50 percent or more of their plan participants are on track to achieve a successful retirement. Also of note:
- Institutions not working with an advisor decreased in 2014 (45 percent vs. 48 percent in 2013);
- fifteen percent plan to hire an advisor within the next 12 months vs. 10 percent in 2013).
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