Retirement plan sponsors in higher education look at new strategies, offerings after pandemic's pummeling

The COVID-19 pandemic has had a notable impact on higher education institutions and their employees, and as a result, retirement plan decisionmakers are looking to bolster their financial wellness plans to help employees feel more in control of their finances. In addition, as plan sponsors seek to reduce complexity and lower fees and costs, provider consolidation is expected to accelerate.

These are findings of Voya Financial’s report: “Lessons Learned on the Management of Higher Education Retirement Plans During Challenging Times.” The report polled 297 retirement plan decisionmakers at both public and private higher education institutions that offer a retirement plan.

Nearly all (87 percent) of plan decisionmakers polled said they expect the pandemic will have a significant impact on their employees’ retirement readiness, according to the report.

Forty-one percent of respondents said they reduced or stopped their regular employer contribution as a result of COVID-19, and an additional 43 percent are considering doing so, making it more challenging for employers to encourage employees to increase their plan contributions.

Those with a defined benefit plan were more likely to have stopped contributions, according to the report.

As a result, plan sponsors indicated they expect to place a greater emphasis on improving their employees’ financial wellness in the near future.

About three-quarters of respondents said they already offer a financial wellness program focused on retirement planning, investing and budgeting.

Many respondents said they plan to expand those offerings over the next year to include tools such as assistance with debt management, one-to-one advisory support, online tools and calculators, and help with health savings accounts.

About half of respondents said they’d like more help from their provider to improve the financial wellness of their employee population.

The pandemic has also increased interest in and accelerated adoption of remote education tools, including one-to-one support using virtual meetings and online group meetings, according to the report.

Education plan sponsors are also highly interested in providing assistance with planning for caregivers and employees with special needs or disabilities as well as helping with budgeting and financial management.

Most (80 percent) of higher education institutions have a relationship with just one plan provider, although those with more than $50 million in plan assets are more likely to work with multiple providers to give employees plenty of options.

Among those who do work with more than one provider, about 60 percent say they are at least somewhat likely to reduce that number in the near future, citing concerns about complicated plan administration and fiduciary responsibilities when working with multiple providers. Consolidation can simplify plan administration, streamline processes, and potentially reduce costs and fees, according to the report.

Keeping up with regulatory changes is the top challenge reported by plan decision makers– and nearly half of respondents said they rely on a plan advisor or consultant to help with fiduciary responsibilities.

Those who do not currently use a plan consultant or advisor expressed interest in using one for cost and fee assessment, help with fiduciary responsibilities, and plan compliance.

Motivating employee participation and contributions is another challenge plan sponsors cited. The report noted auto features, including automatic enrollment, automatic deferral escalation, “stretch the match,” and annual re-enrollment tools help drive better participant outcomes.

In addition, the report noted a recurring re-enrollment process can encourage long-term employees who have previously opted out of the plan or those who may have stopped contributing to a plan due to the pandemic to get back on a retirement savings path.

While 40 percent of higher education retirement plans include an auto-enrollment feature, most employees enter at a default 3 percent contribution rate, said the report.

Only about 19 percent of respondents said their average contribution rate exceeds 6 percent, a situation Voya said employers can remedy by implementing auto-escalation features with higher caps.

Recent regulatory changes in the Setting Every Community Up for Retirement Enhancement (SECURE) Act encourage sponsors to raise the escalation cap from 10 percent to 15 percent so workers can save at a higher level for better retirement outcomes, the report said.

Respondents indicated they are primarily interested in participant retirement readiness as an indicator of their plan’s success. As such, about 40 percent of plan sponsors are considering adding a guaranteed income option or auto-enrollment feature to their plan.

About two-thirds of plans offer a matching contribution.

Other popular plan features among higher education institutions include loans, managed accounts and environmental, social and governance (ESG) fund options.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.

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