Data & Research November 18, 2013

Higher Ed Plans Streamline to Save

Higher education institutions across the U.S. are enacting plan consolidations and refining features to drive down costs, a Transamerica report shows.
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The report from Transamerica Retirement Solutions, called “Retirement Plans for Institutions of Higher Education,” shows colleges and universities are cutting the number of service providers they use to ease administrative burdens and reduce plan costs.

Between five and 10 years ago, the report shows, higher education institutions largely relied on multiple providers for retirement plan management. Today, institutions are almost evenly split among those using a single provider (52%) and those with multiple providers for 403(b) plans.

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“Like most companies and organizations, institutions of higher education are challenged with the task of reducing costs and creating efficiencies without experiencing loss in service,” says Brodie Wood, vice president and national practice leader of not-for-profit clients at Transamerica. “The survey indicates the growing trend is these institutions are actively seeking retirement plan providers that can administer all their retirement plans to achieve administrative efficiencies and cost reduction.”

The trend has led many higher education institutions to shift to a consolidated contract structure, with many institutions moving from individual to group contracts. According to the report, less than one-third of higher education institutions offer only individual contracts (31%), and almost as many have completely abandoned individual contracts (28%).

Other report findings show institutions are also reducing plan investment options. Historically, institutions have offered nearly unlimited options, which left employees the task of evaluating hundreds of choices. Today, staff and faculty can access an average of 21 investment options.

This narrowing of investment options has been driven, in part, by Internal Revenue Service regulations that established an oversight requirement for 403(b) plans in 2009, the report shows.

“This consolidation helps [institutions] streamline costs and eliminate account fees for all plan participants,” Wood says.

To request a copy of “Retirement Plans for Institutions of Higher Education,” email marketinsights@transamerica.com or call 888-401-5826.

The Markets November 18, 2013

Council Seeks to Clarify PBGC Deficit

The American Benefits Council wants to clarify possible misconceptions surrounding deficit information from the Pension Benefit Guaranty Corporation (PBGC).
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The PBGC recently released its annual report, which mentions a $36 billion deficit for the 2013 fiscal year. It also mentions that the deficit for its multiemployer insurance program grew by $3 billion (see “PBGC Deficit Grows to $36B”).

“The agency’s reported deficit is a projection based largely on unrealistic assumptions and does not reflect the actual health of the PBGC or the defined benefit pension system. It certainly should not be used to justify raising premiums, yet again, paid by pension plan sponsors,” says James A. Klein, president of American Benefits Council.

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He says the council recommends that premiums not be raised or lowered based on year-to-year fluctuations caused largely by “short-term factors and inappropriate assumptions.”

The PBGC’s deficit, says Klein, is a snapshot measure of current assets minus liabilities and therefore does not accurately reflect the funded status of active ongoing plans. “All pension fund liabilities, including the PBGC’s, are overstated by the historically and artificially low interest rates of recent years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds and the PBGC’s own situation appear underfunded,” he adds.

With proposals on the table, by both Congress and the White House, to raise PBGC premiums on plan sponsors, Klein cautions, “Doing so would further discourage plan sponsors from remaining in the system when the current low interest rate environment is already forcing employers to pour more money into plans that may never be needed. As more companies are forced to exit the system, the universe of plans from which premiums are collected further shrinks.”

The American Benefits Council is a national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system.

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