Higher Education Institutions Have Embraced DC

In a study of more than 450 private and public higher education institutions, Sibson Consulting found only 9% of private universities offer a defined benefit (DB) plan.

At the same time, the vast majority utilize defined contribution (DC) plans at 99%.

However, most public institutions offer both: 87% offer a DB plan, and 91% of those offer a DC plan. This is common for state retirement strategies as employees are given the ability to select an optional retirement plan, Sibson says.

The College & University Benefits Study, conducted in 2015, finds 77% of all DC plans included contributions almost three times greater than corporate contributions in 401(k) plans. For universities that utilize DC plans, the study finds the median institution contribution to be 9%, with a 25th percentile at 7.1% and a mean contribution of 8.7%.

Immediate vesting in DC plans appears to be slowly diminishing, the study concludes. Close to 30% of institutions have begun to apply service requirements, a change Sibson urges every institution to consider due to high employee retention rates. Out of the 30% who have implemented a vesting schedule, most now require three or more years of service.

Vendor consolidation, which still offers many investment options for reduced prices, grew at a slower pace, with only two-thirds of institutions utilizing one or two DC plan administration vendors. Sibson notes that more vendors does not equal better options. Sibson says only institutions with more than four active vendors will continue to consolidate vendors, and employees should take advantage of the change, as the change may provide significant outcomes regarding retirement.

More information regarding the study can be found at http://www.sibson.com/2016-cubs/.