Retirement Plans

for Institutions of
Higher Education
2015

Table of Contents
Executive Summary..............................................................................................................................................................2
Plan Types: 403(b) Plans Now Offered by Fewer Than Two-Thirds of Institutions of Higher Education ..............................4
Implementing Automatic Enrollment and Stretching Employer Contributions for Better Results ........................................7
Plan Designs that Benefit the Most Committed Participants ...............................................................................................8
Loans and Withdrawals: Increased Loan Availability, Usage, and Default .........................................................................13
Choice Architecture: Role of Advisors in Adoption of Automatic Enrollment ....................................................................14
Investment Options: More Deliberate Decision-Making.....................................................................................................16
Defined Benefit Plans Still a Factor ....................................................................................................................................17
Advisors Becoming More Commonplace ..........................................................................................................................18
Plan Administration, Services, and Expenses ....................................................................................................................20
Strategic Direction: Employee Education...........................................................................................................................23
Participant Educators More Focused.................................................................................................................................24
Retirement ReadinessStrides in Process........................................................................................................................26
About the Study .................................................................................................................................................................28
Conclusion .........................................................................................................................................................................29
Contact Us .........................................................................................................................................................................29

Executive Summary
Retirement benefits are undergoing momentous change
at institutions of Higher Education in 2015. Challenged
by stagnant retirement benefits budgets and the desire to
help staff and faculty fund a comfortable retirement, many
institutions have availed themselves of the services of a
retirement plan advisor or consultant to help transform
their retirement benefits program into an effective human
resource management tool. Change happening at plans
that partner with an advisor or consultant is impacting the
field of Higher Education overall.
The old era of non-ERISA 403(b) multi-provider
arrangements is clearly behind us. In the new era,
institutions are offering a 401(k) plan with a six-month
wait for eligibility and an age 21 requirement, autoenrollment at a default deferral rate 5% or higher, and
auto-escalation. The plan offers 21 investment options
selected according to a clear investment policy. The
employer contribution formula is designed to meet the
institutions budget constraints and the need to help staff
and faculty prepare for retirement, matching contributions
to 10% of pay. The plan allows participants to take loans
and hardship withdrawals. Loan usage is up but hardship
withdrawal usage is contained. A participant counselor
comes to campus five or six times a year to provide
financial guidance and investment advice, and to help
the few participants who opted out find a way to enroll
in the plan. Most administrative functions are handled
by the retirement plan service provider with minimal
HR involvement and the provider assumes fiduciary
responsibility for these functions. Costs are transparent
to participants and equalized for fairness. More than half
of staff and faculty are on course to achieve a successful
retirement and the budget is under control. Does this
picture sound like a dream? This report shows that in
2015, for many Higher Education institutions, the dream
has become a reality and most institutions will have
followed suit by year end.
For the first time, fewer than two-thirds of institutions
are sponsoring a 403(b) plan and nearly half (46%) are
sponsoring a 401(k) plan. The percentage of institutions
offering individual contracts only has dropped to 40%.
As the trend continues, the number of institutions that
offer group contracts only will exceed the number of
those offering individual contracts by year end. Seventeen
percent of institutions partner with a plan advisor or

consultant and twice as many (38%) are considering

hiring an advisor in 2015. Eighty-one percent of
institutions working with an advisor have an investment
policy in place, 77% have completed at least one service
provider search in the last five years, and 73% say their
service provider acts as a fiduciary on administrative
functions. Many rely on their service provider to enroll
participants, to process and approve loans, to default
loans when needed, and to calculate employer matching
contributions and vesting. Three-quarters of institutions
partnering with an advisor benefit from the services of
a participant counselor coming on campus five or more
times a year in most cases. Generally under 10 bps of
plan assets, the advisor retainer more than pays for itself
and helps enhance participant outcomes. More than half
(56%) of institutions partnering with an advisor report
average participant contributions exceeding $5,000.
Among institutions partnering with an advisor, 63%
monitor the retirement readiness of employees and 41%
estimate that half or more of their participants are on
course to achieve a successful retirement.
In 2015, many institutions allow part-time staff and faculty
for the first time as they implement age and service
eligibility requirementsoften in conjunction with the
introduction of a new 401(k) plan. Age 21 is now the
most common requirement for plan entryat 39% of
plans. Immediate eligibility for employer contributions is
no longer the norm (offered by only 44% of institutions).
Three in ten plans offer nonelective employer
contributions and an additional 25% offer matching
contributions, often up to 10% of pay. Private institutions
set themselves apart with 3-year vesting schedules,
and public institutions stretch vesting schedules to
10 years. Three in ten institutions offer plan loans; loan
usage climbed to 22% but hardship withdrawals are
contained. Forty-four percent of plans enroll participants
automatically and an additional 27% are contemplating
adding automatic enrollment. More than 4 in 10 plans
(42%) enroll participants at 5% of pay or better. Only
8.5% of participants opt out. Most institutions rely on a
target date series or custom fund as their default election.
This report based on a survey of 276 Higher Education
institutions provides clear evidence that in 2015, a page
has been turned when it comes to retirement benefits.
Change is happening fast.

Plan Types: 403(b) Plans Now Offered by Fewer Than

Two-Thirds of Institutions of Higher Education
Perhaps the main finding from the 2015 edition of the
study is the incidence of 403(b) plans among institutions
of Higher Education. For the first time, fewer than two
out of three institutions (64%) sponsor a non-Roth 403(b)
plan. To this day, 403(b) plans have been the dominant
type of plan in the Higher Education sector (75% in 2014),
but 401(k) plans have become more common and are
now offered by nearly half (46%) of institutions to at least
some segments of the workforce. Greater workforce
mobility between corporate and Higher Education among
researchers and staff, the rise of the for-profit Higher
Education sector, and economic pressure to streamline
retirement benefits all contribute to the trend. The rise
of the 401(k) plan will likely continue into the future as
Higher Education institutions compete for talent in the
labor market. The combination of 403(b) and 401(k) plans
is more common at large Higher Education institutions.
Institutions with more than 5,000 employees may offer a
403(b) plan to employees in one group (e.g., faculty-only,
or faculty and staff of the tax-exempt organization), and a
401(k) plan to employees in another group (e.g., staff-only,
employees of for-profit affiliates, or employees who joined
the organization after a specified date).

Over the years, more institutions have come to recognize

their fiduciary responsibility and the status of their
403(b) retirement savings program as an ERISA plan.
To demonstrate deliberate decision-making in the
best interest of participants, many have accordingly
established plan committees, influenced by outside legal
counsel recommending that Boards of Regents and
university presidents protect the institutions by creating a
decision-making body for the plan. They have also sought
and heeded the advice of retirement plan advisors and
investment consultants. Today, nearly half (48%) of plans
in Higher Education identify themselves as ERISA plans,
a level nearly identical to 2014. Two-thirds of institutions
rely on one exclusive provider for their plan. On the
other hand, 24% recognize their program as a nonERISA arrangement. In a non-ERISA environment, many
institutions historically made multiple vendors available to
participants to accommodate a wide range of requests.

Plan Status with Regard to ERISA

48%
50%

ERISA
24%
24%

Non-ERISA

Defined Contribution Retirement Plans Sponsored

64%

403(b)

75%
48%

Roth 403(b)

46%
42%
7%
8%

Roth 401(k)
457(f)

33%

18%
13%
14%
16%

67%

10%
5%
2015

2014

Plan Status With Regard to ERISA

19%
20%

401(a)
457(b)

2015

40%

401(k)
457(Government)

28%
26%

Unsure

2014

Exclusive

Multi-Vendor

As a result of sponsors increasing willingness to recognize

their fiduciary status under ERISA, group contracts have
become more commonplace among institutions of Higher
Education. In 2015, the percentage of institutions that offer
only individual contracts dropped to 40%, and the number
of plans offering both individual and group contracts rose to
18%. Plans that partner with an advisor are more likely than
others (26%) to use both group and individual contracts,
perhaps because the advisor suggested the switch. If the
current trend continues, we expect the number of plans
that offer only group contracts will exceed the number
of plans that offer individual contracts only by the end of
2016. Larger institutions and those using multiple providers
are less likely than others to use exclusively individual
contracts. Group contracts (exclusively) are more popular
(44%) among institutions with more than 5,000 employees.
With fewer institutions using multi-provider arrangements
and more using advisors and consultants, we expect
continued growth in the number of plans using group
contracts exclusively.

Contracts Offered
40%
44%

Individual contract (a contract between

the participant and the provider) only

36%
35%

Group contract (a contract between the

plan sponsor and the provider) only
18%
15%

Both an individual and a group contract

Not sure

2015

5%
5%

2014

Implementing Automatic Enrollment and Stretching Employer

Contributions for Better Results
Participant account balances at Higher Education
institutions averaged $63,162. The year 2015 was
a good one for employee contribution levels. The
percentage of participants who contributed $5,000 or
more rose to 40% from 35%. Plan design and individual
counseling are two effective levers to increase employee
contributions. Employees tendency to maximize
employer contributions has led many employers
outside the Higher Education field to modify employer
contribution formulas that inspire employees to defer a
higher percentage of salary. We attribute this progress
to the sudden embrace of practices that have proved
effective at raising employee contribution levels in
other sectors of the economy. In recent years, many
corporate employers have deployed stretch-the-match
strategiesmodifying their employer contribution
allocation formula to reduce the employer match per
dollar of employee contributions and raising the ceiling
for matching contributions to a higher percentage of
pay. This study provides evidence that large numbers
of Higher Education institutions embraced the strategy
in 2015. Simultaneously, a large number of institutions
implemented automatic enrollment and automatic
escalation of employee contributions. We believe these
developments are the root cause of the increase of
employee contributions in Higher Education in 2015. The
embrace of these strategies may be at the instigation
of advisors. Institutions that partner with an advisor are
more likely than others to report average participant
contributions of $5,000 or more (56% vs. 37%). Absent
plan design changes, one-on-one counseling is the form
of communication that education plan sponsors have
found most effective at changing employee behavior.
This study also documents changes in education and
counseling strategies that contribute to participants
retirement success.

Average Annual Employee Contribution Amount

9%
6%

Less than $1,000

18%
21%

$1,000 $2,999

33%

$3,000 $4,999

40%
21%

$5,000 $6,999

14%
11%
10%

$7,000 $9,999

8%
9%

Over $10,000

2015

2014

Historically, plans of Higher Education institutions were

structured to accept many different types of employee
and employer contributions. Mandatory employee
contributions are highly unusual in the corporate
sector but common in Higher Education. Mandatory
contributions are an extreme version of automatic
enrollment. It is noteworthy that the percentage of Higher
Education institutions accepting mandatory employee
contributions rose to 31% from 26% in 2015. Although
mandatory contributions may have resulted from a
defined benefit plan freeze, one might argue employees
are better served with a fully funded defined contribution
plan than with a poorly funded defined benefit plan.

Contribution Description
63%
62%

Employee voluntary/supplemental
31%
26%

Employee mandatory

41%
40%

Employer match
Employer contribution
(no employee contribution required)

2015

11%
9%

2014

Plan Designs that Benefit the Most Committed Participants

Results from the 2015 study tell an interesting story
about eligibility for retirement benefits among faculty,
researchers, and staff. In an effort to control costs, Higher
Education institutions have increasingly relied on adjunct
faculty, non-tenure-track faculty, and part-time staff for a
variety of functions. Although university systems remain
generous in making retirement benefits available to fulltime staff and faculty, they appear to be tightening up
on retirement benefits eligibility for new employees and
instituting age requirements for full-time employees. As
a result, the percentage of full-time faculty eligible for the
plan contracted to 79% from 84%, and the percentage
of eligible full-time staff contracted to 63% from 80% in
2015. These restrictions may come as more institutions
implement 401(k) plans. Simultaneously, it appears more
institutions are expanding eligibility for part-time staff and
faculty, making those positions more attractive to potential
candidates, helping to contain the cost of labor and
competitiveness. The expansion of eligibility for part-time
staff and faculty is particularly prevalent among clients
of advisors: 28% of clients with an advisor allow parttime or adjunct faculty to participate (vs. 19% of other
institutions). One fifth (20%) of clients with advisors allow
part-time staff to participate (only 9% at other institutions).

Eligible Employees
79%
84%

2015

34%
38%

No minimum age

27%
32%

Age 18

39%

Age 21

28%
1%
2%

2015

80%
20%
12%
11%
9%

Service Requirement for Eligibility

41%
41%

No service requirement

2014

45%
43%

Three months to one year

Less than three months
More than one year

2015

2014

63%

Full-time staff

Part-time staff (less than 1,000

hours or equivalent in a year)

Age Requirement for Eligibility

Other

Full-time faculty

Part-time or adjunct faculty

(less than 1,000 hours in a year)

When it comes to age requirements for plan entry, 38% of

Higher Education plans had no minimum age requirement
in 2014. The percentage dropped 4 points in 2015, and
the percentage of plans with an age 21 requirement
increased 11 percentage points to 39% from 28%. Age
21 is now the most common age requirement for plan
entry in Higher Education. Institutions that partner with
an advisor are more likely than others to use an age
requirement for eligibilityage 18 or 21suggesting
the change is a frequent suggestion from advisors.
When it comes to service requirements for employee
participation, however, the trend is less clear. Forty-one
percent of plans still have no service requirement for
eligibility. However, the percentage of plans with service
requirements of one year or less increased by 4%.

6%
4%
9%
11%

2014

The long tradition of universal availability of 403(b)

plan salary deferrals impacts the design of all defined
contribution plans at Higher Education institutions. At over
half (55%) the Higher Education institutions, employees
are eligible to make salary deferrals immediately upon hire.
However, waiting periods are becoming more common
as a growing number of institutions introduce 401(k)
plans. The percentage of plans requiring three months
of service rose from 10% in 2013 to 18% in 2014, and
those requiring six months to a year of service rose from
4% in 2013 to 12% in 2014. Longer waiting periods help
offset the impact of rising staff and faculty turnover on
recordkeeping costs and keep fees low for participants.

Type of Employer Contributions

Employee Participation Eligibility

54%
55%

Immediately
After up to three
months of service

21%
18%

After three to six

months of service

13%
12%

After six months to

a year of service

10%
12%

After more than a

year of service

A fixed contribution stated

in the plan document

66%
64%
28%
27%

A discretionary contribution
No employer contributions
are made

7%
9%

2015

7%
7%
2015

Institutions offering 403(b) plans have more latitude

when it comes to employer contribution eligibility
than they do with employee contributions. A major
development in 2015 is that plans offering immediate
eligibility for employer contributions are no longer the
majorityfalling to 44% from 58%. The trend toward
some eligibility requirement started several years ago
typically three months or six monthsand accelerated
in 2015. The percentage of plans requiring three months
of service climbed to 24% and the number of institutions
requiring six months of service more than tripled from
5% to 16% of plans.

2014

Employer Contribution Eligibility

2014

More than 9 in 10 university systems offer an employer

contribution of some sort to employees. There has been
little change in the percentage of plans relying on a
fixed contribution formula stated in the plan document
(66% in 2015); or the percentage offering a discretionary
contribution (28% in 2015).

44%

Immediately

58%

After up to three
months of service
After three to six
months of service

24%
17%
16%
5%
12%
14%

After six months to

a year of service
After more than a
year of service

8%
10%

2015

2014

Historically, fixed employer contributions stated in the

plan document are more common in Higher Education
than they are in the corporate sector. This survey
documents fast change in the sector that in some respect
is bringing Higher Education closer to the practices of the
corporate sector. Although fixed contributions stated in
plan document are still the norm, the incidence of a fixed
percentage of pay formula dropped to 37% from 54% in
2015. It appears large numbers of institutions are favoring
a budget approach to employer contributions, moving
to a fixed dollar amount formula (up nine percentage
points to 30% of plans). Although they are becoming
more commonplace, matching formulas represent only
a quarter of all plan sponsors. An employer contribution
based on a fixed dollar amount, or a money purchase
plan, makes sense when a defined benefit plan is frozen.
It reduces the risk for the institution and demonstrates
a commitment to the employee population. However, in
the long run, the contribution of a fixed dollar amount
discourages employee contribution and retirement
readiness. A matching contribution is more effective at
inspiring employees to contribute at a level sufficient to
fund an enjoyable retirement lifestyle.

Employer Contribution Formula

30%

A fixed dollar amount

21%
37%

A fixed percentage amount

54%

A formula match of the employees

contribution (e.g., cents on the dollar)
A percent match of the
employees contribution
No contribution

2015

25%
19%
14%
10%
5%
6%

2014

Among plan sponsors that still contribute a stated

percentage of pay, the year-over-year trend is toward lower
levels of contribution, suggesting employers with higher
nonelective employer contributions are also those most
likely to switch to a fixed dollar budget. The percentage of
employers contributing 2% to 4% of pay rose 4 percentage
points to 27% in 2015, while the percentage of employers
contributing 5% or 6% of pay decreased to just under 30%.
For the same employer contribution budget, a matching
employee contribution formula would set a greater number

10

of participants on a track toward retirement success; a fixed

dollar budget best helps contain the cost of benefits within
a specific budget.

Fixed Percent Contributed

(Stated Percent of SalaryBase)
27%
23%

2% 4%

29%
36%

5% 6%
16%
18%

7% 9%

27%
25%

10+%

2015

2014

Among institutions with a matching formula, the trend

is to stretch the match to encourage employees to save
enough to fund their retirement. Employers who matched
10% of pay or more now make up 29% of employers
with a matching contribution, up from 18% in 2014. It
appears Higher Education institutions have embraced
stretch-the-match strategies at a record pace in 2015.
Perhaps the evidence provided by behavioral finance
academia strikes a chord in Higher Education more so
than in other sectors.

Fixed Percent Contributed

(Stated Percent of SalaryMatch)
28%

2% 4%

36%
31%
36%

5% 6%
12%
9%

7% 9%

29%

10+%

18%

2015

2014

In keeping with tradition, well over half of Higher Education

plans in 2015 fully vest employees immediately. However,
usage of cliff vesting is continuing to grow in popularity
(27% of plans in 2015), perhaps reflecting concern about
increased employee turnover. Cliff vesting is popular

among larger plans (with 5,000+ participants), 401(k) plan

sponsors, and particularly those having implemented
auto-escalation of employee contributions. Among plans
not using immediate vesting, a 5-year vesting horizon is
most common but plan sponsors are increasingly moving
to a shorter (3-year) horizon or longer (10-year) horizon.
Presumably, institutions of the private sector are moving
toward the 3-year horizon and public institutions toward
the 10-year horizon not permitted for private employers.

Vesting Schedule
58%
58%

Immediate full vesting

27%
25%

Cliff vesting

15%
18%

Graded vesting

2015

2014

Fully Vested After . . .

1 year

2%
7%

2 years

12%
11%

3 years

17%
11%
7%
9%

4 years

21%

5 years
6 years

39%
5%
0%

7 years

4%
7%

8 years

6%
5%

9 years

1%
0%

10 years

13%
7%

11+ years

14%
14%

2015

2014

11

12

Loans and Withdrawals: Increased Loan Availability,

Usage, and Default
Higher Education institutions have historically shied
away from offering loans. Recordkeeping of loans in a
multi-provider environment presents challenges. As more
institutions move to exclusive provider arrangements
and some implement a 401(k) plan, loans become more
feasible and more institutions start offering them. Another
major change in 2015 is that the incidence of loans in
Higher Education institutions climbed to 30% from 22%.
We believe advisors have a major impact on the availability
of loans. The changes advisors frequently recommend
and enable (consolidation of providers, outsourcing of
services) make it possible for more plans to allow loans.
Nearly two-thirds (65%) of plans that partner with an
advisor allow loans, compared with only 23% among
institutions that do not partner with an advisor. Availability

does not necessarily entail expanded usage. Indeed the

median percentage of participants with loans outstanding
among Higher Education institutions was 15% in 2015.
However, some plans experience exceptionally high loan
usage skewing averagesboth in terms of usage and
default. In 2015, average loan usage climbed to 22% from
19% and defaults to 14% from 6% of loans outstanding

Loans

Restrictions on Participant Withdrawals

30%

% of plans allowing

Mean % of loans
in default

2015

22%
19%

46%

14%

46%

6%
2015

2014

2014

Types of Restrictions on Withdrawals

33%
33%

% of institutions allowing

50%
43%

How much you can

take out per year

41%
39%

% of plans citing increase

14%

40%
39%

Surrender fees
Other

29%

7%
13%

45%

% of plans citing no change

2015

54%

No

Hardship Withdrawals

% of plans citing decrease

54%

Yes

22%

Mean % of participants
borrowing

Usage of hardship withdrawals at the one-third of institutions

that allow them has not expanded. Plans that partner with
an advisor are more likely than others to allow participant
hardship withdrawals (59% vs. 27%), but plans that do
not partner with an advisor are more likely to report an
increase in hardship withdrawals, hinting at the possibility of
substitution between some loans and hardship withdrawals.

32%

2015

2014

2014

Also unchanged from 2014, more than half (54%) of Higher

Education institutions apply restrictions to participant
withdrawals. Half of institutions place restrictions on
the amount that participants can withdraw in a given
year. Another 40% apply surrender fees to discourage
participants from making untimely withdrawals. Withdrawal

restrictions (e.g., 2.5% surrender charge for withdrawals

transfers faster than a schedule of 10 substantially equal
payments over 10 years) have been common in the sector
to protect providers from the liquidity risk associated with
rate guarantees on stable value options.

13

Choice Architecture: Role of Advisors in Adoption

of Automatic Enrollment
Many Higher Education institutions have already
enhanced their plan with features designed to help
participants save and invest for retirement. Automatic
enrollment at a deferral rate above 6% coupled with
automatic deferral increases is regarded as the best
method of getting retirement plan participants on
the proper course to a successful retirement. Higher
Education plans have adopted auto-enrollment in larger
numbers: the percentage of plans enrolling participants
automatically was stable at 44% in 2015, and the number
of plans automatically increasing participant deferrals
over time reached 24%. We anticipate both features
will grow in 2016: 27% of institutions are contemplating
adding automatic enrollment and 20% are looking to
add automatic deferral increases. Usage of automatic
enrollment is particularly high among institutions that
employ the services of an advisor, suggesting that advisor
recommendation is a major factor driving popularity.

Offers Auto Features

2015

44%
24%
23%

2014

27%

Automatic enrolllment

2015

14

70%

New faculty and staff

90%
47%

Existing faculty and staff

42%

2014

44%

Plans to Offer Auto Features

Automatic deferral
rate increases

Employees Automatically Enrolled

2015

Automatic enrolllment

Automatic deferral
rate increases

Although Higher Education institutions are aggressively

implementing automatic enrollment, the majority are
applying automatic enrollment only to new faculty and
staff. Less than half (47%) of plans are automatically
enrolling existing staff and faculty not previously enrolled,
a step many view as critical to make more than a dent
in the retirement readiness of an institutions workforce.
Regardless of the population affected by automatic
enrollment, opt-out rates are low and declining (median
down to 8.5% from 11% in 2015).

30%
20%
18%

2014

The default contribution rate at which Higher Education

plans enroll participants automatically in the absence of
participant election is most often set at a level between 3%
and 5% of pay. Among institutions that avail themselves of
an advisor and have implemented automatic enrollment,
42% use a deferral rate of 5% or higher compared with
34% among other institutions that do without an advisor.
A default contribution rate of 4% is not sufficient to put
participants who have no other retirement benefit on
the path to retirement readiness, but the trend is in the
right direction if automatic enrollment is combined with
automatic escalation, or with a fixed stated employer
contribution. Nearly two-thirds (64%) of Higher Education
employers default their participants at the same rate as
their own fixed stated level of employer contribution. An
increasing number of institutions are defaulting faculty and
staff at a rate lower than the employer contribution, giving
employees an incentive to take an active role in deciding
the level of their contribution.

Today, 31% of Higher Education plans using automatic

enrollment invest contributions in an asset allocation fund
by default (target date or target risk series). More plans
rely on a balanced fund as their default investment option.
On the other hand, reliance on default options such as
a money market fund or stable value products that do
not enjoy qualified default investment alternative (QDIA)
status is down. Generally, plans partnering with an advisor
more often turn to an asset allocation series: 56% use a
target date series as the default investment elections but
a balanced fund is the most common default investment
option among institutions that do not rely on an advisor for
decision-making.

43%
39%

Balanced
9%

Index

Stable value

16%
10%
8%

4%

22%
16%

5%

20%
18%
7%
6%

6%

9%
14%

2015

64%
68%

At the institutions
contribution rate
33%
22%

Below the institutions

contribution rate

2%
2%

2014

Default Contribution Percentage Relative

to Institutions Contribution Rate

Above the institutions

contribution rate
2015

24%
28%

3%

35%
31%

Asset allocation
(lifestyle/lifecycle/target date)

19%
18%

Less than 3%

More than 6%

Default Investment Option

Money Market

Average Annual Employee Contribution Amount

3%
11%

2014
2015

2014

15

Investment Options: More Deliberate Decision-Making

Higher Education plan sponsors have historically
refrained from exercising discretion over investment
arrays, but 60% of Higher Education plans now have
a stated investment policy in place and institutions
offer 21 investment options on average. An investment
policy statement (IPS) is particularly common among
institutions that partner with an advisor (81%). The
majority (57%) of institutions that do not use a retirement
plan investment advisor rely on their recordkeeping
service provider(s) to monitor the performance of
investment options. Currently, among Higher Education
plans with a QDIA, 34% use a target date fund series as
their QDIA and 25% rely on a custom asset allocation
model instead. The recent trend has been to move
away from balanced funds, particularly among plans
working with an advisor. Among plans that use automatic
enrollment, nearly half (47%) of those that partner with an
advisor rely on a target date series as their QDIA.

Just under 30% of Higher Education institutions

include a stable value option in the investment array.
Employees of not-for-profit and public institutions have
historically favored fixed interest accounts combining
rate guarantees and liquidity restrictions, to which 403(b)
plans are limited. The stable value category is broader
than general accounts and the range of possibilities
grows for plans other than 403(b). Institutions that
partner with an advisor are much more likely (59%) than
other plans to offer a stable value option.

Percent of Plans that Offer a Stable Value Fund

29%
31%

Yes

47%
44%

No
24%
26%

Unsure

Institutions with Investment Policy Statement

60%

Yes

63%
40%

No

37%

2015

2014

QDIA Options Chosen by Institutions

34%

Target date fund

29%
31%
36%

Balanced fund

25%
24%

Custom target date fund

10%
9%

Stable/Fixed option

2015

16

2014

2015

2014

Defined Benefit Plans Still a Factor

Defined benefit (DB) plans are still fairly common at
Higher Education institutions. Four out of five institutions
offer a DB plan, and three out of five DB plans are
active. DB plans are most common at larger institutions.
The trends that have affected corporate employers in
the recent past are likely to affect Higher Education in
the next 5 to 10 years: plan freezes, plan termination,
increased reliance on defined contribution (DC) plans,
and employee funding of these plans. Because they
have adopted innovation in DC plans more rapidly
than employers of the corporate sector, many Higher
Education institutions are in a better position to take the
necessary steps with their DB plans than employers of
the corporate sector were before the enactment of the
Pension Protection Act and definition of safe harbors that
made it possible for employers to rely exclusively on DC
plans for retirement benefits.

Defined Benefit Plans

31%
32%

Yes, a legacy plan only

Yes, an active plan only

22%
24%

Yes, both a legacy and active plan

25%
24%
22%
26%

None

2015

2014

17

Advisors Becoming More Commonplace

An increasing number of Higher Education institutions are
partnering with retirement plan advisors and consultants
to help manage retirement benefits. Seventeen percent of
institutions surveyed in 2015 have a retirement plan advisor
or consultant. More than twice as many (38%) intend to hire
an advisor in the next 12 months. Today, most plans that
partner with an advisor or consultant follow a deliberate
selection process to choose their advisor. Not-for-profit
(public and private) and faith-based institutions are more
likely than for-profit university systems to rely on the
services of an advisor. Survey results attest to the difference
an advisor can make on the retirement benefits strategy
of an organization. Institutions that rely on an advisor or
consultant are ahead of peers in a number of respects:
retirement readiness of employees, approach to investment
selection, plan design and adoption of innovation such as
automatic enrollment, ability to allow loans, and range of
services outsourced to the recordkeeping service provider.

Advisor/Consultant Usage
Yes
No, but we have plans to hire
one within the next 12 months
No

17%
38%
45%

Higher Education institutions rely on their advisor or

consultant primarily to assist with investment selection,
investment monitoring, and plan compliance, but the
range of services the advisor performs varies widely from
one institution to the next. Perhaps because their HR
department is more thinly staffed, smaller institutions with
5,000 or fewer participants frequently rely on their advisor
or consultant for a broader range of services. Smaller
institutions frequently retain their advisor to act as a plan
fiduciary, to assist with plan design changes, to formulate
an investment policy statement, and to help select the
retirement plan service vendor(s).

Advisor Responsibilities
40%
55%

Ongoing investment monitoring

31%
30%
38%

Act as the plan fiduciary

50%
42%

Plan compliance

43%
38%

Plan design
Development of the investment
policy statement

36%
22%
25%

Vendor selection

11%

2015

2014

Advisors are most often hired on a retainer basis and more

than half of Higher Education institutions pay their advisor
an asset-based fee, typically under 10 basis points (72%
of plans). Fees are most commonly paid out of participant
accounts (28%) or out of an expense reimbursement
account (23%). Large Higher Education institutions are
more likely than smaller ones to hire their advisor or
consultant on a per- project basis, with an asset-based
budget in the range of 5 to 10 bps.

Advisor Hired
42%
33%

A per-project basis

56%
58%

A retainer
Other

2%
9%
2015

18

61%

Investment selection

2014

Type of Fee Paid to Advisor

51%
48%

Asset-based fee
16%
22%

Hard dollar feeone time only

Hard dollar feemore than one
time (e.g., quarterly, yearly)

14%
15%
19%
15%

Dont know/not sure

2015

2014

Amount of Fee Paid to Advisor

45%

Less than 5 bps

32%
27%
32%

5 to 10 bps
9%

11 to 15 bps

Frequency of Meeting with Advisor

23%
19%
14%

More than 15 bps

23%
20%

Monthly

51%
48%

Quarterly

2014

2015

Higher Education institutions that partner with a retirement

plan advisor or consultant benefit in many ways: four in five
(81%) have an investment policy statement (compared to
56% for plan sponsors that do not partner with an advisor).
They are better able to leverage their recordkeeping service
provider for outsourced services such as loan approval,
loan default monitoring, safe harbor hardship withdrawals,
paperless enrollment, required minimum distributions,
QDRO processing, and signature-ready 5500 preparation.
In turn, these services allow the institution to provide a
higher level of participant service. For instance, institutions
with an advisor are most likely to allow participant loans
and hardship withdrawals. They are also most likely to offer
a stable value option (59% vs. 23%). More than threequarters of institutions partnering with an advisor benefit of
a participant educator from the service provider who meets
in person with faculty and staff. Irrespective of the services
the advisor is hired to provide, most plans meet with their
advisor quarterly; the frequency of meetings is trending up.
With all these benefits, its no wonder the majority of plan
sponsors (56%) who use the services of an advisor are
very satisfied with their advisor.

12%
22%

Semi-annually

How Advisor/Consultant Fees Are Paid

23%
22%

An expense/ERISA budget account

Participant accounts
Plan investments

14%
11%

Annually

2015

2014

28%
11%
15%
35%
18%
22%

Direct bill

Satisfaction with Advisor or Consultant

Very satisfied

56%
35%

Somewhat satisfied
2015

2014
9%

Not very satisfied

Not at all satisfied

0%

19

Plan Administration, Services, and Expenses

Nearly three-quarters (73%) of Higher Education
institutions that partner with a retirement plan advisor
and 51% of other plan sponsors report that their
provider acts as a fiduciary on administrative functions.
Chief among the functions sponsors outsource are
the calculation of the employer match and vesting
calculations, paperless enrollments, paperless loan
processing, loan approval, and loan default monitoring.
This study demonstrates that institutions that partner
with an advisor or consultant extract more value out
of their recordkeeping service provider in the form of
outsourced services. The presence (and presumably
intervention) of an advisor appears to be a major factor in
plan sponsors' ability to leverage services available from
recordkeeping service providers. Although only 18%
of all institutions outsource paperless enrollments to
their recordkeeper, the incidence jumps to 26% among
institutions that partner with an advisor. Only 24% of
all institutions rely on their service provider to approve
loans, but the incidence jumps to 35% among clients
of advisors. The same holds true for many services
including vesting calculations and QDRO processing.
Two-thirds of institutions are contemplating outsourcing
even more services in the near future.
The cost associated with administering the retirement
plan can be covered by four sources: the sponsoring
institution directly, investment managers whose funds
are offered in the plan directly (in the form of 12-b-1
fees for example), an expense or ERISA budget account
fed by revenue from investment managers (sub-transfer
agent recordkeeping compensation for example),
or from plan participant accounts directly if other
revenue sources are insufficient to cover expenses.
Employee benefit budgets are increasingly challenged,
and institutions must rely on other sources to cover
administrative costs. As institutions rely more on group
contracts, institutional share classes, and low-cost
investment options, revenue from plan investments
becomes insufficient to cover additional expenses.
Expense or ERISA budget accounts set up in part
to levelize the cost of administering the plan across
participants grow more popular, now used by 23% of
Higher Education institutions overall, and 35% of those
who partner with an advisor or consultant. Institutions
that need to charge participant accounts to cover the
full cost of administration now represent 38% of all
institutions and only 33% of institutions that partner with
an advisor. Many institutions hiring an advisor to help
with the retirement plan may well be motivated by the
desire to contain participant outlays.

20

Outsourcing of Functions 2015

30%

Calculation of employer match

7%
24%

Loan approval

10%
18%

Vesting calculation

7%
18%

Paperless loans

10%
18%

Paperless enrollments

12%
18%

Loan default monitoring

9%
16%

Safe harbor hardship approval

Rollover verification services

9%
15%
6%
14%
10%

Qualified domestic relations order

5500 preparation

13%
5%
13%
11%

In-service withdrawal approval

Beneficiary designation services

12%
5%
12%
11%

Contribution limit monitoring

Required minimum distributions
Common remit services

10%
2%
9%
3%

Termination/serverance from employment

9%
9%

Coordination of processing of involuntary

8%
5%

None of the above

Currently outsource

17%
33%
Plan to outsource

How Plan Expenses Are Paid

Does Provider Act as Fiduciary

on Administrative Functions
38%
35%

Participant accounts

Yes

26%
30%

Plan investments

No

39%

23%
18%

Direct bill

2015

19%
19%

An expense/ERISA budget account

Does Provider Provide a Signature-Ready Form?

2014

2015

61%

Revenue equalization and fee fairness are current

themes in the retirement plan business. Without revenue
equalization, participants make an uneven contribution
to the cost of administrative service: participants who
invest in funds that pay higher 12-b-1 and sub-transfer
agent compensation support a greater share of the
recordkeepers cost of providing share accounting
and compliance services, while other participants
do not carry their own weight. Our survey finds the
percentage of institutions that have implemented
revenue equalization unchanged at 55% of all plans. An
increasing number are applying the same recordkeeping
fees across all participants but few are deploying an
ERISA budget or expense budget account, the option
most popular in the corporate world.

Yes, for a fee

37%
30%

Yes, without a fee

32%
37%
31%
33%

No, does not provide

2015

2014

Does Provider Include Logos on Communication?

42%
38%

Your institution only

33%
37%

The recordkeeper only

How Fees Are Handled

45%
45%
2015

Fees are applied to each of the funds the

participants are invested in and are the
same across all funds
11%
16%

All revenue sharing payments are credited

to an expense budget account and then
fees are paid from this account

2015

2014

37%
31%

All revenue sharing payments are credited

back to the participants accounts based
on the funds they are invested in and the
employer pays the fees for the plan

Other

25%
24%

Both institution and recordkeeper

Fees are applied to each of the funds the

participant is invested in and differ depending
on the revenue sharing for the fund

6%
6%
1%
2%

Does Provider Create a Customized

Webpage for You Plan?
56%

Yes

57%
44%

No

48%

2014
2015

2014

21

22

Strategic Direction: Employee Education

Improving participant education tops the list of actions
institutions made in the last 12 to 24 months to enhance
their retirement plan. Other changes are mentioned less
often (e.g., adding Roth 401(k) contribution type, adding
investment options, reducing the number of retirement
plans offered, offering financial planning). Going forward,
however, new priorities have emerged in 2015 including
adding investment options and adding Roth 401(k) plan
contribution types.

Implementing Plan Changes

18%

Improve employee education

10%

Add Roth 401(k)

15%
13%

Add investment options

14%
15%

Reduce the number of

retirement plans offered

13%
7%

Offer financial planning

13%
12%

Add Roth 403(b)

12%
10%

Consolidate recordkeeping for multiple plans

11%
10%

Reduce the number of providers

11%
6%

Create written plan documents

10%
9%

Change recordkeeper

10%
8%

Consolidate investments for multiple plans

10%
10%

Change advisor

8%
11%

Reinstate the employer contribution

7%
5%

Transition to custom plan

design from prototype plan

7%
6%

Eliminate employer contribution

6%
6%

Adopt a prototype plan

5%
2%

Reduce the employer contribution

5%
4%

Change the way plan expenses are paid

4%
2%

Add a managed account/advice option

4%
3%

Changes made in
past 12 24 months

Changes planned in
next 12 months

23

Participant Educators More Focused

Fewer than 4 in 10 (39%) of Higher Education institutions
say that a participant educator employed by their plan
provider visits with participants on campus. However,
three-quarters (76%) of institutions working with an
advisor say a participant educator comes on campus to
help faculty and staff with retirement decisions (up from
61% in 2014). In a shift from years past, most institutions
report educators visit campus at least five times a year,
with one-third indicating participant educators visit 11 or
more times each year. This is a significant increase over
the frequency reported in 2014, perhaps symptomatic of
the increased education effort institutions are reporting in
this survey.

Does a Participant Educator

Come to Your Location?
39%
46%

Yes

2014

2015

Number of Days per Year that

Participant Educator Visits
29%
27%

12

20%
24%

34
9%

56

24%
8%
8%

7 10

33%

11+

17%
2015

24

2014

Provider due diligence activity is continuing to grow

among plan sponsors of the Higher Education sector,
raising the knowledge and understanding of service
models and cost. In particular, institutions have greatly
enhanced their understanding of participant educator
compensation. Nearly 40% know for a fact participant
educators visiting campus are salaried, and fewer (19%)
rely on educators who are paid strictly on commission.
However, one-third remain unaware of how participant
educators are compensated. The percentage of those
who do not know how their educator is compensated is
even higher (36%) among institutions that do not partner
with an advisor. Institutions that partner with an advisor
are more likely to report their educator receives salary
plus bonus compensation.

How Participant Educator Gets Paid

19%
26%

Commission

39%
38%

Salary
Salary and bonus

9%
6%
33%
30%

Dont know

2015

2014

Higher Education institutions changed the focus of

participant educator activity in 2015. More institutions
are relying on educators to give financial guidance and
investment advice. Although providing retirement income
planning is still among the top three most important
roles, attention to this objective seems to be slipping.
Our read is that plan sponsors are looking for educators
to do fewer things but to do them well, and to focus on
counseling functions that provide value to the largest
numbers. Clients of advisors place even more emphasis
than their peers on enrollment, general education, and
investment advice.

Role of Participant Educator

Give general financial guidance

55%
48%

Provide investment advice

54%
46%
52%
61%

Provide retirement income planning

Provide education to staff

45%
44%

Enroll faculty and staff

44%
44%

Assist employee understanding

of the plan

38%
46%
34%
37%

Improve employee appreciation

of the plan
Provide staff with post-retirement
products and solutions
2015

17%
20%
2014

As Higher Education institutions attempt to match the

offerings, investments, and return potential of corporate
plans, the frequency of due diligence provider searches
increases. Nearly 7 in 10 institutions (69%) have put their
plan out to bid at least once in the last five years, up
from 51% in 2014. Search activity is particularly strong
(77%) among clients of advisorsnearly double the level
registered in this group in 2014. Institutions with a 403(b)
plan and those with multiple providers are the categories
most likely to have increased search activity between
2014 and 2015 (respectively +72% and +64%). Many
have conducted a search more than once over the last
five years, most notably very large institutions (with 5,000
or more participants). More than 83% of institutions using
auto-escalate have conducted a search in the last five
years, suggesting the implementation of auto-escalation
came as a result of the search and may have been a
factor in provider selection.

25

Retirement ReadinessStrides in Process

Although retirement readiness is the most talked about
issue in the retirement industry today, just 43% of Higher
Education institutions monitor the retirement readiness
of their retirement plan participants, down from 47% in
2014. Those who rely on an advisor are more attentive
to retirement than others (63% monitor how prepared for
retirement staff and faculty will be vs. 39% of other plan
sponsors). On the other hand, institutions with multiple
vendors are least attentive to retirement readiness
(38%), even though they made progress (23% in 2014).
When assessing the retirement readiness of staff and
faculty, most institutions rely primarily on account
balances and contribution rates, followed to a lesser
degree by use of automatic deferral escalation, income
replacement ratios, and the existence of other retirement
accounts outside to institution.

Slightly more than one-third (36%) of Higher Education

institutions estimate that 50% or more of their employee
population is on course for a successful retirement.
Those that partner with an advisor or consultant appear
to be ahead: 41% estimate that half or more of their
participants are on course to achieve a fully funded
retirement. Both statistics show Higher Education
institutions lagging behind the rate observed in
corporate plans in the Retirement Advisor Council 2014
report showing three-quarters of plans working with
an advisor with 50% or more of plan participants on
course to achieve a successful retirement. We believe
the move to exclusive arrangements with single service
providers, and the decision by many institutions to retain
an advisor or consultant will begin to bridge the gap in
retirement readiness in 2016.

Number of Times Plan Put Out

to Bid in Last Five Years

Does the Recordkeeper Monitor

Retirement Readiness

29%

47%

33%
19%

57%

No

53%

27%
27%

2 times

More than 3 times

43%

Yes

49%

1 time

3 times

2015

9%
4%
2%
1%

What is Looked at When Measuring

Retirement Readiness
2014

2015

2014

48%

Account balances

32%
45%

Contribution Rates

31%

Party that Administers the Plan

22%
18%

Use of automatic
deferral escalation

Money manager also acting

as a recordkeeper

70%
income replacement ration

Recordkeeper who isnt acting

as a money manager

30%
Presence of other retirement
accounts, ouside of your plan

18%
9%
7%
4%

2015
2015

2014

Partner with a Professional Retirement Plan Advisor and Achieve Higher Participant Retirement Readiness Scores,
Retirement Advisor Council, July 30, 2014, retirementadvisor.us/enhance-retirement-readiness.

26

Percent of Staff on Course for Retirement

0%

2%
1%

0%
19%
19%

1 25%

24%
29%

51 75%

2%
3%
19%
22%

1 25%
35%
39%

26 50%

76 100%

Percent of Staff on Course for Retirement

by Age Group

35%
35%

26 50%
24%
23%

51 75%

12%
4%

76 100%

9%
8%

Not sure

2015

Not sure

12%
9%
9%
9%

2014
2015

2014

27

About the Study

This report presents results of a survey of over 250 plan
sponsors at institutions of Higher Education conducted
in May 2015. A sample size allows us to show year-overyear trends and to analyze data by segments such as size
band, plans with an exclusive provider vs. multi-vendor
situations, and plans with and without an advisor to a
greater extent than we were able to in 2014. The 2015
sample includes 166 public and 110 private institutions,
the majority of which are four-year colleges or universities;
the 2015 sample also includes a slightly higher proportion
of institutions with more than 5,000 employees. Differences
in sample composition impact year-over-year comparisons.

Public vs. Private Institutions of Higher Education

60%

Public

56%

Traditionally, plans at private institutions are more active in

performing due diligence and behave more like corporate
plans. Plans at public institutions are more likely to rely on
multiple providers and to be less aggressive in performing
due diligence of service providers available on campus.
However, the trend even for public institutions is to
emulate corporate plan standards as a best practice. For
example, Higher Education plans are traditionally more
likely than corporate plans to work with more than one
service provider. In 2013, 48% of Higher Education plans
characterized their plan as multi-vendor, but in 2015,
only 33% of institutions characterize their plan as multivendor. The trend is toward a single recordkeeper.
Plans in the multi-vendor segment use fewer service
providers than they once did. In 2013, 23% of the multivendor segment used six or more providers. None did in
the 2014 sample. In 2015, only 16% of respondents used
six or more providers, but one-third used three providers.

40%

Private

44%

2015

Number of Service Providers

2014

33%

62%
32%

Number of Employees
4
Over 5,000 employees

4%
17%

30%
27%

15%
10%

5
70%

Under 5,000 employees

2015

10%

73%

6 or more

16%
0%
2015

2014

2014

Type of Arrangement
67%

Exclusive

72%
33%

Multi-vendor

28%

2015

28

2014

Conclusion
This report documents a momentous change of pace and
frequent provider due diligence searches in the Higher
Education sector. Competition for talent from scientific
organizations, market forces, and cost pressures lead
institutions to overhaul the design of their retirement
program to consolidate provider relationships and hire
advisorsoften acting in a fiduciary capacity to help
implement reforms sorely needed to enhance participants
likelihood of retirement success. In the process, new

features such as loans, automatic enrollment, and automatic

escalation are added to the plan. The availability of loans
spurred usage and defaults in 2015, but we believe that
auto-enrollment and auto-escalation combined with
increased reliance on participant counseling staff for
core functions will have a major net-positive effect on the
retirement readiness of participants starting in 2016. Higher
Education institutions retirement plans are on the right path.

Contact Us
Grace Basile

Wendy Daniels

Director, Market Research

Transamerica Retirement Solutions
800-770-6797
grace.basile@transamerica.com

Senior Vice President, Marketing

Transamerica Retirement Solutions
800-770-6797
wendy.daniels@transamerica.com

2015 Transamerica Retirement Solutions, LLC. All rights reserved. Displays or reproductions of any part of this material must include the following
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29

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