Education Retirement Plans May 'Graduate' With Pooled Plans

Higher education institutions frequently encounter various obstacles, particularly in assisting faculty and staff with retirement planning. Transamerica's 2023 survey on higher education indicates that pooled retirement plan solutions could be a viable strategy for these institutions as they navigate the complexities of retirement preparation.

The survey suggests that pooled retirement plan solutions offer a promising avenue for these institutions to address their retirement challenges effectively.

What Are Pooled Plan Solutions?

Pooled plan solutions represent a strategic approach to retirement planning, where multiple employers come together to adopt a collective retirement plan. This collaborative model offers several advantages, particularly for smaller institutions that might otherwise need help with the complexities and costs of providing high-quality retirement plans. By joining a pooled program, these institutions can simplify administrative tasks, mitigate fiduciary liability, and potentially reduce costs. 

Worries About Financial Wellness in Higher Education

The study details the heightened concern for financial wellness among faculty and staff in higher education institutions. The study found that sponsors of pooled solutions generally exhibit a greater level of concern than SEP sponsors. For instance, 23% of pooled solution sponsors feel an extreme sense of responsibility for the financial well-being of their faculty and staff, in stark contrast to only 4% of SEP sponsors. This disparity extends to engagement in personal finances and concerns over the individual debt levels of participants, with 23% of pooled solution sponsors being extremely concerned, compared to 5% and 1% of SEP sponsors, respectively.

The study also sheds light on the financial wellness benefits offered by these institutions. While 23% of pooled solution sponsors provide personalized financial counseling, coaching, or planning, this is slightly higher among SEP sponsors at 29%. Interestingly, both pooled solution and SEP sponsors are equally likely (23%) to offer assistance with wills, trusts, and estate planning. The report identifies competing benefits priorities and household budgeting, spending, and saving levels as the most pressing challenges for faculty and staff.

Role of Advisors in Retirement Plan Management

Also highlighted in the study is the role of advisors in managing retirement plans. All sponsors of a pooled solution reported using a financial advisor or consultant, likely due to the fiduciary support typically included in pooled solution structures. The study reveals that 42% of pooled solutions have a 3(38) investment manager, compared to 25% for SEPs. Additionally, 58% of pooled solutions have both a 3(16) administrative fiduciary and a 3(21) fiduciary investment advisor, indicating a higher level of fiduciary support compared to SEPs, where 30% have a 3(16) administrative fiduciary and 34% have a 3(21) fiduciary investment advisor.

The study indicates that institutions opt for pooled solutions to lower costs, offload administrative responsibilities, reduce fiduciary liability, and receive better service. Pooled solutions were also shown to be more inclusive, allowing more faculty and staff to participate compared to SEPs. However, they are less likely to automatically enroll participants, though there is a trend toward considering automatic enrollment in the near future.

Higher Education Retirement Planning

The study underscores the ongoing concerns of higher education institutions regarding faculty and staff retirement savings, regulatory changes, and effective plan performance measurement. The reliance on advisors and consultants is significant, especially in the context of the emerging pooled employer plans (PEPs), for which guidance from the Department of Labor (DOL) and IRS is still pending in several areas.