The report, “Retirement Plans for Institutions of Higher Education,” from Transamerica Retirement Solutions reveals that higher education institutions outperform the corporate sector when it comes to faculty and staff deferral rates, and plan design practices that can generate successful retirement outcomes. Among those surveyed, the average deferral rate for faculty and staff was 13.4%.
An average of 41% of higher education institutions were found to offer automatic enrollment and more than half (54%) used a default contribution rate of 5% or more. The report also found that many such plans include automatic deferral increases, and that participants have access to more tools that help better prepare them for a secure retirement than their corporate counterparts.
“Higher education institutions have made significant changes and improvements to their retirement plans over the past five to 10 years,” said Danny Carr, vice president and national practice leader of Higher Education for Transamerica Retirement Solutions. “Through plan design features like automatic enrollment and automatic deferral increases, plan sponsors are able to positively drive better retirement savings outcomes for their faculty and staff.”
The report projects that higher education retirement savings plans will continue to evolve, and that by the end of this year, usage of automatic enrollment will increase to 57% and usage of automatic deferral increases will more than double to 17%.
The study found three-quarters (74%) of institutions have made some change to their retirement plan in the last 12 to 24 months. Of the institutions that have made changes, many have gone beyond plan maintenance and altered the structure of their retirement program. For example, on average 14% of higher education institutions have added a Roth 403(b) option.
Furthermore, two-thirds of institutions (65%) are planning to enact changes over the next year. These changes are focused on two areas: ongoing plan maintenance and structural changes of the retirement program itself.
“Significant change is clearly well underway for higher education institutions and their retirement plans,” said Carr. “We’re encouraged to see these institutions improving the potential for retirement security of their faculty and staff by adding important plan features like auto enrollment and escalation, hiring advisers and improving education.”
The study, which focused on institutions that offer a 403(b) or Roth 403(b) plan, was conducted during December 2012 and sampled 58 public and 32 private institutions, the majority of which are four-year colleges or universities (83%). Most of these institutions had fewer than 5,000 eligible employees. The sample is split almost evenly between those with a single provider (47) and those with multiple providers (43). Respondents have either sole decision-making (48%) or are members of a committee or board responsible for making retirement plan decisions. Of the 90 respondents, 38 partner with a retirement plan adviser or consultant.
A copy of the study can be requested by e-mail to firstname.lastname@example.org.