A little over a decade ago, major changes to 403(b) plan regulations went into effect, the first of their kind since the early 1960s. The extensive changes by the IRS required that 403(b) plans operate similarly to other salary reduction arrangements, such as 401(k) plans.
As a result, school districts became responsible for retirement plan administration and compliance in ways they were not before. Most schools had multiple plan providers, and it was common for 403(b) vendors to duplicate investment options within a plan, with varying pricing structures. Monitoring of investment performance did not exist and there was no transparency around fees and expenses; sometimes, there were serious compliance and administration challenges at the employer level. For multiple-vendor plans, the new regulations were especially onerous.
This caused some school districts in Missouri to consider how they would comply. To alleviate their burden, Cooperating School Districts (CSD), an educational service agency serving school districts in the St. Louis area for 80 years, listened to school districts’ concerns and partnered with teachers, business officials and administrators to evaluate the regulations and subsequently create the CSD Retirement Trust launching in early 2010 . Prior to launching the trust, CBIZ Retirement Plan Services was selected as the registered investment adviser (RIA) and AIG Retirement Services was selected for recordkeeping and implementation, following a request for proposals (RFP) process. After creating the trust, a board of advisers and an investment committee were formed.
As a single-provider consortium, the CSD Retirement Trust is a turnkey solution for its member school districts, handling all plan changes and providing a comprehensive governance structure. This structure allows member school districts to implement regulatory changes seamlessly, while offering a highly competitive supplemental retirement plan for employees.
The trust solves two key challenges facing K-12 plans: how to effectively and efficiently offer a supplemental retirement program that benefits their employees and how to provide an employee-centered program that helps teachers and staff improve their retirement outcomes. In addition, the CSD Retirement Trust manages the plan by monitoring fund performance quarterly, replacing underperforming funds as needed and offering education and advice services to plan participants.
Since its launch, the trust has grown from 17 school district members to more than 55, with approximately $171 million in plan assets for more than 7,600 plan participants, and its growth continues. Since 2010, much has been learned about managing the retirement plan for a consortium of school districts, including key considerations and benefits that are important for school districts exploring the consortium model.
- Resistance to the single-provider model is unfounded: Many school districts have operated using a multi-provider model for retirement benefits because they believe competition among providers drives better results. However, by leveraging the power of multiple school districts, rather than providers, consortiums can offer more competitive pricing and customized services than traditional multi-provider arrangements.
Importantly, the trust works with AIG Retirement Services and CBIZ Retirement Plan Services to ensure retirement solutions are appropriately vetted while giving participants access to a wide variety of investment options, adviser-based programs and financial education. And moving to a single provider means having a single, uniform plan document for all members, and, in some states, allows the consortium to fully serve as the plan sponsor, removing many day-to-day administrative burdens from the local districts.
- Clarity around plan’s fees and expenses: In our experience, when plan administrators first considered the consortium model, many incorrectly believed they did not have any fees in their existing model, or that the consortium would cost more to implement. As a matter of practice, however, the trust strives for the lowest fee share class and provides transparency through quarterly participant statements, which include administration fees, versus only sharing fee statements annually.
- Communication and education: We learned that when communicating change with new or potential plan participants, it’s vital to appeal and communicate to all levels of an organization. In other words, a top-down or bottom-up approach, which relies on messaging being filtered through a school district from only one area, will not suffice. The trust ensures consistent communications with all employees and plan participants, educating them about the plan, retirement planning and their investment options, focusing on holistic financial literacy.
Additional Benefits of the Consortium Model
While the main objectives of the trust were improving efficiency, reducing costs, offering better investment options and ensuring compliance, the model has yielded many additional benefits, including:
- Expanded access to educational resources: Now more than ever, employee associations and school districts are seeking financial education programs to help employees in making financial decisions. Plan sponsors typically are not able to manage such programs, especially when working with multiple providers. Consortiums offer educational programs that address the needs of plan participants, which the trust is able to offer through services provided by AIG Retirement Services. The trust also works with organizations to help employees navigate public service loan forgiveness.
- Personalized financial advice for plan participants: The retirement plan consortium model fosters relationships between employees and financial advisers. This is a key priority for the trust and AIG Retirement Services—the availability of financial advisers who focus on educating participants, developing tailored financial plans and providing them with the resources and guidance to help achieve their goals. We’ve seen many employees take full advantage of their relationships with their financial advisers in seeking advice around financial wellness, which includes budgeting, student loan debt, college savings and more.
- Information sharing and lessons learned: A fear we often hear when schools are considering engaging in a retirement plan consortium is the anticipated challenge of bringing together numerous organizations, each with their own cultural nuances and priorities. Instead of remaining culturally siloed, the schools take advantage of the opportunity to become a community that supports each other through collaboration and sharing resources through their network.
For the past 10 years, the CSD Retirement Trust has endeavored to meet the needs and be ahead of the changing landscape and its challenges. The trust has done this by offering a new model that helps to create efficiency for school district administrators and cost savings for plan participants, while helping them on the road to a successful retirement.
Stephen Keyser is managing director at CSD Retirement Trust and Ed Hinders is vice president and senior plan consultant at CBIZ Retirement Plan Services.
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