Mandatory Retirement Plans Help Higher Ed. Employees

December 14, 2012 ( Mandatory defined contribution (DC) retirement plans have been prevalent in both public and private higher education institutions.

An analysis of 415 plans recordkept by Fidelity Investments finds 68% of public colleges and universities provide at least one mandatory retirement plan to employees, as do 78% of private colleges and universities. Among the advantages of mandatory plan design are full enrollment of benefits-eligible employees and automatic, nondiscretionary contributions, according to a Fidelity report.  

“Defining Excellence: A Report on Retirement Readiness in the Not-for-Profit Higher Education Industry,” the second report in a series from Fidelity, finds mandatory employer core contributions help public and private institution employees save as much as 9.5% and 10.1%, respectively, of their annual salaries—close to the recommended 10% to 15% overall savings rate.  

The report suggests plan designs that include both fixed core contributions and match contributions can result in increased employee engagement in the plan, increased retirement readiness as a result of an increase in total savings and potentially lower employer costs through the elimination of a guaranteed employer payment in favor of a match contingent on employee contributions.  

The first report in the series detailed how higher education retirement plan sponsors lag behind sponsors in other sectors in adopting plan features to improve employees’ retirement savings and highlighted three key areas for improvements in plan design (see “Room for Improvement in Higher Ed. Retirement Plans”).  

In the second report, John Ragnoni, executive vice president, Fidelity tax exempt retirement services, lends guidance to plan sponsors at public and private academic institutions so each might establish best practices to maximize employees’ retirement readiness across all ages. The second report also includes a case study about Stanford University’s retirement program.  

The report is here.