Some players in the K-12 403(b) plan marketplace say the traditional model—in which plan participants have individual relationships with advisers and the majority, if not all, of their retirement savings is in individual annuity contracts or custodial accounts—needs a revamp.
This camp says the traditional model leaves plan sponsors with an unworkable number of retirement plan providers serving the same plan. Participants also have too much choice and responsibility for investments and providers, and investment costs to participants are higher.
These same arguments have been used in lawsuits that target university 403(b) plan sponsors. In addition, the Securities and Exchange Commission (SEC) and the New York State Department of Financial Services (NYDFS) are investigating annuity sales practices for 403(b) plans.
When 403(b) regulations were finalized in 2007, many 403(b) plan sponsors moved to consolidate vendors to make adhering to the rules less cumbersome. One way vendor consolidation is working in the K-12 public school space is through a consortium—a group that bands together to leverage quality and price of services.
For example, the Illinois Public Pension Fund Association (IPPFA) is a not-for-profit organization with the primary function of educating and training all Illinois public pension fund trustees. By leveraging the buying power of hundreds of public sector employers, IPPFA built a co-operative that public sector employers are able to join at no cost—the Wise Choice for Educators Combined 457(b)/403(b) Plan. In addition, the Florida Model Plan is a program designed to streamline 403(b) plan management for the more than 350,000 K-12 educators across the state.
Colleges and universities have also turned to multiemployer plans (MEPs) to streamline administration and create a better experience for participants. In 2016, Transamerica Retirement Solutions introduced the HigherEd Retirement Consortium, a 403(b) MEP. In 2018, 14 Virginia private colleges announced they were joining a newly created MEP with the expectation of reducing their administrative burdens and cutting costs while helping employees prepare for retirement. The schools are members of the Council of Independent Colleges in Virginia (CICV), an umbrella organization representing 28 private, nonprofit institutions.
The Council of Independent Colleges in Virginia was the first higher education MEP of its kind and is currently the largest. Now, Independent Colleges of Indiana (ICI), the state’s member association of 30 private nonprofit colleges and universities, is launching one of the largest 403(b) MEPs among private colleges in the United States.
The ICI MEP will include 12 institutions and cover more than 4,048 employees with $600 million in assets. The projected savings are estimated to reach nearly $500,000 each year.
Service providers for the ICI MEP are:
- TIAA: plan record keeper;
- PlanPilot: 3(38) fiduciary, plan investment adviser;
- Pentegra: 3(16) fiduciary, taking on day-to-day plan management;
- Millennium Advisory Services: participant education through individual and group meetings; and
- ICI: staff will coordinate meetings and facilitate communications between MEP members and providers.
The ICI MEP will expand the plan in phases throughout the next year starting with two institutions—Indiana Tech and Manchester University.
The announcement of the Indiana MEP shows new 403(b) plan models continue to be introduced to meet the needs of plan sponsors and participants and in an effort to improve plan governance.
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