PARTICIPATION RATE: 93.9%
AVERAGE DEFERRAL RATE: 6.32%
DEFAULT DEFERRAL RATE: 2%
DEFAULT INVESTMENT: Transamerica’s PortfolioXpress
AUTOMATIC ENROLLMENT: Yes
AUTOMATIC ESCALATION: Yes
EMPLOYER CONTRIBUTION: 100% on 5%; 3% nonelective contribution
“We froze our pension plan in 2013 with the ultimate goal of exiting the ‘pension business’—which we did two years later, when the plan was terminated,” says Prescott Baston, asset management and financial support director at The First Church of Christ, Scientist, headquartered in Boston. “But before we froze the pension, we knew that significant changes to our 403(b) plan would need to be made.”
Over the years, as it evolved from a defined benefit (DB) plan focus, the sponsor has improved its 403(b) plan. In January 2014, the employer increased its contribution. “The great thing about pension plans is that everyone gets to retirement with at least something. We wanted to replicate that in our 403(b) plan,” Baston says. “As a result, we implemented a 3% nonelective employer contribution, and we increased the employer match to dollar-for-dollar up to 5%.” For the first five years after the 2013 pension plan freeze, the employer made an additional age/service-based contribution, which ranged from 2% of pay up to 10%, for current employees close to retirement.
To help ensure employees take full advantage of the match, in January 2014 the plan started automatically enrolling new employees at 2%, and automatically increasing them by 1% annually up to 5%. “We felt that if employees put in 5% of their own money and the church threw in up to 8%—the 3% nonelective contribution, plus the full 5% match—the probability of employees reaching retirement with enough savings was good,” Baston says. Today, the 403(b) plan has an average $106,000 account balance.
Prior to the plan-design changes, the decision to freeze the defined benefit plan led the sponsor to consolidate 403(b) recordkeeping services with a single provider, Baston says. Adviser Cammack Retirement Group Inc. helped the plan committee do a request for proposals (RFP) that resulted in consolidation with recordkeeper Diversified Investment Advisors—now Transamerica Retirement Solutions—in 2011.
Then, in 2017, the sponsor and Cammack negotiated a 35.5% reduction in recordkeeping fees with Transamerica after doing a request for information (RFI), Baston says. Also last year, the sponsor negotiated an additional 22.5% recordkeeping fee decline. “The reduced fee was primarily because of the increase in assets into the plan following the pension plan’s termination,” he says. “Participants’ lump-sum rollovers and the increased employer contributions both made an impact here.”
The sponsor also has changed its fee approach. The plan had begun subsidizing recordkeeping fees in 2011, says Dianne Fiske, benefits and payroll manager at the church. The transition in their retirement benefit from a pension plan to the 403(b) involved significant changes for employees, she notes. “We wanted to simplify this process as much as possible for them,” she says. “As a result, we wanted to avoid having a new fee that [they] weren’t accustomed to seeing.”
Prior to and following the 2017 renegotiations with Transamerica, however, the plan’s recordkeeping fees had dropped by more than half. “Given these significantly lower fees, we implemented a levelized fee approach for participants,” Fiske says. “It was at this point that the church ended its subsidization of recordkeeping fees.” —Judy Ward
« Nonprofit DC >$100mm – Northwell Health