Public DC – North Carolina Supplemental Retirement Board of Trustees

TOTAL PLAN ASSETS/PARTICIPANTS:  $9.8 billion/250,305 in 401(k); $1.4 billion/53,837 in 457; and $13.2 million/1,204 in 403(b)
PARTICIPATION RATE:  29.8% for 401(k); 11.06% for 457; and 1.35% for 403(b)
AVERAGE DEFERRAL RATE:  5.03% where only employees contribute; 6.18% where both employees and employer contribute
AUTOMATIC ENROLLMENT: No
AUTOMATIC ESCALATION:  Yes
EMPLOYER CONTRIBUTION:  5% in 401(k) for law enforcement officers; other local governmental employers may elect to provide contributions to plans.

The North Carolina Supplemental Retirement Board of Trustees, in Raleigh, North Carolina, made three big moves in 2016 and 2017—unbundling services, consolidating recordkeeping and renegotiating investment fees—that have led to lower fees and streamlined services.

 
The N.C. Department of State Treasurer, Retirement Systems Division staff members drove the decision to unbundle services in 2016, says Mary Buonfiglio, deputy director of Supplemental Retirement Plans, North Carolina Department of State Treasurer – Retirement Systems Division. As sponsors of a 401(k) plan, 457 plan and 403(b) plan for state employees, “we were experiencing some administrative issues, and, because of our bundled nature, it was very difficult to find the root problem and who was accountable,” she recalls. “We knew we wanted more transparency, in order to hold each provider accountable. But we also knew that came with increased responsibilities.” Those included assessing staff’s capacity to take on new duties in monitoring the additional providers associated with an unbundled plan.

Staff members researched the unbundling options for the 401(k) and 457 plans and, 18 months before the then-existing bundled contract was set to expire, simultaneously sought competitive bids from both recordkeepers and custodians, Buonfiglio says. Staff members leveraged the services of consultant Mercer to help them develop and issue a request for proposals (RFP), then evaluate responses.

Staff and the Supplemental Retirement Plan (SRP) board served as evaluation committee members, she adds, with the board making the final vendor-selection decision. “Our incumbent recordkeeper—Prudential Retirement—was selected to continue in an unbundled environment, which took another 12 months for full implementation,” she says. The unbundling of services brought an approximately $1 million fee reduction. Instead participants in the 401(k) and 457 plans would pay a $31 flat, annual recordkeeping fee.

In summer 2016, staff members initiated a dialogue with the SRP board about consolidating the supplemental plans’ recordkeeping from two providers to one. They sought benefits including economies of scale; a simplified participant experience, through having one recordkeeper service team instead of two; and the ability to implement a flat recordkeeping fee for participants in the 403(b) plan as well, Buonfiglio says. “We knew we weren’t taking full advantage of our large size by having multiple providers,” she says. “Size and economies of scale are significant drivers of fees.”

So a year ago February, the 403(b) plan transitioned to Prudential, already the recordkeeper for the 401(k) and 457 plans. Now, employees have just one recordkeeper to deal with, rather than two. “Alignment around our strategic mission has been the most important benefit,” says Steve Toole, executive director of the Retirement Systems Division. “In 2017, we saw positive activity in enrollments in all three plans, at both the employer and participant levels: a 100% increase in employers enrolled in the 403(b), for example, and a 3.4% increase in participant enrollments in the 401(k). We believe this is a direct result of simplifying the enrollment process [by having only one recordkeeper] and adding more resources to assist employers and participants with enrollment.”


The SRP staff and board also worked to lower investment fees last year. “The reduction of $2.2 million, or approximately 7%, was achieved by renegotiating fees with our investment managers,” Toole says. “At the end of 2016, [average] investment-management fees were 33.8 basis points (bps). By the end of 2017, investment-management fees were 29.1 basis points.” —Judy Ward

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