Room for Improvement in Higher Ed. Retirement Plans

The report, the first in a series, examines trends in mandatory and voluntary plan design, and highlights three key areas for improvements in plan design: employer and employee contributions, as well as plan participation rates. Employer matching contributions are less prevalent in higher education retirement plans, Fidelity notes; however, during the past few years more plans, especially those in private higher education, have been redesigning their employer contributions to include a match.   

In higher education, an employer matching contribution is often combined with an employer core contribution. The most common design for a match-plus-core contribution is a 5% maximum match (100% up to 5%) and a 5% core contribution, resulting in a 10% total maximum employer contribution.  

Fidelity says a shift in employer contribution dollars from core to match may result in: 

• Greater participant engagement: Employees contributing a portion of their own salary take greater interest in and responsibility for saving for retirement;  
• Increased retirement readiness: Average total employee and employer contributions tend to be higher (depending on plan design), leading to higher account balances; and/or 
• Reduced costs: Transitioning from a guaranteed payment for 100% of benefit-eligible employees to a contingent payment to a smaller percentage of employees can lead to a drop in overall plan costs.  

Adoption of automatic enrollment (AE) and annual increase programs (AIPs) in higher education has also been limited when compared with other segments. Less than 5% of nonprofit health care organizations have adopted AE or AIP. By comparison, 29% of nonprofit health care plans use AE and 49% use AIP; 22% of corporate plans use AE and 76% use AIP.  

Fidelity concludes that implementing an employer match, as well as the use of AE, will increase plan participation rates.