School District Explains Advantages of Paring Providers

October 7, 2014 ( – Montgomery County (Maryland) Public Schools has approved changes to the school system’s 403(b) and 457(b) defined contribution plans for employees.

The system is moving from nine plan providers to one provider. About 12,000 employees currently participate in plans from the nine vendors.

The Gazette reports that Susanne DeGraba, chief financial officer for the school system, explained to the school board that the current providers offer some of the same services, and each vendor is spreading the cost of their service over only a subset of school employees who have chosen their plans. With a single provider, she said, a service will come from one source and the costs will be spread out over more people.

The change will result in a smaller menu of investment options—school officials estimate that employees are now able to choose between 3,500 and 4,000 mutual fund options, but the new menu is expected to include about 15 to 30 choices, according to the news report. Employees will be able to select other options through a brokerage window.

DeGraba said, with a smaller menu, it will be easier for employees to understand and be aware of the options and the associated fees. Tom Israel, executive director of the Montgomery County Education Association, added that the changes would result in more transparent fees.

With the change, employees will be offered the availability to meet with financial advisers. DeGraba noted that, under the current arrangement, it is possible that employees seeking investment advice could be getting it from a person who would benefit from the sale of products or investment vehicles. Board Vice President Patricia O’Neill said she thinks “the most important piece” is the fact that employees will receive investment education without sales mixed in.

DeGraba thinks the changes will help increase participation in the plans. She said officials will look “carefully” at what the shift might mean for participants, and employees will not be forced to move assets they have already invested if the move would result in a loss or a cost.

The Montgomery school system was spurred to make these changes because it’s doing “the right thing for employees,” and the changes reflect new best practices within the industry, DeGraba said, according to The Gazette.

The school system will put out a request for proposals to start the search for the provider. The changes will go into effect January 1, 2016.