Client Service October 1, 2015

Why Participation Is Low in K-12 403(b) Plans

Employers cite several reasons they think employees don’t participate in their 403(b) plans, but it may come down to employees’ inability to save more.
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K-12 public schools often offer traditional defined benefit (DB) pension plans in addition to 403(b) plans; four out of five of K-12 403(b) plan sponsors surveyed by the LIMRA Secure Retirement Institute do so.

The survey also found six out of 10 school districts offer a 457 plan along with a 403(b) plan. Many sponsors offer both to try and increase savings rates and give participants the opportunity to save more. But, the most common plan type in the “other” category is a 401(a) plan, which is commonly used for employer contributions.

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Getting employees to participate in their 403(b) plans was cited as the greatest challenge by 25% of K-12 plan sponsors (see “Boosting Plan Participation Without Auto Enrollment”). One-quarter of plan administrators think employees do not participate in their 403(b) plans because they are already covered by other retirement plans.

In addition, according to the survey, most 403(b) K-12 plans (72%) do not offer employer contributions, which could cause a drag on participation. However, only 2% of employers cited this as an explanation for low participation rates.

Twenty-two percent of employers cite employees not being able to afford to save more as the primary reason employees don’t participate in their plans. However, LIMRA notes that consumers often cite affordability as a top reason for not saving for retirement, so this may be more of a factor than employers realize.

Other reasons K-12 employers cited for low 403(b) plan participation rates include employees underestimate the cost of retirement (18%), lack of awareness or understanding of the plan (15%) and employees are saving elsewhere (7%).

NEXT: Providers can help with compliance and retirement readiness

Twenty-seven percent of K-12 403(b) plan sponsors surveyed by LIMRA cited staying compliant with or understanding the changing regulatory environment as their greatest challenge, and 23% indicated it was their second greatest challenge.

Smaller plans (less than $5 million in assets) are more likely to be concerned about staying compliant or understanding the changing regulatory environment (77% selected this as a top 403(b) plan challenge). Being smaller, these plans might have a more limited HR staff and rely more heavily on vendors for assistance.

Over 55% of schools agree that employee retirement readiness is an important measure of their retirement benefit success. Six in 10 districts/schools believe their employees will have to work longer to have enough money to retire, and nearly half are concerned about the impact of an older workforce on future benefit costs.

Nearly 60% of schools are interested in working with plan providers to come up with innovative ways to help their employees prepare for retirement. Schools that work more with advisers were more likely to express interest in new solutions (88%), and schools with a single provider are more likely to show interest in working toward new solutions, than are schools with multiple providers.

Only 33% of school districts themselves are looking for new ways to improve employee retirement readiness, indicating that schools are more likely to seek innovative strategies with the help of providers.

The LIMRA Secure Retirement Institute survey was fielded in November and December 2014, and received 124 responses from the Association of School Business Officials (ASBO) membership, Agile distribution list (Agile is an education data vendor), and PLANSPONSOR’s (b)lines newsletter recipients.

Compliance October 1, 2015

House Committee Vote Snubs DOL Fiduciary Proposal

The Republican-controlled House Financial Services Committee approved H.R. 1090, the “Retail Investor Protection Act,” for potential consideration by the floor.
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A vote by the Financial Services Committee of the U.S. House of Representatives grabbed financial media headlines Thursday, unfolding largely on partisan lines and raising the possibility President Obama could eventually be forced to veto legislation aimed at halting the Department of Labor’s (DOL) fiduciary rulemaking.  

Given President Obama’s strong top-down push for employee benefits reform and a friendlier Senate, conventional wisdom says H.R. 1090 probably won’t get much further.   

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Still, it was an important move and sympathetic lawmakers handed enough support for H.R. 1090, known as the Retail Investor Protection Act, to push the bill out of committee. As approved, the bill would essentially halt the Department of Labor’s fiduciary rulemaking efforts to strengthen conflict of interest protections for retirement savers under the Employee Retirement Income Security Act (ERISA) until such time as the Securities and Exchange Commission (SEC) progressed in its own fiduciary reform applying generally to brokers and producing advisers.

The vote was clearly anticipated by some industry groups, who shared commentary almost as soon as the yeas and nays were tallied. For example, Consumer Federation of America (CFA) Director of Investor Protection Barbara Roper suggested “today’s vote forces us to choose between seeing the glass as half-full or half-empty. Certainly it is disappointing that a majority of Committee members voted in favor of a bill that would call a halt to regulatory efforts to ensure that all retirement savers get advice that serves their best interests.”

According to Roper, “the pretense that this is being done to protect retail investors is particularly galling.” On the other hand, Roper said, all but one of the Democrats on the committee voted against the measure, which she said “once claimed strong bipartisan support.” 

NEXT: Industry still split on likely fiduciary outcome 

“Clearly, Democratic support for the Department of Labor rulemaking has solidified as members have recognized that the rule that has been proposed is balanced, that the Department is open to making reasonable changes to make the rule more flexible and streamlined, and that retirement savers cannot afford to wait for an SEC rulemaking that may never come,” she said. “We are grateful to the many members of the Committee who voiced strong support for the DOL effort.”

The Financial Planning Coalition, comprised of the CFP Board, the Financial Planning Association and the National Association of Personal Financial Advisors, also issued a statement following the House Financial Services Committee’s vote in support of H.R. 1090. The coalition doesn’t mince words, suggesting the legislation is designed to do little more than impede the DOL's needed fiduciary rulemaking.

“The need for a strengthened fiduciary rule under ERISA is long overdue,” the Coalition suggests. “As H.R. 1090 heads to the House floor, we urge Congress not to intervene—through this bill or any other vehicle—and to let the DOL do its job and protect retirement investors. As recognized by 25 members of the House Financial Services Committee, the DOL is the expert agency charged with implementing fiduciary-level advice for tax-preferred retirement assets under ERISA. That fiduciary principle—wisely recognized by Congress in 1974—is even more important in today’s retirement marketplace in which retirement investors are largely responsible for their own retirement savings.”

Of course, for every group pushing back on H.R. 1090, another could be found to support it. This week at the PLANADVISER National Conference, attendees widely disagreed with the DOL’s fiduciary rulemaking effort, and said they would support efforts to halt it, legislative or otherwise.

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