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PLAN SPONSOR OF THE YEAR Finalists

403(b)

University of Massachusetts

Andrew Russell

TOTAL PLAN ASSETS/PARTICIPANTS: $876,176,267/9,294

PARTICIPATION RATE: 23%

AVERAGE DEFERRAL AMOUNT: $9,500

Employees of the University of Massachusetts (UMass) have a choice to participate in either the Commonwealth of Massachusetts defined benefit (DB) plan or a 401(a) plan—each requiring a mandatory 11% employee contribution. While that is a good start to retirement savings success, UMass, a five-campus public university system, realized that to get its employees to achieve an 80% replacement rate, more saving was needed.

Although state-sponsored 403(b) plans are not governed by the Employee Retirement Income Security Act (ERISA), UMass decided that following that law’s best practices was right for its 403(b) plan—especially if it wanted to improve participation and success measures.

Andrew Russell, assistant vice president for the UMass System’s office of human resources (HR) in Shrewsbury, Massachusetts, explains that the plan underwent an Internal Revenue Service (IRS) audit in 2012. At that time, the plan engaged counsel to ascertain the sponsor’s fiduciary responsibilities.

In 2014, working with consultant Kevin Murray, director with Cammack Retirement Group in Wellesley, Massachusetts, the university decided to use ERISA as its guide. Murray says a 403(b) plan committee was established, as well as an investment policy statement (IPS) and committee charter; committee members received fiduciary training.

One thing Cammack helped the plan appraise was its provider relationships, Russell says. Before the IRS 403(b) regulations were finalized in 2007, the university had decided to make the plan more manageable by cutting the number of vendors. Still, it chose to grandfather in 50 then-current vendors.  When the university became aware of the 2007 regulations, it greatly reduced that number, to three primary/active and three legacy/frozen to new participants.

Last May, the university, with Cammack, streamlined the plan even more, reducing six vendors to two: Fidelity as the main recordkeeper and TIAA as a secondary one, which handles the plan’s annuities. This effort cut participant investment choices from more than 500 to 24, including a target-date fund (TDF) suite and a brokerage account. According to Murray, the initial impact was $400,000 in administrative savings.

Russell adds that these were the result of a significant reduction in participant recordkeeping and administrative fees. “It is our expectation that the annual savings will grow as assets in the plan increase over time,” he says.

With these changes, the university decided to do a re-enrollment of sorts, Russell says. Participants had the choice to select investments from the Fidelity platform or to be defaulted into an age-appropriate TDF. Matt Wamback, HR operations manager for the UMass office of human resources, says this process helped participants re-engage with the plan and/or put them in the right portfolios.

The 403(b) plan has only a 23% participation rate, and the average deferral is $9,500. But stats show that last year’s changes had an impact. Russell says, from 2015 to 2016 there was a 4.9% increase in participation.

Russell says now the system is working with Fidelity and Cammack to help employees understand that, even if they reach the average pension benefit of about $32,600 per year, they still need to supplement this with additional savings, such as the 403(b), in order to have more than an 80% replacement income in retirement. The communication and education program focuses on showing employees a complete picture: what they are projected to have, what they are projected to need, and what changes they can make to achieve their goals.

“This has been a project that’s been a life’s work,” Russell says. “Truly, I think what worked was that the university had a vision for a more effective and efficient plan. We made incremental changes that align with that vision, and we’ve gotten there. Now we continue that vision.” —Rebecca Moore

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