Howard University

IN NOVEMBER 2019, Howard University’s 403(b) plan consolidated from three recordkeepers to one and streamlined the investment menu from 150 options to approximately 25. The results of simplifying the plan include the participation rate growing from 62% in October 2018 to 92% this January.

“If you’re going to do a big consolidation, you need to do it right—because you only get one chance to get it right,” says Larry Callahan, who served as associate vice president and chief human resources officer (CHRO) at the university until April. Founded in 1867, Howard is a private, federally chartered historically Black research university composed of 13 schools and colleges in Washington, D.C.

Callahan arrived at Howard in May 2018 to find a 403(b) in need of streamlining. “I had never seen anything as complex as Howard’s plan,” he says. “It had morphed over a period of time, and it created confusion for our participants. The plan was way too complicated, and I believe in simplification.”

The Benefits of Consolidation

Prior to the consolidation, 403(b) participants had three recordkeepers (VALIC, Voya, and TIAA) and each one’s investment lineup to choose from, says Faleasha Carter, director of retirement programs at Howard. Many participants utilized multiple vendors, she says, in hopes of finding better-performing investments from among a broader array of choices.

Having multiple recordkeepers led to participant confusion, Carter says.  In addition, consolidating to one recordkeeper enabled participants to benefit from lower fees.  “From a fee perspective, you get more bang for your buck when you have all of the money with the same recordkeeper,” she says.

Howard chose TIAA as the plan’s sole recordkeeper, and the university and TIAA closely collaborated on planning and implementing the transition. Narrowing the investment menu to approximately 25 options has simplified investing for the participants, and investment monitoring for the plan sponsor. “That has made it much easier for us to manage the plan, and for our participants to have a cleaner line of sight to their investments,” Callahan says.

The streamlining has also been supported by a robust governance structure and processes, as the Howard fiduciary committee meets regularly to oversee the consolidated 403(b) plan. “In my experience, you need to manage a plan consistently,” Callahan says. It was important to have processes in place for monitoring investments quarterly and reviewing plan administrative issues regularly.

“Nothing is perfect,” he says. “But this gives us greater oversight of the plan, and greater visibility into it.” Consultant Aon serves as an Employee Retirement Income Security Act (ERISA) co-fiduciary and works closely with the fiduciary committee to help it monitor investments and plan fees.

With the transition, Howard also could better explain the 403(b) plan to employees and engage them, Carter says. “Because of all of the touches we had with our participants, we really had an opportunity to reintroduce the benefit,” she says. “With that came increased employee interest in it. With the financial health of our faculty and other staff, we’re now in a much better place, and we’re continuing to improve.”

A Best Practice Plan Design

The streamlining of the 403(b), known as the Howard University Savings Plan, came almost a decade after Howard transitioned to using it as the main retirement plan for employees. In 2010, the university froze its defined benefit (DB) plan, the Howard University Employees’ Retirement Plan, due mainly to the costs associated with it. The plan closed to all new hires that year and also froze all future benefit accruals.

The move from a DB plan to a defined contribution (DC) plan has become increasingly common within higher education, says Timothy Rodgers, who works with Howard in his role as a Baltimore-based managing director of institutional solutions and relationships at TIAA. And, with its 403(b) contribution design, Howard has created both a strong base of employer support and a good incentive for employees to defer pay, he says. “I really think that Howard’s plan design is a best practice, and it drives engagement,” he adds.

For eligible employees, Howard’s 403(b) plan includes a 6% nonelective employer contribution that vests immediately. The plan also offers a match of 50% up to 4% of pay that an employee contributes, and the employer match vests immediately. If a participant makes a 4% contribution, Howard matches it with a 2% contribution. So participants who contribute 4% of their salary get a total 12% (employer plus employee) contribution.

Sixty-six percent of participants in Howard’s 403(b) plan currently maximize the match by contributing at least 4% of their pay, TIAA data shows. “Typically in 403(b) plans, we see approximately 50% of participants making a voluntary contribution at or above the employer match level,” Rodgers says.

Howard University aims for its employees to get at least a 12% total contribution every year, to assist with having enough savings accumulated to retire on time. The 12% savings target also is meant to help participants retire with benefits similar to what they would have had in the frozen DB plan.

“Howard’s commitment to provide both matching and nonelective contributions to the plan is aligned with the contribution recommendations of what an individual should save to properly prepare for retirement, to work toward financial security,” Carter says. “As we are aware, many people face financial limitations throughout their employment journey. So Howard provides up to an 8% contribution annually to eligible participants, to aid them in reaching the recommended total retirement contribution each year.”

TIAA’s Plan Outcome Assessment analysis shows that as of March 31 of this year, participants in Howard’s 403(b) plan are on track to replace an average of 79% of their income in retirement (including Social Security). And the plan’s 92% participation rate exceeds many peer university plans, Rodgers says. “Think about the fact that the participation is that high, and they don’t utilize automatic enrollment,” he says. “So, people are making a conscious decision to participate in this plan. A 92% participation rate without automatic enrollment is tremendous.”

—Judy Ward