Massachusetts Treasury

After being limited previously to only a stable value fund, part-time and seasonal employees in the Massachusetts Employees Deferred Compensation Plan—dubbed the SMART Plan—recently got the option to invest in the plan’s target-date funds and managed accounts.

The change impacts many people: About 60% of the SMART Plan’s 284,000 total participants (active and inactive) are classified as part-time or seasonal employees. All part-time and seasonal employees who do not qualify for the state pension plan or a participating municipality’s pension must contribute 7.5% of their salary to the SMART Plan, a 457(b) plan. Massachusetts mandates that contribution in part because of another that is not required: “In most states, public employees still contribute to Social Security,” says Laura Rooney, director of operations in the Massachusetts State Treasurer’s office. “Massachusetts is one of the few states that doesn’t do that.”

State officials had long interpreted the federal OBRA (Omnibus Budget Reconciliation Act) statute governing the provisions for part-time and seasonal employees in the plan as requiring that the money from these employee groups be invested in the plan menu’s most conservative investment option, a stable value fund. Of course, a very conservative investment often earns significantly lower returns than a diversified portfolio: The plan’s stable value investment, the SMART Capital Preservation Fund, has 10-year performance averaging 2.07%. The plan’s SMARTPath custom target-date funds have 10-year performance that ranges among the different vintages from 4.9% for the 2010 fund to 8.6% for the 2055 fund.

The seasonal and part-time-worker population includes long-term employees, such as adjunct college professors, and they can build up a sizeable account balance. “They needed access to risk-appropriate investment options that are more appropriate for long-term saving,” says David Lynch, MA Treasury’s executive director for MA deferred compensation.

After getting feedback from some impacted employees who wanted access to additional investments, MA Treasury retained outside legal counsel last year to review whether federal law allowed it to provide part-time and seasonal employees with more options. “The review concluded that we did have discretion to make these additional investments available,” Lynch says.

The stable value fund remains the default investment for part-time and seasonal employees, but as of October 2022, these employees can choose to allocate their contribution to two other options: the plan’s custom target-date funds, which have a glide path designed by AllianceBernstein; and Empower managed accounts. “The beauty of the solution we’ve found is that these participants will have a fully diversified investment with either the target-date funds or managed accounts,” Rooney says.

As of year-end 2022, 0.1% of part-time and seasonal employee assets had moved into the managed accounts, with another 0.2% of that group’s assets moved into the target-date funds. MA Treasury has a targeted outreach campaign underway to reach specific employee groups that have a large number of long-term employees with higher balances. “We anticipate that a lot of these employees will be interested, and that at some point, many will likely transfer assets into the target-date funds or the managed accounts,” Lynch says. “It will allow them to have investments with a risk profile more appropriate to their long-term goals.”

—Judy Ward