Data and Research February 10, 2016

Higher Ed Plans Increasingly Turn to Advisers

Institutions that partner with retirement plan advisers or consultants have more effective retirement benefit programs.
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More higher education institutions are looking to hire advisers than ever before to better help their employees prepare for retirement, according to Brodie Wood, senior vice president of nonprofit markets at Transamerica Retirement Solutions.  

Citing new research from Transamerica Retirement Solutions, Wood says 38% of higher education plan sponsors are looking to hire an adviser in the next 12 months. 

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According to “Retirement Plans for Institutions of Higher Education,” higher education institutions want to stay competitive with other employers and are turning to plan advisers for support. The goal is to help transform their retirement benefit programs into more effective recruiting and retention tools, and those colleges and universities that partner with an adviser show great gains, the report says.

Institutions of higher learning that rely on a plan adviser or consultant are ahead of peers in retirement readiness of employees, approach to investment selection, plan design and adoption of features such as automatic enrollment, ability to allow loans and range of services outsourced to the recordkeeping service provider, according to Transamerica. 

Higher education institutions primarily rely on their plan adviser or consultant to assist with investment selection, investment monitoring and plan compliance. Four in five institutions that use advisers tend to have an investment policy statement (IPS) in place (81%), compared with 56% for plan sponsors without an adviser. Smaller institutions, with 5,000 or fewer participants, tend to often rely on their adviser for an even broader range of services: acting as a plan fiduciary or assisting with plan design changes.

NEXT: Advisers help out with more than just investments.  

Higher education institutions that hired advisers had them play a stronger role in 2015 than in 2014, as more institutions had advisers engaged in investment selection (61% in 2015 vs. 40% in 2014), ongoing investment monitoring (55% vs. 31%), plan compliance (50% vs. 42%), development of the IPS (36% vs. 22%) and selection of vendors (25% vs. 11%).

Advisers have been instrumental in helping higher education institutions improve retirement readiness, increase employee matches and institute auto-enrollment. Institutions with plan advisers also are more likely than others to:

  • Monitor retirement preparedness of staff and faculty (63% vs. 39%).
  • Expand eligibility for part-time staff and faculty (28% vs. 19%).
  • Invite part-time staff to participate (20% vs. 9%).
  • Outsource services such as paperless enrollments (26% vs. 18%) and loan approval (35% vs. 24%). 

As a result, institutions with plan advisers are more likely than others to show average participant contributions of $5,000 or more (56% vs. 37%) and to have more than half of their employee population on track for a successful retirement (41% versus 36%). As a result, most plan sponsors who use an adviser are very satisfied (56%) or somewhat satisfied (35%).

Other research shows that the workforces of colleges and universities are likelier than those in other industries to take concrete steps to save for retirement.

“We’ve seen advisers make important recommendations about plan design that can go a long way in helping more employees join the plan and save for retirement,” Wood says. “Now more higher education institutions are recognizing how advisers are able to help employers make the retirement plan a more effective benefit.”

Transamerica Retirement Solutions provides customized retirement plan solutions for U.S. organizations. “Retirement Plans for Institutions of Higher Education” was based on interviews with retirement plan sponsors at more than 250 higher education institutions.

Compliance February 10, 2016

Court Finds Custodial Agreement Must Be Provided to Participant

A federal judge found the agreement does dictate important aspects about the participant’s benefits under the 401(k) plan.
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In a dispute as to whether he received benefits to which he was entitled, Derrick Askew requested a number of 401(k) plan documents from the plan sponsor, R.L. Reppert Inc.

In a lawsuit, Askew says there are no factual disputes concerning what documents he was provided in response to his document requests; however, he identifies a number of documents to which he claims he is entitled and has not yet received, including:

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  • Trust Agreements
  • Custodial Agreements
  • Periodic Benefit Statements
  • Notice of Vested Deferred Benefits
  • Disclosure of Financial Reports (Audit, Investment)
  • Section 404(c) Disclosures
  • Notice of Qualified Default Investment, Automatic Contribution Arrangement

U.S. District Judge James Knoll Gardner of the U.S. District Court for the Eastern District of Pennsylvania found that only a custodial agreement was required to be provided. Gardner first noted that courts agree that the plain language of the Employee Retirement Income Security Act (ERISA) refers only to “formal documents that govern the plan, not to all documents by means of which the plan conducts operations.” But, he found that the Nationwide Trust Company agreement with Reppert, Inc. does dictate important aspects about the participants’ benefits under the 401(k) plan and who is or is not responsible for the management and investment of plan funds.

According to Gardner’s opinion, the Nationwide Trust Company agreement incorporates a number of schedules that determine what investment funds a plan participant can choose to invest his or her benefits in; determine what the default investment option is; designate the authorized representative and details its duties, acts, responsibilities and obligations; and define the rights and obligations of the self-directed brokerage accounts provider. “In other words, from the perspective of a participant, the Nationwide Trust Company agreement establishes to a substantial extent where and how his or her benefits were going to be invested and who would be managing and administering his benefits account,” Gardner wrote.

NEXT: Other documents not required

Regarding the request for trust agreements, the judge found that ERISA requires that, in general, “all assets of an employee benefit plan shall be held in trust by one or more trustees. Such trustee or trustees shall be either named in the trust instrument or in the plan instrument . . . or appointed by a person who is a named fiduciary” He concluded that no provision of ERISA requires that there be an independent trust agreement separate from the plan instrument, and the plaintiff was provided with the plan document. 

Regarding periodic benefits statements, Reppert Inc. countered that it had, in fact, continuously sent those benefit statements to the address which plaintiff provided during his employment, but beginning in July 2011, those mailings were returned as undeliverable. ERISA requires only that the plan administrator “mail the material requested to the last known address of the requesting participant or beneficiary” and will not penalize any failure to do so if “such failure or refusal results from matters reasonably beyond the control of the administrator.” Since Askew had moved without informing Reppert Inc. of his new address, Gardner found that Askew’s failure to receive those benefit statements was reasonably beyond the control of the plan administrator, so Reppert, Inc. satisfied its obligation to provide periodic benefit statements.

Gardner noted that the requested “Notice of Vested Deferred Benefits” must be issued for former employees under the Internal Revenue Code, but ERISA permits Askew to sue for certain violations of ERISA, not for violations of the Internal Revenue Code.

Regarding the disclosure of financial reports (audit, investment), Gardner said it is undisputed that Askew did in fact receive the complete Form 5500 annual report that was filed with the Department of Labor (DOL). Although the request need not specifically name the documents sought, neither Askew’s initial request nor his second request make clear that the document he was actually seeking was the audit report that is generally required to be filed with the Form 5500 annual report.

As for 404(c) disclosures, Gardner found the DOL has promulgated regulations that create additional disclosure requirements for plan administrators, and the disclosures that Askew lists are only required by this regulation and not by the statute. Gardner noted that a plan administrator’s “failure to provide information required by federal regulations d[oes] not state a claim under ERISA § 502(c)(1) [29 U.S.C. § 1132(c)(1)]” because “the words ‘this subchapter’ in § 502(c) refer only to violations of statutorily imposed obligations, and that the term does not embrace violations of regulations promulgated pursuant to the statute.”

Finally, Askew conceded that the Notice of Qualified Default Investment, Automatic Contribution Arrangement is not mandatory and not subject to penalties under ERISA. Consequently, Gardner found Reppert, Inc. is not liable to plaintiff for failing to provide the notice.

The opinion in Askew v. R.L. Reppert, Inc. is here.

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