Motivating Faculty, Staff to Save for Retirement Is Top Concern for Higher Ed Plan Sponsors

Many higher education plan sponsors are worried about the retirement readiness of their faculty and staff and face challenges when it comes to motivating these employees to contribute to their retirement plans. 

According to Transamerica’s new report “Retirement Plan Trends in Higher Education,” which surveyed 99 institutions, 61% of all respondents said their top concern is motivating faculty and staff to save enough for retirement. 

This concern was cited as a top challenge by 64% of private institutions, 60% of not-for-profit institutions and 47% of public schools. When broken down by plan type, 68% of institutions whose largest plan is a 403(b) plan say motivating savings is a top concern, compared to 36% for 401(k) plans, 33% for 401(a) plans and 25% for 457 plans.  

While defined benefit plans are not as common as they once were among institutions, Transamerica noted that 24% of responding institutions reported an active DB plan for all faculty and staff, 4% an active DB plan for some faculty and staff and 3% a frozen DB plan.  

Another top challenge among higher education plan sponsors was measuring the success of their retirement plan. When asked if they quantify how prepared for retirement their faculty and staff will be, 62% answered “no.” 

The Transamerica report posed the question: if institutions are not measuring results, how do they truly know whether the plan is successful, and whether participants are prepared? As a result, it is possible that some plan sponsors are misunderstanding, the retirement readiness of their participants, as they have no data to back up their perceptions.  

Of those institutions that measure the success of their retirement plans, the greatest percentage of respondents (25%) said they examine whether participants are on course to replace a given percentage of their income. Other institutions (23%) look at a combination of participation rates and average contribution levels, and 15% said they gauge success with participant engagement metrics, such as usage of online retirement readiness tools, webinar participation and other online activities.  

Lack of Automatic Features 

One factor that may be contributing to plan sponsors’ concerns about motivating their participants to save for retirement is that more than half of the surveyed schools say they do not automatically enroll employees in their retirement plans.  

For plans that use automatic enrollment, Transamerica found that they generally take a conservative approach, as 57% said they automatically enroll employees at 1% to 3% of pay.  

Laura Gaynor, senior vice president at Transamerica, said in an emailed response that this conservative approach may be due to heavy use of defined benefit plans with these organizations, fixed stated employer contributions and potentially the costs associated with automatic enrollment.  

“We expect that there will be a gradual increase in the number of institutions implementing auto-enrollment in the near future,” Gaynor said. “According to the survey, 39% of institutions currently do not offer auto-enrollment, but 9% plan to offer it in the next 12 months. This finding suggests a growing interest in auto-enrollment among higher education institutions. As the benefits of auto-enrollment become more widely recognized, more institutions may choose to implement it in the future.” 

In addition, institutions rarely re-enroll employees who have opted out of the plan. According to the report, only 25% of institutions re-enroll opt-outs annually.  

Transamerica recommended that plans increase default contributions to 6% of pay, with automatic annual increases and annual re-enrollments of participants who opt out, to boost savings rates. 

Of the plans surveyed, only 20% said they have implemented automatic deferral increases, but 7% said they plan to do so in the next year.  

“Automatic enrollment and re-enrollment could bring more awareness to [participants’] retirement plan savings,” Gaynor said. “These features, combined with continued education that rich employer contributions may not be enough for their retirement and gradually seeing their retirement savings grow, will motivate participants to save more.” 

Plan participants at most institutions surveyed are immediately vested and eligible to receive their employer’s matching contribution. A smaller portion (21%) of plans apply cliff vesting, where participants are not vested until after they complete a set number of years with that employer. 

Retirement Readiness Concerns 

By and large, plan sponsors expressed at least “somewhat concern” about the retirement readiness of their participants. 

For example, 43% said they were somewhat concerned that faculty and staff may be unaware of how much money they will need in retirement, and 38% were either “very concerned” or “extremely concerned.” 

When asked whether they were concerned about participants delaying plan entry, 63% of public institutions were not at all concerned, but concerns were higher at not-for-profit institutions, where just 14% reported being not at all concerned about delayed plan entries.  

Participants expressed similar concerns to the institutions that were surveyed, as retirement preparedness nearly topped the list of the “most pressing financial wellness issues” among employees. The cost of living and inflation topped the list for 86% of participants, followed by retirement-income planning for 71% of participants and 42% said saving for health care in retirement is another area of concern.  

Suggestions for Plan Sponsors 

Transamerica researchers suggested that plan sponsors take advantage of the services offered by their plan advisers, consultant or recordkeeper to provide financial wellness tools to participants. They also advised looking for creative ways to encourage plan participation, such as regular communications using targeted emails and text messages suggesting ways to improve retirement readiness.  

The report also emphasized the value of pooled plan arrangements and that institutions can explore these solutions, which assume many of the administrative tasks and much of the fiduciary responsibility of offering a plan.  

Having an investment policy statement, for example, is an important part of maintaining compliance for any retirement plan. While 65% of institutions said they have an IPS, 18% said they were not sure if they had one and 17% said they did not have one.  

“It is concerning that 18% of plans are ‘not sure’ if they have an Investment Policy Statement,” Gaynor said. “An IPS is an important part of maintaining compliance with any retirement plan. It provides a defense against legal action when followed. The need for clarity on whether an IPS is in place could indicate a potential gap in plan governance and oversight, which may lead to increased risk and uncertainty for the plan and its participants. It would be advisable for these institutions to prioritize establishing and maintaining an IPS to ensure proper management and protection of the retirement plan.” 

Having an IPS may be an example of an administrative and fiduciary responsibility that a pooled plan arrangement could help plan sponsors implement. 

Only 13% of institutions that participated in the survey indicated that their plan with the highest number of participants is a pooled arrangement. This data point is not surprising, as the most well-known pooled plan solutions have only been available for 403(b) plans on par with 401(k) plans since the SECURE 2.0 Act was enacted in 2022.  

The majority of respondents (87%) to Transamerica’s survey offered a 403(b) plan, but the survey, conducted in Q2 2023, also included responses from those offering 457, 401(k), 401(a) and defined benefit plans.