Seeking lower fees, state colleges are shifting from 403(b)s to multiple employer retirement plans
Two statewide associations of private colleges—one in Virginia and the other in Wisconsin—are adopting multiple employer plans (MEPs) in an effort to reduce their administrative costs.
The moves come amid ongoing efforts by defined contribution plan sponsors to reduce costs while maximizing the services they offer participants. By combining their assets and participant headcounts into a single plan, the two school associations gain greater purchasing power and lower fees than their members could obtain on their own.
In both cases, the individual colleges’ plans had previously been managed on a bundled basis by TIAA, the leading retirement plan administrator for the higher education and research sector, and both associations made the decision to move to an MEP partly in response to escalating administrative costs.
Before 2015, TIAA charged its members the same management fee for its funds, regardless of plan size. When TIAA changed its policy to a more conventional asset size- based approach, it established two fee tiers: 35 basis points for plans with less than $20 million in assets, and 24 basis points for larger plans.
In Virginia’s case, the MEP was set up by the Council of Independent Colleges of Virginia (CICV). Council president Robert Lambeth says the association was already in the process of creating its MEP when TIAA announced its new pricing structure, and that was not what put the association on the path to create it. Nevertheless, the fee increase got the attention of its member colleges with sub-$20 million funds.
Similarly, the two colleges that belong to the Wisconsin Association of Independent Colleges and Universities (WAICU) “were concerned by escalating costs under a system where pricing and service was based on assets under management,” says WAICU President Rolf Wegenke.
After bidding out the four principal categories of services required to run its new MEP 403(b) plan, CICV opted to retain TIAA for its recordkeeping. But the MEP contracted with Pentegra for fiduciary services, with Sageview for investment oversight and with Millennium Advisory Services to provide financial education and planning services for the plan’s participants.
Likewise, the new MEP 403(b) plan launched by WAICU retains some TIAA funds on it investment menu, but the association accepted Transamerica’s bid over TIAA’s for the MEP’s recordkeeping business.
CICV has been transitioning the 14 of its 28 members that have opted to switch their 403(b) to the MEP three at a time, rather than en masse, to keep the process as smooth as possible.
At present, membership in an MEP is restricted to employers with something in common, such as being private colleges in a particular state. “There has been a lot of talk in Washington about dropping the requirement that there be a commonality among MEP members, but so far it has only been talk,” says Rick Reed, the director of Sibson Consulting’s defined contribution advisory services.
Although an MEP has a single plan document, adoption agreement and files a single 5500, MEP members may still maintain their distinctive plan features. “They can still have their own eligibility and vesting requirements, matching formulas, loan provisions and distribution rules,” Reed explains.
The MEP launched by CICV isn’t its first foray into pooling retirement plan resources on behalf of its member colleges. Several years ago, its new MEP was preceded by the creation of the Virginia Private Colleges Benefits Consortium, a 501(c)(9) ERISA self-funded health plan that covers around 7,000 employees, spouses and dependents.
But today it’s CICV’s MEP that’s in the spotlight. “A lot of other private college associations have been waiting to see if we pulled this off, and now we’re getting a lot of calls asking about our plan,” Lambeth reports.
“This is going to be a game changer,” he predicts.