Research Findings Provide Valuable Insights into Not-for-Profit Marketplace By: Rob Goldman

Robert L. Weber, the author of A Random Walk in Science, an anthology of witty, insightful stories about scientific inquiry and the scientific method, is said to have remarked playfully that “basic research is what I am doing when I don’t know what I’m doing.” Nowadays, in the age of “big data,” easily accessible search engines, online databases and internet-based publication tools, we often encounter the effort of one business enterprise or another to make sense of the tons of information at its disposal. Transamerica Retirement Solutions’ interest in not-for-profit research is the result of its decades-long leadership role in this marketplace. During this period, we have consistently shared our findings and insights with retirement plan advisors, sponsors, public policy experts, government officials and academic consultants. When it comes to retirement readiness in the not-for-profit (NFP) sector, we do indeed have a very good sense of what we’re doing.

The recently published Retirement Plan Trends in Today’s Healthcare Market—2014 is the eleventh annual study conducted by Transamerica Retirement Solutions and the American Hospital Association. The study provides important insights on current issues that impact defined contribution and defined benefit plans in the healthcare market. The healthcare study is complemented by our newly minted research report, Retirement Plans for Institutions of Higher Education, our second such study, published in October, 2014, which offers findings based on our survey of over 100 plan sponsors at institutions of higher education. Taken together, these publications uncover and analyze important savings plan trends, detail comprehensive benchmarking information, and present an informative overall picture of retirement savings plans in the not-for-profit sector

Although for the purposes of this article I will concentrate on three areas of interest – plan design, investment options and the role of the advisor – I urge interested readers to contact me for a full copy of both reports.

403(b) Still the Plan of Choice to Increase Retirement Readiness

Helping employees accumulate income for retirement is by far the most common primary goal of the retirement plan for healthcare sponsors. More healthcare plan sponsors are stating that it’s the right thing to do, indicating an increased awareness among plan sponsors about the need to assist employees in becoming ready for retirement. More healthcare plan sponsors are also stating the goal of their plan is to recruit employees. This could be related to the fact that participants themselves are seeing the value, and the importance, of the company-sponsored retirement plan.

Defined Contribution Plan Types - Healthcare (Fig.1)

Nearly three quarters of all healthcare organizations have a 403(b) plan, and ERISA plans represent a majority, 74 percent. About four in ten have a 401(k) and this has remained relatively steady since 2012. Most healthcare plan sponsors still have a single vendor arrangement, 89 percent. Among the 11 percent who have multiple arrangements, two is the average.

Healthcare plan sponsors are less likely to have added or replaced a vendor in 2014 as compared to 2012. Where there was an addition or replacement, it was about equally likely to have been a recordkeeper, investment manager, or an advisor.

As our report illustrates, 403(b) plans are still the dominant plan type in higher education, but the number of such plans has decreased over the last year. And when it comes to the number of plans offering group contracts as opposed to individual contracts, a clear trend toward group contacts has emerged.

Defined Contribution Plan Types – Higher Ed (Fig. 2)

Contracts Offered – Higher Ed (Fig.3)

Investment Options – Less Is Becoming More

There is some evidence that healthcare organizations are streamlining their investment options. While many, 39 percent, still offer 20 or more investment options, this has decreased considerably since 2012, when 48 percent were offering 20 or more. The “sweet spot” of investment options offered is somewhere around 11 to 15, where there are enough to provide diversity, but not enough where there are many redundancies in type, and confusion to the participant.

Investment Options—Healthcare (Fig.4)

Fewer healthcare plans include a stable value fund as compared to 2012. In 2014, 51 percent of healthcare plans included a stable value fund, down from 64 percent in 2012. 

Our research has indicated that Higher Education institutions have been reluctant to exercise discretion over investments, allowing the number of options to exceed manageable levels in some cases. However, institutions are more likely to exercise due diligence nowadays. In 2014, investment arrays in Higher Education averaged 17 options. The number is in line with what plans in the corporate sector offer. This is another example of how Higher Education plans come closer to mirroring corporate plans over time.

Average Number of Options in the Investment Array- Higher Ed (Fig.5)

Clearly Defined Role for Retirement Plan Advisor

Advisor presence is common in healthcare organizations. 71 percent of healthcare plan sponsors work with advisors. This advisor is most likely a professional retirement plan advisor. 32 percent of healthcare organizations work with an investment advisor or securities broker who works exclusively with retirement plans, another 29 percent work with advisors who work primarily with retirement plans. Only 18 percent work with individual advisors.

Leading responsibilities of the advisor are reviewing investment options, explaining provider fees, and supporting investment provider due diligence—with more than eight in ten healthcare plan sponsors stating this as an advisor responsibility. More than seven in ten state the advisor is responsible for learning the benefits philosophy, monitoring the service, and assisting with the implementation of the fiduciary process. Advisors are also responsible for due diligence support, making plan design recommendations, making sure the plan is within regulations, and monitoring participant access—more than half of plan sponsors have advisors responsible for this.

Leading Advisor Responsibilities - Healthcare (Fig. 6)

Large Higher Education institutions are more likely than smaller institutions to rely on an advisor or consultant to assist them with the investment selection and plan compliance. Smaller institutions tend to rely on an advisor or consultant to assist with ongoing investment monitoring, to act as a plan fiduciary, or to assist with plan design changes. They will sometimes band together to jointly develop a plan design, formulate an investment policy and hire a service provider, saving time, and money for the plan and participants.

Leading Advisor Responsibilities – Higher Ed (Fig.7)

Other Areas of Study Provide Additional Insights

Transamerica’s proprietary research in the NFP industry has also analyzed on-site representation, loan activity, withdrawals, choice architecture, deferral rates, employer contributions, and a variety of other areas of interest to sponsors and their advisors. 

I encourage you to contact me with questions and comments.

Plan Sponsor and Financial Professional Use Only

Transamerica Retirement Solutions is prohibited by law from providing tax or legal advice outside the company. The information contained in this article is intended solely to provide general summary information and is not intended to serve as legal or tax advice applicable to certain matters or situations. For legal or tax advice concerning your situation, please consult your attorney or professional tax advisor. Although care has been taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.

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©2014 Transamerica Retirement Solutions Corporation. All rights reserved.

Rob Goldman

Robert Goldman is a Regional Vice President – Institutional Markets, New York Regional Office at Transamerica Retirement Solutions. His responsibilities include supporting the marketing and sale of Transamerica’s retirement plan services to both corporate and not-for-profit retirement plan sponsors....

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