Did Your University Announce Retirement Plan Changes?
- Why retirement plan changes have become more common in recent years
- Key tips to help you navigate the retirement plan changes at your university
- Some common red flags you should be aware of
- The drawbacks of target-date or lifecycle funds, and how they really work
When a university announces changes to their retirement plan it’s normal to initially feel upset and confused. Retirement is such a deeply personal and consequential aspect of one’s life. It can feel like the rug has been pulled out from under you. We’ve witnessed this firsthand with many of our own clients at universities across the country when retirement plan changes have been announced.
Knowledge and wisdom, however, can help bring clarity to the confusion. Your university has undoubtedly provided you with the details you need in order to be well-informed. However, information can be counterproductive without wisdom, which is why we’re sharing this report with you. Our years of experience helping academia maximize university benefits have led us through many retirement plan changes. In fact, we’re likely working diligently with our clients on your campus right now to strategize their action plan.
Read this report to learn why retirement plan changes occur, key tips to help you navigate the changes, and some common red flags you should be on the lookout for.
Understand the Landscape
How an employee at the average university in the United States saves for retirement has evolved significantly in the last 60 or so years, and the changes only seem to be picking up speed.
The defined benefit or pension programs of years past have become uncommon, and replaced with defined contribution plans, or 403(b) retirement accounts.
Teachers Insurance and Annuity (TIAA) used to be the primary provider of retirement savings programs for a majority of universities; however today they are under heavy competition from both mutual fund companies like Fidelity and Vanguard, as well as other insurance companies including Valic and Securian.
Retirement plan vendors, like the ones listed above, are contracted by the university to provide the retirement accounts, investment products, and record-keeping and plan administration to the university’s retirement plan participants. Competition among these vendors is heating up as they vie to earn university contracts and gain/retain assets under management.
Competition can be a good thing for consumers, and it may prove helpful to university retirement plan participants in the long run, if it means lower administrative costs and access to new features that benefit plan participants. In the short term however, retirement plan changes can be confusing, untimely, and generally unwanted in the eyes of the average university retirement plan participant.
Additionally, several lawsuits have been levied against prominent universities across the country in recent years, putting pressure on universities to evaluate their retirement plan options and ensure compliance with their fiduciary duty to plan participants.
All of these factors have contributed to a rise in the frequency of retirement plan changes nationwide. Changes can be minor, such as an update in the investment choices available within the existing plan vendor(s). Changes can also be more reconstructive, such as replacing the current retirement plan vendor with another company who may offer an entirely new plan structure and suite of investment products. The changes may only affect active faculty, or it may include retirees as well. It’s important to carefully read the information provided to you from the university and make sure you gain a high-level understanding of what’s happening before you get caught up in the details.
Know the Key Dates & Deadlines
It’s important to know when the changes are going into effect, but there are often proactive steps you should take with important deadlines of their own, prior to the effective date .
Typically there is a window of time before the changes go into effect when you can make your own personal elections to direct how your retirement account will be handled during the transition. Learn your options and determine when this window is available, so you can plan your desired course of action well in advance.
During a retirement plan change transition, there is typically a “blackout period” where changes cannot be made to your retirement account to allow for the new plan to take effect. Find out when this will occur, and how long you will be locked out of your account. Make sure all of your desired changes are made well in advance of the blackout period.
Discover What’s New
When changes occur in the university retirement plans, often there are new and improved features that have been added for your benefit. You may be able to save for retirement on an after-tax, or Roth, basis within your university retirement plan (which does not have the same income restrictions as Roth IRA accounts). You may gain access to lower-cost investment options, or even a “brokerage-style” account option with almost limitless investment choices for the savvy investor. It’s important to learn what improvements have been made on your behalf so you don’t miss out on the opportunity to take advantage.
Beware the Common Red Flags
If your university is replacing a current vendor with a new one, know that there are many stakeholders in the transition and all of them have their own agenda. Remember that retirement plan vendors compete to retain assets under management. If the departing vendor, or another advisor you work with, suggests rolling your retirement account assets outside of the university plan to avoid being mapped to the new vendor, be aware that you may incur additional administrative costs, higher investment fees, or even a separate advisory service expense, depending on the situation. In our experience, rolling assets outside the university retirement plans when you’re still working is almost always done in the best interest of the vendor, and not the plan participant.
If the changes include investment options called “target-date” or “lifecycle funds,” it is important to understand how these investment vehicles work before you find yourself invested in one.
These funds automatically adjust the ratio of stock and bond investments over time. As you get closer to retirement, the fund becomes more conservative by selling stock investments and using the proceeds to buy bond investments. These changes are made automatically, often regardless of market conditions. Investors have no control over these transactions and may notice their fund is selling stocks at a loss to buy overvalued bonds.
Additionally, it is common for target-date or lifecycle funds to assume a retirement age of 65 years old. In our experience it is common for academics to work past this age. An assumed retirement that predates reality can cause your portfolio to be invested too conservatively too soon. This imbalance can impact your retirement savings substantially.
Lastly, it can be more challenging to draw sustainable retirement income from these kinds of investments. Be skeptical of bundled, one-size-fits-all computer-driven investment models set on autopilot. Investigate other options first and only use target-date or lifecycle funds as a last resort.
If your university is no longer providing access to an insurance company provider like TIAA, Securian, or Valic going forward, see if you can retain your current positions in the unique insurance-based products only these vendors can provide. Examples include TIAA Traditional, TIAA Real Estate, Valic Fixed, and Securian’s General Account.
If you are not currently invested in these funds, see if you can establish a position before the blackout period. For more information on why these accounts are unique and valuable to university professionals, click one of the links above or call our Education Center hotline at (844) 948-0894.
Ask an Unbiased Expert
If you’re not sure how to approach your university’s retirement plan changes and are looking for unbiased feedback from an expert on university retirement plans, our specialists are standing by to assist you.
You can schedule a complimentary consultation by clicking the blue "Schedule Your Review" button to the left of this page or by calling our Education Center hotline at (844) 948-0894.
- To learn more about the importance of seeking an independent fiduciary, read this report: Who Can You Really Trust With Your Financial Future?
- To learn more about our investment process, read this report: The 3 Hidden Risks of Consolidating Your Retirement Accounts
Have a Question?
As part of our commitment to promoting financial literacy among university professionals, you can schedule a 15-minute phone call with an expert at Filbrandt & Company to learn how these important topics apply to your own situation.
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