Article by Ben Lewis, TIAA
This material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate.
A competitive retirement plan is an increasingly important employee benefit for independent schools — not only to attract, reward and retain talent at every age range, but also to promote retirement readiness among existing staff. In a TIAA survey earlier this year of not-for-profit plan sponsors, more than half of participants expressed concern about their employees not having enough money to retire and, consequently, delaying retirement.
TIAA’s 2017 Not-for-Profit Plan Sponsor Insights Survey, conducted by KRC Research in early 2017, had 835 not-for-profit plan sponsor participants, 96 of them from independent K–12 schools across the country. Here are some survey findings, along with tips from NBOA member schools on how they prepare employees for a comfortable retirement and measure plan outcomes.
Matchmakers, Big Savers
Just under 70 percent of independent K–12 schools offer a 403(b) plan, the most widely used plan, according to Spectrem Group. Our survey found that plan sponsors at independent schools help boost total contribution rates in a variety of ways:
- 45 percent offer matching contributions (most matching contributions are within the range of 4 percent to 6 percent).
- 30 percent offer non-matching contributions (where the employer’s contribution does not require a match from the employee).
- 25 percent offer a combination of matching and non-matching contributions.
Improving employees’ saving rates is a key concern for David Wright, finance director at University School, in Shaker Heights, Ohio. “We know how important it is for our employees to start saving early and at the right levels,” he said. “We want them to target a savings rate of 15 percent, including our contribution. To accomplish this, we offer both a matching and non-matching contribution, and we’re happy to say that our aggressive employer contributions have also resulted in 100 percent participation.”
North Shore Country Day School, in Winnetka, Illinois, “has a graduated mandatory savings rate based on years of service,” explained Susan Downing, director of finance. The combined contribution is 12 percent annually, broken down as follows:
- Staff with one to five years of service contribute 6 percent of their income; the school’s match is 6 percent.
- Staff with six to 10 years of service contribute 4 percent; the school matches 8 percent.
- Staff with more than 11 years of service contribute 2 percent; the school matches 10 percent.
The school prioritizes the match long-term, along with additional expenses for health care and a generous tuition remission program, because the whole package is of value and makes the school competitive, Downing explained.
Beyond retirement contributions, many schools encourage employees to seek advice from the financial consultants supporting their retirement plans. These professionals can help faculty and staff envision how they would like to retire and create a plan to get there. University School offers plan participants access to one-on-one financial advice, as do 82 percent of schools in the TIAA survey.
Schools also benefit from offering appropriate default investment options to employees who do not take an active role in their retirement planning. Sixty-two percent of the independent school plan sponsors surveyed offer a default option. Two-thirds use a target date fund as the default investment.
Tracking Outcomes
Schools also want to know how their employees are doing with their retirement planning — is the plan succeeding? Retirement plans have many moving parts, and it’s not surprising that 50 percent of independent school plan sponsors surveyed find it challenging to measure the success of their retirement plans. Here’s what they consider their plan’s most important success measures:
- Participation rates (45 percent)
- Fiduciary compliance (36 percent)
- Retirement income adequacy/ income replacement rates (35 percent)
- Contribution rates (32 percent)
While broad employee participation is critical to plan goals, enrollment alone is no assurance that employees will have adequate income replacement (comparable to their current income) in retirement. TIAA believes it is important to focus on income as the outcome. In the survey, only 10 percent of independent school plan sponsors said they track income replacement rates, compared to 35 percent who said they consider income replacement among the top three measures of plan success.
By tracking income replacement at the plan level, sponsors can zero in on segments of employees who are falling short of income goals and may benefit from greater education or engagement strategies. Consider tracking not only to understand how your plan is doing, but also to measure the effectiveness of your communication, education and advice efforts.
At North Shore Country Day School, the mandatory retirement benefit program was designed with income replacement in mind, according to Downing. “In general, the hope was through investment planning and regular one-on-one fiscal counseling appointments, levels could grow to represent approximately one-third of an individual’s salary in retirement.” North Shore also offers a supplemental retirement plan as a means of providing for additional retirement needs.
Measuring and tracking a plan’s success may sound time-consuming and difficult for already overtaxed business officers, but schools’ retirement providers or advisors can help in selecting appropriate metrics, providing reporting assistance and identifying ways to improve shortcomings. Taking these steps can help improve the competitiveness of a school’s retirement plan and the odds that your employees will retire on time with adequate income.
