A Case Study: Helping School Employees Reach Their Goals

T.J. Berge, QPFC, CFP® | Senior Lead Analyst

As retirement plan fiduciaries, you want to offer a plan that helps the participants achieve their retirement goals. You also want to be sure that participants are educated regarding their financial well-being, remaining sensitive to the cost and value of included services and features. The case study below demonstrates how Innovest helped a school district improve their retirement plan offering to meet their participants needs.

Situation

Innovest was retained by a large school district to evaluate their current 403(b) plan design and system. The district’s main funding vehicle was a statewide defined benefit (DB) plan. The plan included six different 403(b) providers with a total of $41 million in plan assets and 1,800 participants. Across these six providers were a total of 481 proprietary investment options. The district recognized that the DB plan alone would not translate to a successful retirement for their staff.

Challenges

The first challenge facing the district employees was choice overload. Innovest determined that a participant would need to make about 521 possible decisions before they even put one dollar in their voluntary/supplemental plan. Behavioral finance experts hold that the more decisions individuals have to make, the less likely they are to act. In this context, that means employees are much less likely to participate in a voluntary plan, deterred by too many options.

The second challenge was that the current plan did not offer sufficient retirement income. The present system led to a 16% salary shortfall (assuming an 80% income replacement target). That shortfall needed to be made up with a voluntary plan.

Actions

To address the issue of choice overload and to potentially reduce costs and improve investment performance, Innovest recommended that the district undergo a Request for Proposal process.

Results

The RFP process led the district to move to a single 403(b) provider with a high quality, low cost, non-proprietary investment menu. The price reduction for both administrative and investment fees resulted in an projected annual cost savings to participants of $375,000.

Quality of the education provided to participants was also greatly improved. Rather than being motivated by potential sales, the provider became an advocate for participants, helping them work toward their retirement goals.

Administrative overhead for both human resources and payroll staff and school principals was dramatically reduced as well. The changes also increased enrollment in the plan by 26% year over year, a direct measure of the impact of paring down the overwhelming number of investment choices and providing an understandable menu of options.

At Innovest, we make retirement work by delivering custom retirement plan solutions, fiduciary guidance and uncommon service so you can do what you do best.