Uncovering how higher education retirement plan modifications can drive meaningful change
Higher education institutions are focused on their mission. That includes preparing students for the future, engaging with and enriching the communities they serve, and committing to public service for the greater good. Unfortunately, the disruptions caused by the pandemic, in addition to the many challenges administrators and leaders at colleges and universities face, may be making it more difficult for higher education institutions to fulfill their missions. It's important for institutions to tackle head on declining enrollment, unfavorable demographics and rising tuition rates coupled with high tuition discount rates to help ensure their long-term sustainability.
For most higher education institutions, the status quo isn’t a viable path forward, and action is needed. Like businesses, they must adapt to remain competitive and relevant. Many college and university leaders have been proactively searching for ways to cut costs, increase their institutions’ competitiveness and strengthen their balance sheets. Making changes to employee benefits, specifically retirement benefits, is one strategy that can yield a variety of positive outcomes.
How do institutions compare?
Based on the book “The College Stress Test: Tracking Institutional Futures Across a Crowded Market” co-authored by Robert Zemsky, Susan Shaman and Susan Campbell Baldridge, Empower categorizes the state of higher ed institutional sustainability into three categories:
- Thriving institutions have enough resources to attract and retain staff, invest in operations, and encourage student enrollments.
- Striving institutions are struggling with risks, but they are not at risk of closing or having to merge with another institution.
- Surviving institutions have few options that would allow them to overcome challenges and continue operating in the long run.
Although the majority of, if not all, higher education institutions can benefit from evaluating their retirement plan offerings, striving institutions are likely to benefit most and may be actively seeking options for positive change.
Finding levers to drive change
Retirement plan structure, plan administration and plan design for higher education institutions vary widely. As such, a variety of plan design changes and actions could yield cost savings, reduce risk and, in many cases, help improve participant outcomes. The impact of such changes and actions can also vary, as will the efforts and challenges associated with their implementation. We refer to these agents of change as retirement plan levers, which may include fiduciary functions, employer contributions, automatic features and other factors.
Viability analysis: Measuring the impact of change
Qualitative discussions can only go so far. To drive change, it may help to quantify the change and demonstrate its impact. A simple way to do this is to model how proposed changes to plan levers may affect an institution and its retirement plan participants. Empower’s Viability Analysis tool is designed to help employers measure the liability or cost associated with employee compensation and benefits. It allows for the modeling of plan design changes to determine how they would impact liabilities – as well as employee retirement readiness. Quantifying the impact of plan design changes allows institutions to explore how they can best address their unique situations and objectives.
Don’t go it alone: Let a trusted partner lead the way
Even with a well-thought-out plan, the road to retirement plan improvements can be challenging. A consultant can be an invaluable asset in helping you better position and structure your retirement plan. Consultants can bring deep plan design expertise, as well as market expertise, so they can educate and advise you on what may make the most sense for your institution. Because many higher education institutions are steeped in tradition and have a very strong sense of community, it’s critical to look for a partner that understands the importance of institutional culture and building consensus.
Start now: The sooner, the better
Retirement plan changes may include cost savings, but they can also extend to risk reduction, improved retirement outcomes and increased employee engagement. For all these reasons and more, it’s important to:
- Understand that socializing and implementing change take time.
- Start now as you may have to build trust over time to tackle the bigger issues.
- Consider all your options and model them to understand how they could impact your institution and employees.
- Work with a trusted partner to map out a plan.
Download the white paper or contact Julie Hoover (Julie.Hoover@empower.com), to learn more about how retirement plan changes could benefit your institution.