Retirement Readiness Among Higher Education Employees

Institutions of higher learning face many challenges—among them the impact of the pandemic—in helping employees to prepare financially for retirement. A recent white paper looks at what those schools are doing. 

In “Lessons Learned on the Management of Higher Education Retirement Plans in Challenging Times,” researchers examine what colleges and universities are doing to motivate employees to save for retirement and how they seek to facilitate employees’ financial wellness both while employed and after retirement. The study is based on the results of an online survey of 297 people associated with making decisions about retirement plans at institutions of higher learning that Voya conducted in collaboration with Greenwald Research in summer 2020.  

Consolidation to a Single Provider 

The paper reports that consolidation of plan providers continues. Eighty percent of higher education plan sponsors studied say their plan works with just one plan provider, and almost 60% say they are likely to reduce the number of providers with which they work soon. Plans with assets of $50 million are more likely to have more than one provider. 

The report notes that having more than one provider is intended to make it possible for plan sponsors and employees to be able to choose among many options. And it acknowledges that reducing the choice that a multiplicity of providers offers can create “some anxiety.” Nonetheless, it argues rather strongly in favor of a having a single provider for a variety of reasons. 

Bad News, Good News

Researchers found that a strong majority of the institutions studied—87% —think that the pandemic will have a significant effect on employees’ retirement readiness. Just 39% consider their employees to be very prepared for retirement. 

And employer contribution rates could help make that pessimism a self-fulfilling prophecy. Just under 20% of the schools contribute an average of 6% to their employees’ retirement accounts, and 41% either have cut their employer contribution to their employees’ retirement accounts or stopped them altogether. 

In addition, more than 60% of the schools’ plans offer matching contributions. However, in many cases that may not amount to as much as it could—the researchers found that almost 40% of employees who participate in a plan because of auto-enrollment contribute at a default savings rate of 3% or less. But there’s some good news that suggests that may change: The study says that while 43% of the schools surveyed have put auto escalation in place, 37% plan to do so.

A substantial number of the employers studied—more than 40%—consider motivating employees to save adequately to be one of their greatest challenges in managing the plan. Fifty-three percent want service providers to do more to help employees prepare for retirement, and nearly half consider adding or changing plan features to improve employees’ financial wellness very important.

Institutions studied strongly endorse auto features. In fact, a whopping 90% consider adding or expanding auto features to be important or very important. 

And many of the schools report that they expect to adjust their plan design to include more features, as well: 

Action Steps

The report suggests steps that institutions of higher learning can take themselves to help employees improve their financial preparedness for retirement:

• Increase the auto-enrollment default deferral rate.
• Implement auto-escalation.
• Set higher escalation caps, consistent with the provisions of the SECURE Act that encourage plan sponsors to do so. 
• Allow annual re-enrollment for participants who opted out of the plan. 
• Provide education to participants to inspire them to save more; consider a holistic approach and responding to participant interest in education that is provided digitally and virtually. 

The report also suggests that service providers have a role in assisting the plan sponsors in taking action, and that employers in this sector are open to that help. The report says that 51% want service providers’ help in boosting employees’ overall financial wellness. “There is an opportunity for providers—now more than ever—to help higher education plan sponsors better understand how to assist their faculty, administrators and staff to help them get ready to retire better,” the researchers say.