Saint Louis University has transformed its retirement plans with nearly $1 billion in assets without hiring consultants and without issuing RFPs.
Changes include reducing the number of investment options by more than 90%, reducing the number of record keepers by 75% and saving what the university anticipates will be $540,000 in plan costs annually.
The university began offering its new investment lineup in early December under the sole administration of TIAA-CREF, New York.
Now, the university's $593.7 million 403(b) plan and its $404.9 million 401(a) plan have 27 investment options instead of the 360 that school official say were far too many for participants to evaluate.
“Our employees were overwhelmed with choices,” said Elisabeth King, benefits manager. The investment choices are identical for both plans, which have a total of 16,398 participants.
The university's new lineup keeps some of the old investment choices, although many of the funds that have been retained are now available in lower-fee versions. The plans have some new institutionally priced fund shares, and they have dropped many little-used or overlapping investments.
Also for the first time, the university is offering a self-directed brokerage window containing more than 5,000 mutual funds. “The brokerage window was a strong selling point because employees could get access to funds from many providers, including Fidelity,” which was a former record keeper, Ms. King said.
Ms. King acknowledged that brokerage windows attract relatively small percentages of participants and plan assets but said the new lineup “would have been a harder sell” without it.
Although the university was motivated by a desire to reduce costs and simplify choices, it also acted because of changes in Internal Revenue Service regulations, most of which took effect in 2009. The rules require sponsors to exercise greater fiduciary responsibilities, including preparation of more comprehensive plan documents and greater attention to loans and hardship withdrawals. Many 403(b) plans have consolidated record keepers and simplified investment lineups to facilitate complying with the IRS rules.
Saint Louis University in 2008 started what became a two-step process for consolidating record keeping and revising its investment lineup. Before the revision there were four record keepers for the two defined contribution plans — TIAA-CREF, which provided services for 80% of participants; Fidelity Investments, Boston, which covered 15% of participants; and T. Rowe Price Group, Baltimore, and DWS Investments, Kansas City, Mo., which held a combined 5%.
University officials decided that administrative expenses for T. Rowe Price and DWS weren't justified by their slim share, so the university dropped them at the end of 2010, Ms. King said.
The university acted without a consultant. The decision was made by the university's retirement committee, comprising the vice president of business and finance, the general counsel, the vice president of human resources, the president of the faculty senate and the chair of the staff advisory committee, she said.
Kept the funds
Even though the university dropped T. Rowe Price and DWS as record keepers in 2010, it kept 150 of their funds on the TIAA-CREF platform. With TIAA-CREF already offering 30 investment options and Fidelity offering 180 investments, university officials subsequently agreed they had to choose a single record keeper and significantly simplify the investment choices.
“We decided internally not to go into the marketplace” to search for a record keeper, Ms. King said. “We decided to choose between TIAA-CREF and Fidelity.”
TIAA-CREF had provided retirement services for the school since the 1950s, while the relationship with Fidelity started in 1989. “The faculty had a strong attachment to TIAA-CREF” as noted by the 80% market share, Ms. King said. Also, participants who had invested in TIAA-CREF annuity products did well during the stock market slump of 2008-'09 vs. investors in equity mutual funds, she added.
The university asked representatives from TIAA-CREF and Fidelity to make presentations. University officials began reviewing the record keepers in August 2012, selected TIAA-CREF in September and set Dec. 3 as the starting date for the new investment lineup.
TIAA-CREF agreed to several changes as part of its winning bid, including offering lower-fee, institutionally priced shares for proprietary funds. TIAA-CREF also created a revenue credit account, also known as a recapture account or a plan expense reimbursement account. For plans that use revenue sharing, this design enables excess revenue-sharing funds to be returned to the plan for additional uses or to be rebated to participants (Pensions & Investments, Jan. 7).
The university also eschewed hiring a consultant to create the new investment lineup. TIAA-CREF and Gary Whitworth, the university's treasurer and chief investment officer, assembled the investment options, Ms. King said.
Mix of old and new
The new lineup provides a mixture of old and new investment options, as well as index and actively managed funds and annuity products. Retained options are:
- four TIAA-CREF annuities as well as an index-based target-date fund series from TIAA-CREF. The target-date series now has institutional-price shares;
- Three TIAA-CREF index equity mutual funds — large-cap growth, large-cap value and small-cap blend — as well as a socially responsible equity fund. Each fund now has institutional-price shares; and
- three actively managed T. Rowe Price funds: short-term bond, equity income and a fund that invests primarily in equity assets of real estate companies.
Most of the fixed-income funds are new, including many with lower-price shares: Vanguard Total Bond Market Index and Vanguard Inflation Protected Securities; PIMCO Real Return and PIMCO Total Return III; and Templeton Global Bond.
There are three new passive equity funds: Vanguard 500 Index, Vanguard Total International Stock Index and the Columbia Mid-Cap blend index funds. Four new equity funds are actively managed: American Funds EuroPacific Growth; Franklin Growth; Morgan Stanley (MS) Institutional Global Real Estate; Oakmark Equity & Income.
This article originally appeared in the February 18, 2013 print issue as, "Saint Louis University makes deft cuts to plans".