Spurred by a desire to simplify its retirement-investment offerings and to cut expenses, University of Oklahoma officials are revamping their four defined contribution plans with a combined $1.33 billion in assets.
Investment choices are being slashed to four tiers from 1,300 individual options. Fidelity Investments will be the sole record keeper. Now, Fidelity is one of 30.
The number of providers and investment options had ballooned during the past 20 years. “It was a like a snowball coming downhill,” said Christopher Kuwitzky, associate vice president and chief financial officer of the Norman-based university.
The restructuring was approved by the university's board of regents in March. University President David Boren had appointed the OU Retirement Plans Management Committee in 2008 to review the plans.
“There was a growing awareness of a need to make something happen,” said Mr. Kuwitzky, who is chairman of the committee. “The vast majority of participants are almost frozen by so many choices. Simplification empowers participants to be more active in the choices that they make.”
Although simplicity and cost-cutting were goals, Mr. Kuwitzky said the changes also were spurred by Internal Revenue Service regulations that increased the fiduciary responsibilities of 403(b) plans to be more in line with those of 401(k) plans.
The university has a 403(b) plan, two 401(a) plans and a 457(b) plan that cover more than 10,000 participants. The 403(b) plan accounts for about 35% of the aggregate assets.
In the new four-tier lineup, the Fidelity Freedom Funds' series of target-date funds is the first tier and the default option. The second tier contains index funds from Vanguard Group Inc. and Fidelity.
The fourth tier is a self-directed brokerage window administered by Fidelity. The window has more than 3,000 mutual funds and exchange-traded funds. This is the first time the university's plans have offered a brokerage window.
The first three tiers are monitored by the committee Mr. Kuwitzky chairs, and funds “will be changed if needed,” he said.
Participants will make their new investment choices by late October; the transition to Fidelity as sole record keeper should be finished by Nov. 1.
In the record-keeper search, the university issued a request for proposals in July 2008. It received eight replies, and invited four companies — Fidelity, TIAA-CREF, Great-West Retirement Services and ING U.S. Retirement Services to make presentations. TIAA-CREF now accounts for about 80% of the university's DC assets.
Using a scoring system in which 5 was best, university officials evaluated several criteria — price, administration and record-keeping services; ability to meet current and future needs; education and communication; and quality of proprietary funds — according to a report presented to the university's board of trustees in March. Fidelity's score was 4.55, followed by ING with 3.9, Great-West had 3.5 and TIAA-CREF, 2.
Citing an estimate by the university's consultant, R.V. Kuhns & Associates Inc., the report said that when the consolidation is completed, “administrative and investment fees will be reduced from $6 million to less than $1.5 million.”
Mr. Kuwitzky said the expected savings translates to $400 per participant per year.
During the past three years, university officials used the Internet and on-campus meetings to explain the investment-review process to employee and faculty groups. “It's a challenging issue, and they had many questions,” said Mr. Kuwitzky.
The university and Fidelity are preparing for another education campaign to explain the changes. “The big push begins in August,” he said.
The IRS regulations have triggered changes at many 403(b) plans. Those changes can include new or more detailed investment policy statements, as well as reductions in the number of record keepers and investment options.
“The regulations have been a major impetus (for consolidation), and the plan sponsors are also looking for efficiencies and simplified administration,” said John Ragnoni, executive vice president for tax-exempt retirement services at Fidelity Investments, Boston.