When it comes to revamping its 403(b) plan investment lineup, Rochester Institute of Technology basically started from scratch.
RIT consolidated two 403(b) plans into one as of Jan. 1, cut the number of options by 90%, and retained only a handful of the old investment choices in the $791 million RIT Retirement Savings Plan.
RIT officials hired Hewitt EnnisKnupp, Lincolnshire, Ill., in April 2011, its first consultant, to help with the restructuring.
“We gave instructions to our consultant that we were making a significant change,” said James Watters, senior vice president for finance and administration at RIT, Rochester, N.Y. “We said we want the very best in class.”
Saving money was a goal, too, and Mr. Watters estimated RIT will save $250,000 in administrative costs annually.
Simplification was the theme of RIT's effort, Mr. Watters said. Like many other 403(b) sponsors, the university made the changes in part because of Internal Revenue Service regulations that, in general, made 403(b) plans more closely resemble 401(k) plans. (And, like most private university 403(b) plans, the RIT plan is subject to the Employee Retirement Income Security Act and is regulated by the Labor Department.)
University officials also wanted to better evaluate investment options, Mr. Watters said. The old lineup, with almost 180 investment choices, was too unwieldy to manage and too complex for participants, he explained.
“We found that almost 85% (of participants) never changed funds and never rebalanced their portfolios,” Mr. Watters said. “We were amazed.”
Hewitt EnnisKnupp found “nearly 70% of assets were invested in two asset classes, large-cap equity and capital preservation,” said Diane Improta, the firm's Norwalk, Conn.-based 403(b) client practice leader. “Eighty percent of assets were invested in 20 funds. Over half the assets were invested in two funds.”
Her firm found “a substantial amount of redundancy and duplication of investment strategies” in the old lineup, Ms. Improta said. “Plan participants typically only invest in three to four investment options on average, and large number of funds that RIT offered to participants made it difficult for participants to invest wisely.”
Fidelity Investments, Boston, and TIAA-CREF, New York, record keepers for the previous plans, remain record keepers for the consolidated plan. However, the investment offerings of both providers have been cut significantly.
The new lineup looks like this: