It’s no surprise to those in the investment industry that the increasing life expectancy of Americans has put some pressure on defined benefit plans because they are being required to pay out more in benefits than was originally anticipated by the actuaries. In an attempt to protect their plans and keep them in existence in perpetuity, many DB plans are increasing costs, reducing benefits or some combination of the two.
One of the strategies to mitigate these impacts on employees is to allow them to take on more of the responsibility themselves. The overall problem with this is trying to educate new employees on prioritizing retirement savings as a part of their budget. One way to combat this is through auto-enrollment into a 403(b) workplace savings plan. Additionally, the recent trend of fee suppression and non-commission accounts has made it inefficient for advisors to travel to workplaces to enroll brand new 403(b) participants.
Kent Schutte of EFS Advisors made a presentation at the NTSA 30th anniversary summit held in Tampa, FL Jan. 27-29 on auto enrollment in the k-12 403(b) marketplace. EFS Advisors has successfully established some auto-enrollment plans in Minnesota.
The advantages of 403(b) auto-enrollment are that employees only have to take action to ‘opt out’ of participation in their 403b plan which is similar to the structure of the DB plans that are so beloved by school district employees, said Schutte. Barriers to accomplish this vary by state due to individual state laws, so he focused on the laws in his home state.
In order to garnish wages from an educator in Minnesota, there must either be a written agreement on file, or one arrived at through bargaining and incorporated into the working agreements of the school districts. The specific issue with auto-enrollment has to deal with the “qualified default investment option” that will be selected during the auto-enrollment process.
Auto-enrollment will improve the process for all because it allows a new employee to spend more energy focusing on getting used to their jobs, but still gets them started on the right path. There is also added efficiency for an advisor, because when the participant is ready to meet with a financial advisor, they will already have their account established and funded so the conversation can revolve around financial planning instead of filling out forms.
Tony Schutte is a Financial Advisor with Educators Financial Services, Inc.
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA or its members.
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