UM Tax Deferred Investment Program Q&A
In December 2011, the Board of Curators (BOC) approved moving to a single master administrator and investment platform for the University of Missouri 403(b), 457(b) and 401(a) plans. Effective October 1, 2012, Fidelity Investments will be the new Master Administrator. A core group of funds from a variety of mutual fund families will be available on the new investment platform to participants in the 403(b), 457(b) and 401(a) plans. The TIAA-CREF core group of annuities already offered in the 403(b) plan will remain unchanged.
Employees who currently make salary deferral contributions to vendors other than TIAA-CREF (called legacy vendors for future reference), will need to select funds on the new investment platform. Participants may choose to leave their current investments with the legacy vendors; however, after October 1, 2012 all future payroll deductions will go into investments on the core platform. This change will result in lower average fees and expenses to participants, as well as increased opportunities for financial education and management tools for employees. Please review the frequently asked questions and answers below for more information. Additional updates will be provided as they become available.
1. What programs are impacted by this change?
With Board of Curator approval, the voluntary savings programs sponsored by the university including the UM 403(b), 457(b), and 401(a) Supplemental Retirement Plan will be administered by Fidelity Investments beginning October 1, 2012. The TIAA-CREF core group of annuities in the 403(b) plan will remain unchanged. (Added April 3, 2012)
2. What is the timeline for changes?
Changes would take effect no earlier than the last quarter of 2012. Additional communications will be sent to participants as we move through the process. Participants will receive notification of any changes in vendors or investment options well in advance of any implementation. (Last updated December 9, 2011)
3. Why is the university making changes to its voluntary retirement plans and hiring a Master Administrator?
A Master Administrator hosts the investment platform, simplifies the investment selection and management process for employees, as well as provides options that meet their various investment needs.
Currently, separate administrative and recordkeeping functions are performed by each of the 10 individual companies available for university retirement investments. Every company performs these services separately and charges separate fees. Moving to a Master Administrator will reduce employee administrative and investment fees by centralizing the recordkeeping function and allowing the use of institutional investments with expenses that are lower than retail investments. Because these fees are paid by employees, any money saved stays in the employee’s accounts.
Using a Master Administrator assists UM in providing the additional oversight of the voluntary retirement plans and the investment options provided that is now required due to recent changes in federal rules. (Last updated April 4, 2012)
4. What is a master administrator and what services do they provide?
The Master Administrator handles all administrative functions for the plan including consolidation of the enrollment process, monitoring transactions in employee retirement accounts and ensuring that they happen in a timely and accurate manner. The master administrator also provides website access, participant transaction tools, customer service support, financial planning tools, education, reporting and other administrative tasks related to the plan.
The Master Administrator does not select the investment funds and does not require that the university use any of their proprietary funds. The university, in conjunction with outside consultants, will determine the investment selection available to participants. (Last updated December 9, 2011)
5. Who will be the university’s master administrator?
Fidelity Investments will provide master administrative services on behalf of the university tax-deferred investment programs and the new retirement plan that becomes effective for employees hired on or after October 1, 2012. (Last updated April 4, 2012)
6. Why was Fidelity Investments recommended over other vendors?
Fidelity Investments offered services that were the same or better as other finalists for administering the plans. Fidelity Investments offered the lowest participant fees and expenses, state-of-the-art technology and online enrollment capabilities and a broad array of investment options designed to meet various investment needs and preferences. (Last updated December 9, 2011)
7. Was TIAA-CREF considered for the role of master administrator for the University of Missouri plans?
TIAA-CREF was considered for the role of master administrator along with several other companies. Fidelity Investments won the competitive bid process because the combination of services, investment flexibility, and fees was the best of the proposals reviewed. In addition, the technology available from Fidelity to facilitate compliance with the new federal regulations was deemed to be a superior solution, making Fidelity the best choice going forward. (Last updated April 4, 2012)
8. What does recordkeeping mean regarding retirement plans?
Recordkeeping is a broad term used to refer to the following services, among others:
- Keeping the transactional records of each participant and across the entire plan
- Offering transactional services such as buying and selling mutual funds and annuities to each participant
- Creating, printing and mailing statements and plan summaries to all plan participants
- Maintaining a participant and plan sponsor website specifically for UM
- Offering online services such as enrollment, deferral elections, deferral changes, loan applications, rebalancing, retirement planning, and more
- Maintaining call center access for participants
- Maintaining an automatic phone service for participants
- Conducting retirement education and advice seminars on campus for participants
- Providing one-on-one retirement counseling services for participants
- Providing notices to employees of material changes regarding new IRS rules
- Processing loans from the plan, if offered
- Processing hardship withdrawals from the plan, if offered
- Sending tax forms and statements to participants on behalf of the plan
- Investing payroll deductions according to the participant’s investment selections
- Assisting with IRS compliance needs that require tracking data across prior vendors to the plans
Recordkeeping is not currently performed by the Benefits, Payroll, or Human Resources offices at the university, although these offices do interact with the plans. (Last updated December 9, 2011)
9. What did the University learn in its search for a master administrator?
While not every employee will have the same investment experience and goals, improvements can be made to the university's retirement plans to benefit participants by:
- Leveraging the value of UM's combined retirement assets to lower overall administrative and investment management costs paid by plan participants. High administrative costs impact participants' investment earnings potential. One of the university’s goals is to ensure plan participants pay competitive fees for the investments and services provided;
- Simplifying the investment process and encouraging participation by offering an improved investment menu with a wide variety of competitively priced options;
- Providing independent investment guidance;
- Simplifying the recordkeeping process to comply with Internal Revenue Service and governmental requirements to ensure participants benefit from tax-deferral of contributions and earnings until benefits are distributed from the plan;
- Using a single master administrator will enable the university and employees to take advantage of changes in the financial services industry over the past several years. This includes broader access to investment alternatives with lower expenses and new technology, including online educational seminars, interactive financial and retirement planning calculators, and expanded transaction capabilities. Currently, recordkeeping is provided through ten different companies in the UM 403(b) plan. (Last updated April 3, 2012)
Section 2 – Investment Information
The Board of Curators’ decision in December was regarding the master administrator only. The next step is to select a group of best-in-class mutual funds that will be offered as investment choices to participants in the plan. Fidelity Investments does not require that any proprietary funds be included. (Last updated December 9, 2011)
1. Why did the university propose modifying the investment choices offered in the 403(b) plan? Why have the number of vendors been reduced?
Today there are 10 different investment providers (vendors) with whom participants can invest in the UM 403(b) Plan. Through the investment providers, participants currently have assets scattered over 800 investment alternatives, and includes redundant investment options, higher fees, and underperforming funds relative to benchmarks. The university's goal is to maintain a broad array of best in class investment options with reduced participant costs. By consolidating and simplifying the investment menu, faculty and staff can benefit from economies of scale through lower fees while making the process of selecting and monitoring investments easier and more user-friendly for both the university and plan participants. (Updated April 4, 2012)
2. Why is it important to limit the number of funds offered in the voluntary tax deferred plans?
There are several reasons why it is important to make a change.
- Increasing participation in the tax-deferred savings plans. It has been broadly discussed in the media and financial journals that individuals are not saving adequately for retirement. In the past, offering as many funds as possible was considered sound strategy for encouraging plan participation by employees. However, studies have shown that too much choice has a paralyzing effect on employees because employees are simply too overwhelmed to make a selection. UM, along with many other universities, is simplifying its options in an effort to make it easier to participate. For additional information on this topic, visit:
http://cbdr.cmu.edu/seminar/Emir2.pdf (Last updated April 4, 2012)
- By consolidating vendors, the university was able to negotiate a reduction in investment expenses charged to participants. (Last updated December 9, 2011)
- IRS regulatory changes require plan sponsors like the University of Missouri System to monitor investment selections in retirement plans for suitability for plan participants and to ensure reasonable expenses. With 10 investment companies offering more than 800 funds choices participating in the UM 403(b) Tax Deferred Annuity Program, it is not possible to monitor the quality of investment offerings to university employees. (Last updated December 9, 2011)
3. What happens to my account if my investment company is no longer a participating vendor in the University of Missouri Tax-Deferred Investment Program?
Once the investment selection is known and communicated, participants will have the opportunity to move their investments into a fund within the new investment platform or leave their investments with the vendor they have now. If the account is left with a legacy vendor, the account remains an active account. However, effective October 1, 2012, payroll deferral contributions will be invested into the new investment lineup. Detailed information will be available to faculty and staff beginning in August to allow them to make the decision that best fits their needs. (Last updated April 4, 2012)
4. Will I be subject to taxes if I elect to transfer my account balance from a vendor no longer in the UM 403(b) Plan to Fidelity or TIAA-CREF?
No, direct transfers do not result in the taxing of amounts you have accumulated. Amounts will continue to be tax-deferred while they remain in the plan. Taxes will be payable when requesting withdrawals or receiving distributions from the plan. Please review your situation and options with an investment advisor before making any changes since some transfers may be subject to restrictions or fees. (Added April 4, 2012)
5. Can I still use my investment advisor (stock broker, financial advisor, etc.)? Yes. It is our intent to continue to provide plan participants with access to financial managers of their choice through a process developed with the Master Administrator. We are aware that plan participants and financial advisors may have a high level of interest in maintaining existing advisory relationships and the university recognizes the value that financial advisors may bring to plan participants. Investment advisors should contact Fidelity’s Advisor Service Line at 1-888-766-6815 to discuss their options. (Updated April 4, 2012)
6. Will the university maintain access to no-load mutual funds for plan participants?
It is the university’s intent to continue to maintain access to no-load mutual funds for participants. With the assistance of an outside investment consultant, mutual funds submitted as part of the selection process for the master administrator are being reviewed to determine “best in class” status regarding several parameters including fees, manager tenure, style drift and risk. An investment policy has been drafted for Board of Curator action at the April 2012 meeting. Once an investment policy is approved, it will be posted on the UM Total Rewards website. The mutual funds will be announced as a part of the more detailed communications that will begin in late summer so there will be adequate time for participants to make selections, if necessary, prior to the October 1 change. (Updated April 4, 2012)
7. How are account service fees paid today?
Administrative and investment management fees are paid by plan participants through the expense ratios of the investment options they have selected. Fees are taken before earnings are credited to participants' accounts, reducing the return on their investments. The administrative component of these fees is not always indicated on a participant's statement so it may not be clear how much the fees are. Reducing fees allows more retirement earnings to accumulate for the participants. Even small differences in fees can translate into a large difference at retirement. (Added April 4, 2012)
8. Will employees be able to invest with TIAA-CREF?
TIAA-CREF will continue to be a vendor in the UM 403(b) Plan with the same investment choices as currently offered. (Updated April 4, 2012)
9. Will there continue to be at least one socially responsible option such as TIAA-CREF Social responsibility fund?
Since TIAA-CREF will remain a vendor in the UM 403(b) Plan, the CREF Social Choice Account will continue to be an investment option. (Updated April 4, 2012)
10. Who will monitor Fidelity's performance?
The Investment Committee has responsibility for monitoring Fidelity's performance as the master administrator and the overall investment performance of the core investment options in the plans with assistance from the university's investment consultant. (Added April 4, 2012)
11. Will I get just one single statement?
You will receive one consolidated statement listing all of your investments that are record-kept by Fidelity. You will even be able to integrate records from investments outside of the University of Missouri plans to view your investments in one place and better plan for retirement. Those participants who choose to invest with TIAA-CREF will continue to receive a separate statement from TIAA-CREF for those investments. (Added April 4, 2012)
Section 3 – Transition (Late Fall 2012)
1. What guidance services will be available during the transition period?
April meetings have been scheduled on each campus to provide an overview of the changes that are taking place as well as an opportunity to ask questions. Dates for the campus meetings can be found at http://www.umsystem.edu/totalrewards/tdi_meetings.
Current participants in the plans will also be notified of the meeting schedule by email. Participants are encouraged to attend a meeting to learn more about the changes and timeline for actions you may need to take. Communications beginning in July will list open meetings for participants and others who may want to participate in the future. These will be facilitated by UM and Fidelity representatives. Most meetings will be held in August and September and will include the opportunity for a one-on-one advisory consultation to answer questions, establish an account, and select funds. Please watch the UM Total Rewards website [link] for updates about campus meetings. Changes made during this time will be effective on October 1, 2012. (Updated April 4, 2012)
2. If you have a specific question not addressed in this document, please email your question to TaxDeferredPlans@umsystem.edu. (Added April 4, 2012)