Guides help faculty, staff prepare for November retirement system changes
As the deadline for decisions about Stanford's retirement program looms in November, benefits staff have stepped up efforts to explain what faculty and staff must do before then. Those efforts include guides mailed to participants' homes, meetings and workshops, and answers to frequently asked questions below.
Lori Branley
BY KATE CHESLEY
Faculty and staff should be on the lookout in their home mailboxes for enrollment guides that explain the decisions most will have to make as a result of changes to the university's retirement savings plans.
The changes, announced in a February letter by Diane Peck, vice president of human resources, will take effect Nov. 2 and will affect nearly 25,000 current and former faculty and staff.
The new retirement program shrinks the number of options from nearly 300 to five, ultimately simplifying and focusing the investment decision-making for program participants. At the same time, however, it allows access to a greater number of investment funds through a new brokerage option for those more experienced investors who are open to greater risk. In addition, through the redesign, the university is taking aim at burdensome management and administrative fees that reduce the amount faculty and staff earn from their investments.
Faculty and staff who are not already enrolled in one of the options that will be part of the redesigned investment lineup will need to make new selections by Nov. 1. If faculty and staff do not select new investments, their funds will automatically roll into a Vanguard Target Retirement Fund on Nov. 2 based on their age and anticipated date of retirement.
The program redesign was prompted by new federal regulations requiring greater oversight of 403(b) retirement plans, which is what Stanford offers. The university changed its program to avoid the daunting task of having to audit some 300 investment options, according to Lori Branley, manager of retirement programs.
Branley says she and her benefits staff know some faculty and staff may be overwhelmed by the decisions required by the transition to the new system. So, in addition to the enrollment guides and the resources available via the Benefits website, her office will offer a series of town hall meetings and workshops designed to explain the new program, the available options and pertinent deadlines.
Branley answers questions about the new program below.
Q. How many people are affected by the upcoming changes?
A. All plan participants, active and former employees, are affected by this investment change. The only exception is some former employees who are invested in TIAA-CREF.
Q. What outreach are you planning before the changes go into effect?
A. An enrollment guide was mailed at the end of August. We're pretty excited about it. It provides a lot of details about the investment options and deadlines. The guide also will provide details about the new brokerage window, which will allow plan participants to invest in more options than before.
Q. Are you planning more town hall meetings and presentations?
A. Yes. They will be similar to the town hall meetings and workshops that were presented earlier this year and will be held throughout September. At the enrollment workshops, we'll discuss different investment options and the process and deadlines. A representative from Fidelity will attend to discuss how the brokerage window – called BrokerageLink – works. A TIAA-CREF representative also will attend most of the meetings to answer questions about the TIAA-CREF options.
In addition, we'll have two daylong financial fairs – one on Sept. 15 at SLAC and another on Sept. 30 at Tresidder. Employees can meet with representatives from Vanguard, TIAA-CREF, Fidelity and the Stanford Retirement Department. Breakout sessions will be held so employees and retirees can listen to specific presentations and ask questions.
Q. Have you seen an increase in interest in the one-on-one consultations offered by Vanguard, Fidelity and TIAA-CREF?
A. Yes. Across the board, all vendors' one-on-one consultations have increased, which is good.
Q. What do you sense confuses people most?
A. Some people feel overwhelmed with making investment decisions because they don't want to make the wrong choice. The Stanford Retirement Department cannot provide any investment advice. The plan participant has to make the investment decision.
We recognize this is difficult for many of our participants, which is why we loaded our website with lots of resources. For example, we list the contact numbers for the individual one-on-one counseling and dates and times for Financial Knowledge classes that provide investment education. We have a link to the Vanguard website, which has an investor questionnaire that can help create an investment portfolio using the five core Vanguard funds, which is one of the investment options open to Stanford employees.
Q. What is the advantage of the Target Retirement Funds that Stanford has selected as its default?
A. Target Retirement Funds provide a simple way to invest because you decide when you wish to retire, and then your work is done. A Target Retirement Fund is made up of a selection of stock and bond funds that gradually and automatically changes into a more conservative mix of investments as you get closer to retirement.
Q. But, if I am a more hands-on money investor, does this new system give me enough latitude and freedom for strategic decision-making?
A. Yes. You have the Fidelity BrokerageLink, which will allow you to invest in more than 4,500 mutual funds at your discretion.
In Diane Peck's February letter announcing the redesign, she referred to "recent changes in the legal and regulatory environment." What does that mean?
The Treasury Department finalized 403(b) regulations in July 2007, and the majority of the changes became effective Jan. 1, 2009. One of the changes requires additional disclosures for 403(b) plans, and specifically plan audits. In the past, 403(b) plans were not held under the same scrutiny as 401(k) plans. That is why most 401(k) plans average only 10 to 15 investment funds, while 403(b) plans can have as many as ours. Obviously, it isn't administratively feasible to continue to offer more than 300 investment options under these new regulations.
Q. Have you already closed to new contributions some of the funds with redemption fees? What has that meant for affected faculty and staff?
A. Yes, we sent a letter to plan participants in late June, notifying them that some funds would close as early as July 31. We did that so that employees would not be charged a short-term redemption fee when plan assets are transferred on Nov. 2. What that means is that, if a participant currently contributes to a fund that is closing, he or she has to make a new investment fund election, otherwise the contributions will default into the age-appropriate Vanguard Target Retirement Fund. So some participants had to make a decision in July so that their funds would not default into the Vanguard Target Retirement Funds.
Q. What is a short-term redemption fee?
A. This is a fee a fund may charge if you withdraw or transfer your contributions before they have been in the fund for a specific period – 30, 60 or 90 days.
Q. Most people appear to be afraid that – given the relatively recent drop in the stock market – they will lose money by switching funds. Is that true? If so, is there a way to avoid that?
A. Almost all the funds that are currently available can move "in-kind" to the Fidelity BrokerageLink at no cost. If an employee opens a brokerage window by Oct. 5, his or her funds will move in-kind to the brokerage account.
An in-kind transfer means the same number of shares in your account just before the transfer will simply move to your new brokerage account on Nov. 2. The shares will not have to be sold and then repurchased. So they will not be subject to market conditions.
It is important to note that this in-kind transfer on Nov. 2 is a one-time opportunity to keep existing funds intact by transferring them into the Fidelity brokerage account. The benefits of transferring in-kind are: 1) there is no fee to transfer the funds, 2) it will allow the employee to keep accumulated assets in a certain share class and 3) all the assets will transfer regardless of the asset size. After Nov. 2, asset transfers into the brokerage account may be subject to fees and/or minimum asset size, and certain share classes may not be available.
The only funds that are not available on the Fidelity brokerage account to move in-kind are the frozen Scudder and Calvert funds, CREF Lifecycle funds and the following Vanguard Funds:
- Vanguard Balanced Index – Signal Shares
- Vanguard Short Term Bond Index – Signal Shares
- Vanguard Intermediate Term Bond Index – Signal Shares
- Vanguard Energy Fund – Admiral Shares
Q. Do you have advice for the employee who has been passive about his or her retirement investments? Where should he or she start?
A. Take advantage of the resources we have listed on the Benefits website. I strongly encourage everyone to start reviewing the options today and look out for the enrollment guide. Come to the town halls and workshops. My benefits staff is available at 736-2985, option 3.
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