When the 2013 EBA Financial Fitness Challenge kicks off this month, among the participants will be six public K-12 school systems in Indiana that joined together to transform their retirement benefits.
Driving the schools' efforts is Elaine Schamber, an independent financial adviser in Lafayette, Ind., who serves as their 403(b) plan adviser and Financial Fitness Challenge Champion. Schamber has worked with the school districts since 2008 - the year before sweeping new Internal Revenue Service rules governing 403(b) retirement plans took effect. Those administering these plans were struggling with a host of unfamiliar requirements and fiduciary responsibilities.
Ted Zembala, chief business officer for School City of Hobart in Hobart, Ind., recalls how unprepared and stressed he and other school officials were. "The IRS basically said, 'Schools, you're now plan sponsors - get it together.' I started attending seminars on retirement plan sponsorship, and I was really worried, thinking we're not financial planners or investment brokers, how are we going to do this? I was losing sleep over it."
Zembala's counterparts at neighboring northern and central Indiana school districts had the same concerns. One, Kimberly J. Fox, chief financial officer for Tippecanoe School Corporation in Lafayette, knew of an expert on IRS rules and regulations she thought might help them map out a compliance plan - Kathleen Elliott, a CPA and employee benefit specialist.
Elliott met with officials from 10 school districts and agreed to guide them through the implementation of the IRS 403(b) final regulations. She recruited Schamber to provide guidance on reviewing the 403(b) plan investment options.
The situation facing Elliott and Schamber was complex. At that time, most public school districts had multiple retirement plan providers, and employees could have one or more contracts with different vendors. In addition, for political reasons, some school districts had multiples of the same type of plan. To make it even more confusing, all participated in state pension systems and had multiple VEBA trusts.
Schamber began by culling the schools' 40 plan providers to 22 for the RFP. But when the information came in, she wasn't satisfied with the investment options.
"Typically, when schools have an RFP process, the entity doing it gathers the data and says, 'You make the pick.' Since this group was hiring me for my expertise, I decided to write a solo report and make a presentation. I showed them the information I'd received and made my recommendations. That was when I stepped into my fiduciary role."
Elliott and Schamber wanted the schools to take a dramatically different path. They proposed dropping all of the 22 vendors that had submitted RFPs and sign on with a single, new service provider to handle the 403(b) plan.
An additional recommendation was even more radical: The schools should combine forces under an open architecture system. Each would remain independent, but they'd work cooperatively to get the best 403(b) plan possible for their employees.
"This collaborative approach meant that I, as the fiduciary, can use any mutual fund available through the custodian that fulfilled the investment requirements," Schamber says. "I'd have the ability to handpick the best of the best from thousands of mutual funds."
In addition, dealing as a group brought other benefits, such as being able to use their combined size to lower costs.
Initially, eight of the schools decided that they shared a common investment philosophy and wanted to take advantage of the savings, expertise and efficiencies offered by the cooperative approach. All schools were compliant with written plan rules that took effect Jan. 1, 2009.
This January, Elliott and Schamber transitioned six of them - Duneland School Corporation, Tippecanoe School Corporation, School City of Hobart, South Montgomery Community School Corporation, Clinton Prairie School Corporation and Tri County School Corporation - to a new service system that is completely unbundled. ASPire is the recordkeeper, TD Ameritrade is the custodian, Elliott's CPA firm, Fall Creek Associates, provides compliance administration, and The Schamber Group provides fiduciary services and handles interactions with the participants.
"It's a system evolving within the retirement plan structure," says Schamber. "Kathy's role and my role have expanded enormously. Our attitude is the school corporations deserve the same level of competence and quality for their employees that you would find in a 401(k) plan subject to ERISA. All have an investment policy statement and investment committees with quarterly reviews. We also meet annually with the administrators as a group to brainstorm. If there's a problem in one school, we fix it for all."
Financial education a priority
A big problem the school corporations are tackling is their poor retirement plan participation rate. On average, only about 27% of eligible employees are enrolled in the 403(b) plan. Schamber and her clients see financial education as the key to improving that number, and they know they need to go way beyond the typical yearly PowerPoint presentation.
"We use traditional forms of communication, such as quarterly newsletters and after-work meetings, but we're expanding," she says. "We are reworking our plan website to be more valuable to our retirement plan participants as well as our clients. We're open to trying new ideas, and the school district administrators are very willing to help."
Those ideas have to fit into the school corporation's tight budget allotments. When Schamber heard about the Financial Fitness Challenge, with its scholarships for participating organizations, she was excited about its potential for educating and engaging the schools' employees. "This program will go a long way to jump-starting a financial literacy program that can be continued and expanded year after year," she asserts.
The Financial Fitness Challenge also meets the school districts' need to find a way to provide professional development to employees who have trouble finding a spare minute during the workday.
In the realm of public education, we're always looking for time in which to provide financial education to employees," says David Pruis, assistant superintendent for Duneland School Corporation. "We have to impress upon folks that they have some responsibility for their fiscal stability, not just now but in the future."
The Financial Fitness Challenge is a five-hour, online course that provides highly effective, unbiased financial education. Last year, 18 employers and some 2,500 employees took part in the program. Participants averaged a 40% improvement in financial knowledge measured through pre- and post-testing, and there has been up to a 50% improvement in employee attitudes and behaviors such as establishing savings and investment goals, building a budget, creating a financial plan, increasing savings and starting or increasing contributions to retirement plans. "The Financial Fitness Challenge is a 24/7 program that is easy for clients and employees to use," Schamber remarks. "Students can work at their own pace, and it produces individual results, which means I can reach out to people who need encouragement. Also, it's non-sales-related content. The fact that there's no vendor associated with the Challenge has enormous appeal."
Schamber rolled out the Financial Fitness Challenge in the six school districts last month, and employees begin accessing the courses this month. "I applied for a scholarship for 500 individuals to participate," she says. "All school corporation employees are eligible."
"The more tools we can put in people's hands to ensure their financial future, the better," says Zembala. "Word-of-mouth is so important to increasing plan participation. It takes people having conversations in the teachers' lounges and break rooms to make it happen."
The Financial Fitness Challenge is designed to create that buzz. Organizations taking part are awarded bronze, silver and gold medal status, based on the number of employees who complete all five courses. Many Challenge Champions motivate employees by promoting the program as a competition, either within their own organization or among the participating organizations nationwide. Interestingly, this year there are a number of schools among the participants (see sidebar at right).
Using the Challenge as her springboard, Schamber's aiming to increase the 403(b) plan participation to 50% in the next 12 to 18 months. "That would be amazing, but it's doable," she says. "Comments I get from employees are 'I don't know where to start' and 'I wish someone had told me about all this sooner.' That's what the Challenge addresses."
Kim Fox of the Tippecanoe School Corporation is looking forward to taking part. "We see financial education as a valuable benefit, and we're hopeful that the Financial Fitness Challenge will enable us to put greater emphasis on it," she says. "We're a very large district with 19 schools. A lot of new teachers start with us each year, and they have little knowledge of personal finances and budgeting. Some have brought their parents to benefits meetings to help them with the paperwork because they've never dealt with this before. We'd love to get these employees started young so they understand the benefits of investing and the other services we provide. The Financial Fitness Challenge will help us do that."
Schamber also points to the fact that the Financial Fitness Challenge will enhance the school districts' efforts to increase employee wellness. "The relationship between physical wellness and financial wellness is strong, and being able to improve one improves the other," she says.
With the financial education piece of the puzzle in place, Schamber is now focusing on other ways to increase retirement plan participation. Employer matches are not an option since this is a collective bargaining issue, but she intends to bring up the subject of automatic enrollment with her clients. "The 403(b) world is about 20 years behind the 401(k) world," she notes. "What we're doing is cutting edge; no one I talk with has ever heard of a system like ours."
Thanks to the collaborative system - and the level of service provided by Schamber and Elliott - the school corporation business officers no longer lose sleep over retirement benefits. Zembala sums it up: "If the IRS walked through door today, I'd simply hand them a book and say, 'Here you go.' I love that."
2013 FINANCIAL FITNESS CHALLENGERS
The organizations taking part in the 2013 EBA Financial Fitness Challenge are a diverse group. Here is a partial list:
* Aggreko, LLC
* Birner Dental Management Services, Inc.
* CAMC Charleston Area Medical Center
* Caribou Coffee Company, Inc.
* Conductor, Inc.
* Cornell University
* Culligan International
* Early Warning Services, LLC
* Ferguson Enterprises
* Frederick County Public Schools
* G&K Services, Inc.
* Griffith Laboratories
* Gulfstream Aerospace Corporation
* Hilliard Corporation
* Intel Corporation
* Jack Henry & Associates, Inc.
* Kitchell Corporation
* L & JG Stickley, Inc.
* Lake Worth Independent School District
* Leland Stanford Junior University
* Los Angeles Unified School District
* Lowndes Drosdick Doster Kantor & Reed, PA
* Major League Baseball
* Mayo Clinic Health System - Eau Claire
* McLean Affiliates, Inc.
* Metropolitan Water Reclamation District of Greater Chicago
* Minnesota Annual Conference of the Methodist Church
* OGE Energy Corp.
* Pharr-San Juan-Alamo ISD
* Prime Therapeutics LLC
* Rackspace Hosting
* River City Bank
* Schamber Group, Inc.
* Schools Financial Credit Union
* SPAL USA, Inc.
* St. Ambrose University
* St. Elizabeth Healthcare
* Staples, Inc.
* Trudell Holdings, Inc.
* US Airways, Inc.
* VSP Global
* VWR International, LLC
* Waterbury Hospital
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