September 23, 2014
The Montgomery County Board of Education approved changes to the structure of the district’s defined contribution retirement plans—403(b) and 457(b)—that are designed to save money and improve oversight and transparency for this key employee benefit.
The changes will move MCPS from its current nine vendors to one recordkeeper, effective January 1, 2016, and will offer independent education and advice to employees. The changes will also create a Defined Contribution Investment Committee that will select and oversee a menu of investment options for the plans. The results of these changes will be—
- Increased transparency: Allowing participants to clearly identify and compare various fees charged for recordkeeping, investment management, and investment advice;
- Lower fees: Lowering administrative costs in order to save participants money on fees charged for services;
- Independent financial advice: Offering plan participants the option to receive independent advice that is not tied to the sale of specific products; and
- Improved oversight: Establishing a governance structure that includes stakeholder representatives to oversee the plans and ensure compliance with applicable laws and best practices.
There will be no immediate changes to employee plans and detailed information will be shared with employees in the next year.
The changes are based on recommendations from a work group that has been considering ways to improve MCPS defined contribution plans for more than a year. All stakeholders were represented on this group, including the Montgomery County Education Association (MCEA), the Montgomery County Association of Administrators and Principals (MCAAP), the Service Employees International Union (SEIU) Local 500, as well as MCPS management and retirees. As part of its work, the group had an independent, third-party, national investment consultant (Graystone Consulting) benchmark the MCPS plans against other similar plans and best practices in the industry. The results of that benchmarking study were sent to staff in June.
The work group found that the current structure of the defined contribution plans—with nine vendors—leads to several inefficiencies, including:
- Higher fees: The smaller the number of participants for each vendor, the higher the cost to provide services. This translates to higher fees for MCPS employees, which are taken directly out of employee savings;
- More confusion for participants: Having multiple vendors requires more work on behalf of participants to learn about their investment options and requires navigating multiple websites to complete simple tasks. The different vendors also may promote their own investment products rather than providing participants the full array of investment options; and
- Less oversight: Each of the nine vendors offers a 403(b) and 457(b) plan, meaning there are 18 plans to oversee, each with different protocols and procedures. Oversight is an important part of running an efficient, effective defined contribution plan and the current structure makes it very difficult.
Staff from the Employee and Retiree Service Center (ERSC) is available to help answer any questions employees may have. A series of frequently asked questions has been posted on the ERSC website. If there are additional questions, email email@example.com or call 301-517-8100.