Savvy investors know that you don’t always get what you pay for: high fees aren’t necessarily an indication of high quality. Administrators in one Florida school district saw first-hand the devastating impact that high fees can have on long-term performance, and they tackled this problem as a top priority.
An open-door policy meant that any company could offer investment products within the district’s 403(b) plan, regardless of cost or quality. This policy left the district’s employees vulnerable to investment providers that were charging huge commissions and high surrender fees, all subject to increases at each company’s discretion.
Searching for a better way to shield their employees, the district eliminated the open-door policy and adopted Model Plan investment products exclusively, providing school employees with substantial savings on fees. Each company that applies for Model Plan membership undergoes a thorough vetting process: approved companies must disclose their fees up-front and agree to the low negotiated rates, regardless of district size.
By reducing the number of investment providers, this district forged stronger relationships with the companies that remained, which led to improved customer service.
Reducing vendors also meant upgrading to high-quality investment products without sacrificing the district’s high employee participation rate. All school employees — including existing and new participants — benefited from the manageable list of choices offered by the select group of five investment companies.
Can 403(b) participants ever have too much of a good thing? When it comes to investment options, research shows that the answer is a definite “yes.” Too many options can lead to “choice overload.”
One large Florida district’s 403(b) plan included products from more than 20 investment companies, leaving participants frustrated with the overwhelming investment choices and administrators struggling to keep up with plan administration. The district had reached a tipping point: limiting the number of investments wasn’t just an option; it was a necessity.
This district chose to offer Model Plan products exclusively, which simplified the investment decision and reduced fees for plan participants, with high-quality, low-cost investment products. Designed for school employees, the Model Plan represents a selection of thoroughly vetted investment companies committed to helping Florida’s school employees achieve their retirement goals.
For the district’s administrators, the Model Plan took the guesswork out of a very complicated due diligence process and streamlined their employee benefits procedures with an all-in-one solution. The IBC helped district administrators with the transition process, offering guidance and expertise to ease the move and negotiate lower fees, which ultimately improved after-cost returns for school employees.