Indianapolis-based American United Life Insurance Co. is licking its chops over retirement plan changes at such school systems
as Warren Township.
In order to comply with stricter rules from the Internal Revenue Service, the Metropolitan School District of Warren Township
has trimmed out five companies that had been offering 403(b) retirement plans to Warren Township’s staff.
"We have gone through an extensive overhaul of our 403(b) options, looking at vendors and asking them to sign specific
to be compliant with the new regulations," said Dave Holt, chief financial officer at Warren Township schools.
AUL officials hope similar reductions by schools and other not-for-profits around the country raise the amount of retirement
assets it manages. AUL figures that if not-for-profit employers use fewer vendors, AUL can grab a bigger share of the 403(b)
It’s already a big pie — $650 billion according to Chicago-based consulting firm Spectrem Group. That represents about
of the retirement market, excluding pensions.
But the rule changes, which take effect Jan. 1, also have sparked the interest of mammoth retirement plan vendors, which dwarf
AUL in size. Most notably, Boston-based Fidelity Investments, the market leader in managing 401(k) plans, is making a big
push to grow in the 403(b) market.
AUL boasted nearly $10 billion in 403(b) assets under management in 2007, just one-fifth the total reported by Fidelity to
Pensions & Investments, a trade journal. In 403(b) plans, the market leader far and away is New York-based TIAA-CREF,
"Overall in retirement services, they have the challenge in scale to compete with the larger players," Jason Croft,
at A.M. Best Co., said of AUL.
Still, he views the shifting landscape in the 403(b) market as an opportunity for AUL.
"There’s the potential opportunity for them — as well as other companies — that have these systems and back-office
framework to expand into the 403(b) market now that the requirements are changing how these products are
offered and, more importantly, maintained," Croft said.
So far, things look good for AUL. Not-for-profit groups now account for 30 percent of the assets its retirement services division
manages, up from 15 percent a year ago. Retirement services accounts for about half the total assets held by AUL’s parent
company, OneAmerica Financial Partners Inc.
"We’ve certainly had a bunch of activity leading up to this [rule change]," said Kevin Kidwell, vice president of
nonprofit sales at AUL Retirement Services. "The opportunity will extend for the next several years."
The new rules for 403(b) plans are similar to current rules for employers offering 401(k) retirement plans.
They will bring more paperwork, annual independent audits and potential liability for investment performance. Not-for-profits
also will take on the added administrative burden of dealing with loans and hardship withdrawals from the retirement funds.
Because of those burdens, Croft said, not-for-profit employers are looking to companies like AUL to provide more sophisticated
tools to administer the programs and keep them compliant with the new laws.
Health care administrator Jerry Landers first heard about the new IRS rules from AUL representatives early this year.
Landers, vice president of business and finance at the Center for Mental Health in Anderson, said his employer already was
doing many of the things the new rules now encourage, such as reviewing the performance of the mutual funds in the plan.
The big change for the mental health center is that it must hire an independent auditor to review the retirement every year.
Landers isn’t happy about the added expense.
"It’s not free," he said. "A lot of not-for-profits, you don’t have a lot of extra money. So every penny counts.
I would much
rather spend that money on something else."
Other groups are sufficiently confused or concerned about the new rules that they wrote a letter to the U.S. Department of
the Treasury asking it to delay the rules for another year.
"All of these issues are exacerbated for the small charities, churches and schools, many of which are largely unaware
or understandably confused by, the burdens of complying with the 403(b) regulations while having limited recourse to sophisticated
advisors," wrote Washington benefits attorneys David W. Powell and G. Daniel Miller in an Oct. 22 letter.
Many other groups signed their letter, including benefits attorneys from Indianapolis law firms Ice Miller and Baker &
The biggest groups affected by the changes are public schools, such as Warren Township. School districts had so many companies
offering retirement benefits because they would generally approve any company a teacher signed up with.
Sometimes, individual teachers might sign up with three or four companies, said John Ellis, executive director of the Indiana
Association of Public School Superintendents.
"A lot of them never closed the door. They never put the language in [their negotiated teacher contracts] to limit it,"
said, adding, "It can be a payroll nightmare when you get to payday and you’re working with 30 different vendors."
Kidwell knows of one school system that had OK’d 52 companies to provide 403(b) retirement accounts to its employees.
"It wasn’t the Wild West, but they could have 30 to 40 to 50 different vendors," Kidwell said. "In the public
you’ve seen a rapid reduction to three vendors at most."