NAGDCA IN ACTION

Education Program Update

I hope you have seen the emails from us about our new course, “The Fundamentals of Public DC Plans.” We are in the final phases of testing the course now, and we will have it available by the end of the year. The purpose of the course is to provide fundamental knowledge for those of you who are new to the industry or who have been learning on the job and need a more focused curriculum to help you understand the nuances of public plans.

An important point is that the fundamentals course is just the start of our education program. We know that your job has become much more difficult as retirement income products, alternative assets, managed accounts, and other complex instruments have become common themes in your committee meetings.

We are designing the curriculum for deep dive courses on topics like these, which should be available throughout 2027. Our goal is to raise the level of competence across the industry, and to help both staff and committee members develop a base level of knowledge so you can make informed decisions for your members.

Stay tuned for much more information about the program as we get ready to release each course.

MEMBER CORNER

Connect Conversation – Collective Investment Trusts

Speaking of complex topics, collective investment trusts (CITs) are a vehicle that many of you have asked about recently. We released two resources this month to provide context for how to think about CITs in DC public plans.

First, I sat down with Jason Levy from Great Gray Trust Company in a Connect Conversation to covers the basics of CITs and how they differ from mutual funds. We also released a paper using our PRRL data to show that CITs have become a significant share of the assets in our plans. This finding was consistent with the 401(k) industry, where assets have migrated toward CITs for the past several years and now constitute the majority in some major categories like target date funds.

CITs are a topic that has been on our mind for a long time because 403(b) plans do not have access to them, and it is a Legislative Priority for us to fix that. However, we believe there is much more technical information we need to continue to provide to help you understand how CITs work and what questions to ask when you are considering them. Expect to hear more from us on this topic in the future.

Participant Communication Survey

In 2020, we conducted a survey to gain an understanding of the tactics different plans were using to communicate in a post-Covid environment. While the survey was relevant at the time, we felt that the results were too outdated to inform current communication practices.

So, we decided to update the survey this year to show how the industry has changed since then. Many of the questions were the same as the previous survey to show trends over time, but we also added more current questions about artificial intelligence, wellness programs, and other topics that were not as important (or non-existent) six years ago.

The survey was updated with the help of NAGDCA members Ben Borich from the Ohio State Teachers Retirement System and Kerry Tapia from Mariner. Thanks for your contributions! Seventy-five plans responded to the survey, including a much larger group of small plans this time, which allowed us to show some differences between plans we were not able to tease out in the previous version.

The survey is packed with useful insights into what your peers are doing. Give it a read andlet us know if you would like to see other surveys in the future.

ACROSS THE INDUSTRY

Saver’s Match Guidance

One of the provisions in the SECURE 2.0 Act of 2022 that generated a lot of attention was Section 103 – The Saver’s Match. The match is an improvement on the previous Saver’s Credit, which has been in effect for over two decades.

The idea behind both the Match and Credit is to provide a government incentive for very low-income people to save for retirement. Individuals below certain income thresholds receive a government incentive if they also put some money away for retirement in either an IRA or workplace plan.

The Credit was designed as “non-refundable”, meaning it could only reduce a taxpayer’s liability when they filed their tax returns. Since low-income households generally do not have tax liability, the Credit often provided no money to the saver and proved generally ineffective at helping grow their accounts.

Policy and advocacy organizations spent several years working to improve the credit, and those efforts paid off in SECURE 2.0 with the passage of a redesigned match. The Saver’s Match differs from the Saver’s Credit in that it is refundable. Therefore, if a saver qualifies for and claims the Match, they will receive money directly from the federal government, rather than just a reduction in their tax liability.

That is good news for low-income savers, but it will be complex to administer for the industry. For the first time, Treasury was directed to provide money directly into the retirement accounts of qualifying individuals. That means individuals must claim the Match, designate the destination for the funds, and then Treasury will transfer the money directly to the account. This is a simplification of the process, but as you can imagine, it has several possibilities for error depending on how much manual work the process requires. Individual savings will start to count toward the match in 2027 and the first claims will be filed on tax returns in 2028.

The IRS and Treasury have been working diligently to develop a structure for how the Match will be claimed and processed. They recently released Notice 2026-48, which provides their initial guidance. This topic is of interest to the entire industry, but it is especially relevant to our new state auto-IRA members. Those programs were designed to close retirement plan coverage gaps, which are especially common among low-income employees.

The window for comments to the IRS guidance is open until October 5th, and we will be sending a letter expressing our thoughts on how the Match should work. Keep an eye out for a Legislative Alert from us once the letter is finalized and sent.

Non-Traditional Public Service

Finally, I wanted to highlight a recent study from the Pew Charitable Trust that focuses on public employees with non-traditional career paths. The study models the impact of two scenarios, part-time work and long-duration career interruptions, by calculating the change in DB benefit if the employee experiences either circumstance.

The impact of employment gaps is especially relevant to women, who are more likely than men to leave the workforce to raise children. This is important because, as we discussed in a recent Connect Conversation, state and local governments both employ majority female workforces.

However, a deeper consideration not discussed in the Pew study is employee tenure generally. Often, when we consider the benefit a typical employee will earn when they retire, we use 30 years as a standard for time in service. I did it myself when I wrote a paper on the evolution of pension tiers in 2023. But the median tenure in most systems, for example CalPERS, is closer to 20 years.

All of this has important implications for DC plans. Understanding the demographics and workplace trends in your government can help paint a realistic picture for the role of your plan and the amount of money people need to save in combination with the DB benefit.

Several of the presentations at our conference in Orlando this month will provide novel research to expand on this subject. Make sure you check them out, and we cannot wait to see you there!

All the Best,

Matthew Petersen
Executive Director, NAGDCA