Chicago Public Schools cuts fees and trims record keepers for participants

When Chicago Public Schools, one of the nation's largest school districts, realized it was too unwieldy to continue working with three record keepers in running its 403(b) retirement plan and companion 457(b) deferred compensation plan, it moved to downsize to a single vendor.

"It was really about being able to shift to an exclusive provider so we could have more control over our communication and engagement strategy," said Karla Kirkling, CPS' Chicago-based executive director of health care and benefits and winner of an Excellence & Innovation Award.

CPS also wanted to align with ERISA best practices even though schools and other public institutions are not governed by ERISA law, she said.

Having three record keepers — Empower Retirement, Voya Financial and American International Group Inc. — meant that the 51,110 participants in the school district's two plans had different investment lineups, which resulted in inequitable employee access to investments because Empower provided only mutual funds while Voya and AIG provided only annuities, Ms. Kirkling said.

"We wanted to streamline that and make sure that all of our staff had access to the same types of investment options," she said.

The differences also made it difficult to "get data consolidated" and see how the plans were performing, Ms. Kirkling explained.

In addition, having multiple record keepers created an unhealthy dynamic with leaders of different schools and administrative buildings favoring certain providers over others. "They essentially started to give some of those reps more access to their staff vs. others," Ms. Kirkling said of school officials and their preferred record-keeper representatives.

Even more problematic, the three record keepers were cross-selling outside products for which employees were paying high fees. "We didn't want it to be a commission-based environment where our reps were focused on making commissions as opposed to providing proper education for retirement readiness," Ms. Kirkling said.

As part of the record-keeper consolidation that ended with AIG winning the business, CPS created a single investment lineup made up of 12 equity, fixed-income and target-date-fund investment options, down from 17 investments that participants were seeing in their lineups before.

"We give them choice but not too much choice," Mr. Kirkling said, explaining that too many options often lead to participants not picking anything at all.

CPS estimates that the new investment lineup saves participants with a $50,000 balance anywhere from $177 to $492 annually in fees, while those with $100,000 see annual savings of $372 to $1,012.

Despite the cost savings, the consolidation effort wasn't an easy sell, even initially among participants.

Convincing participants that choice was not taken away was the toughest aspect of the consolidation, Ms. Kirkling said, explaining they didn't always see the benefits of the move.

"When they hear the idea of someone downsizing to an exclusive provider, they say 'wait a minute, you're taking my choice away from me,'" she said of participants.

To assuage participant concerns, CPS hosted webinars stressing the new low-fee investment options and other benefits of having a single record keeper.

Judges commended CPS for taking on the challenging task of consolidating record keepers, a move that significantly reduced costs to participants. Bringing down the cost of a $100,000 account balance by $372 to $1,012 annually "is a significant cost saving for a teacher," one judge said.