Review of proposals from financial services companies seeking to serve as Lehigh’s retirement plan record-keeper continues. That decision will be announced before the end of the spring semester.
In the meantime, this month we’re taking a closer look at
- The Retirement Plan Investment Committee, and
- How the investment asset classes and specific investment funds are being selected.
In the past only the Lehigh funded portion of our retirement program was required to comply with the federal law known as the Employee Retirement Income Security Act of 1974 (ERISA). The voluntary employee portion was not required to comply. As detailed in the Senior Officers’ Report, by combining employee and employer contributions in the new Lehigh retirement plan, we are creating an entirely new structure. And this plan will be an ERISA compliant plan.
ERISA protects retirement plan assets in part by requiring that the fiduciaries who oversee these assets act solely in the interest of the participants and beneficiaries in the plan. Fiduciaries receive training and must be free of conflicts of interest. They not only oversee the initial design and selection of funds for the plan, they also monitor the ongoing management and performance of those funds over time to ensure they maximize return and minimize risks for all retirement plan participants.
In our case, the fiduciaries for Lehigh’s new retirement plan include the members of the Retirement Plan Investment Committee formed earlier this year.
Naturally, with a responsibility as significant as this, it was critical to select a committee with knowledge and commitment. Lehigh is fortunate to have a number of faculty and staff members with a range of experience and expertise who were willing to serve:
Corey Galstan, Director of Public Market Investments, Investment Office
David L. Hammer, Associate Treasurer, Finance and Administration
Timothy E. Hinkle, Human Resources Associate for Benefits, Human Resources
Richard J. Kish, Chairperson, Finance and Law
Kathleen J. Miller, Controller, Controller's Office
David H. Myers, Professor of Practice, Finance and Law
Neal Simon, Professor, Biological Sciences
Neal Simon, Professor, Biological Sciences, was involved in theBenefits Allocation Review that led to the new retirement plan. He’s continuing his service as a member of the Investment Committee. “There is a fair amount of responsibility,” he said recently. “We’re making decisions with one goal in mind: helping people reach a secure retirement. I’m also focused on ensuring that this process is as straightforward as possible for everyone.”
“There’s a very healthy mix on the committee,” Neal continued.“It’s both faculty and staff. There are people with nuts and bolts experience with investments, and there are others who have done significant academic research in the field.”
You could say that committee member David H. Myers, Professor of Practice, Finance and Law, eats, breathes and maybe even sleeps investments. Before joining Lehigh’s faculty, David worked in the field of pension investment funds in Japan and the United States. His academic research focuses on investment fund management.
David says that ERISA was created to protect retirement investments by creating a process to select and monitor a diverse range of funds. “Before ERISA most pension plans were ‘balanced accounts,’ that is there was one manager, one fund, invested in stocks and bonds,” David explained. “ERISA led to an explosion in fund managers and their styles. There is a veritable plethora of options now, and this came out of the push for diversification.”
Diversification is better for long term investing because you avoid putting all of your eggs in one basket. David likens it to eating a healthy diet. Bonds are a staple like rice or pasta. In contrast to bonds’ stability, stocks offer a spicy dish that is a bit riskier but can yield greater rewards. The best investment portfolio has a varied feast of asset types.
So, we think more is better, but more can grow to become too much as well. That’s where the investment structure and fund selection come into play. And this is an area Lehigh retirement plan participants will notice some changes to next year.
Erin Doherty of *Mercer is one of the consultants helping guide the committee in its process. She says that an overabundance of choice can be overwhelming for the average retirement fund participant to handle. 
“Right now, Lehigh’s voluntary plan has many different providers and each has many funds in similar asset classes,”she said recently. “This actually creates an excessive amount of choice, and studies show that with more choice, fewer decisions are made, investors are more passive.”
Erin says Lehigh is hardly alone in making this move to fewer funds. “Many companies and universities like Lehigh are looking at this issue and reducing the number of funds in order to simplify the decision making process for participants and encourage plan participation,” she noted.
This won’t affect the breadth of asset classes that participants can invest in, however. The committee has chosen 16 asset classes with varying degrees of risk and return to satisfy any investor, from the most conservative to the most adventurous. And there will also be a mutual fund “window” where an employee can purchase mutual funds that are outside of the core funds offered in the plan (more on that next month).
The committee will tap into Mercer’s substantial qualitative and quantitative fund manager research to select best-in-class funds within each of those asset classes. When it comes to investing, David says fund management is critical.
“In my academic research and in my private sector work, I’ve found that fund managers are key to how well the fund performs,” he noted. “It’s important to ask: who are the people, how are they compensated? Is there high turnover both in personnel and in the investments in the fund? All of these things go into producing long term health and success.”
Ultimately, the purpose of the retirement plan re-design is to increase Lehigh faculty and staff participation and improve everyone’s security at the end of their careers.
Neal brings it back to the Benefits Allocation Review process. “All of the work that went into restructuring the retirement plan is aimed at leading Lehigh employees to a better financial position in retirement,” he said. “The steps we’re taking now are necessary to implement the restructuring and reach that goal.”
David thinks having Lehigh employees participate by contributing their own money and receiving a match from Lehigh is a positive development. “This is what I teach every day to my students,” he said. “Economics and investments are about choices. It can be seen as a sacrifice to your current consumption, but without that sacrifice you will have less to spend in the future. Having a plan like this makes it more affordable for everyone.”
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