Charter School Case Study #3: Believe charter school

Believe Charter School (a fictitious school in Greensboro, North Carolina) enrolls 1000 K-12 students and employs about 125 staff – administration, teachers, and other support professionals.  Denton McBride, a former school leader from Greenville, SC, just started as the new executive director of the schools.

The schools are a hub of the community in their neighborhood in Greensboro – they are consistently hosting after-school activities through a partnership with the Girls and Boys Club, summer enrichment camps for their students, as well as a seemingly endless line-up of extracurriculars.  The school is highly valued by the community and the staff generally see this as a great place to belong.

When Denton joined The Freedom Schools several months ago, he was pleased to see there was a 401k plan in place with a generous employer match (If an employee contributes 5%, then the school will match an additional 4%).

When he asked the CFO – Katrina - about the plan in one of their first check-ins, he was pleased to hear things typically ran fairly smoothly.  The company had implemented auto-enrollment and participation hovered around 90% - the staff were very excited about the employer match, which had just been instituted over the last few years!

 Katrina noted a few hiccups, however, from her end:

• In a CFO roundtable she had attended, Katrina had heard that 401k and 403b plans could have liability for the company involved.  She wasn’t sure what that liability was and how it impacted her and Believe Charter School, for that matter.  It was a question rattling in her brain, but always got pushed down to the bottom of the “To Do” list due to more urgent matters.
  
  

• The company running the 401k was hard to get in touch with and slow to respond to matters, dragging small issues out for months on end.  For example, last year an employee had an issue with their account and it took almost 6 weeks to resolve, with Katrina having to go back and forth with the company.

While these didn’t seem like the most urgent matters on Denton’s plate, he knew of an investment advisory firm – Investors Asset Management (IAM) specializing in retirement plans for non-profits and educational entities.  Denton sent an email and set up a 30-minute Zoom consultation with IAM.

Denton, Katrina, and IAM had an initial meeting where they learned the following:

• The plan for the Believe School had been set up as an ERISA-based 401k plan, meaning the company has a legal obligation to choose the investment lineup, manage and monitor the investment offerings of the plan, and adhere to compliance standards set forth by the DOL.

• The CFO, Katrina, signed an agreement stating she was monitoring and managing the line-up - the company managing the plan would not take that liability (which is typical). 

There were a few easy fixes: 

·        IAM could act as a 3(38) advisor, which means Believe School would outsource the liability of choosing the fund line-up and monitoring the funds to a professional investment advisory firm.

·        IAM could also act as the liaison between Believe School and the 401k provider to help expedite any challenges popping up and take something off of Denton and Katrina’s plate.

·        IAM could also offer employee education on choosing the most appropriate funds for them, which is one of the biggest questions employees typically face when signing up for their 401k.

After signing on with the Freedom schools, IAM ran an analysis of the current investment line-up.  They worked with the 401k provider to determine other offerings and created a modified version of their options based on investment returns and current trends in the compliance and legal space.  They also completed a brief but impactful employee education session around the fund line-up and got all employees registered for their 401k and in the funds of their choice…in under 45 minutes.

After Believe School hired IAM as the 3(38) advisor, company participation rose to 95% and, due to the onsite education, each employee felt very confident about their investment selections…and could then check this off the list and go back to their classroom and their “to do” lists.  Denton and Katrina took a sigh of relief that they had outsourced the liability for the investment management function and focused more time on what matters most:  their students.

The case study is for illustrative purposes only.  IAM creates case studies to illuminate broad trends in the larger retirement plan market.   The name of the school and the characters in this case study are fictional.