I usually don't get worked up about too many things. One former colleague actually referred to me as "Spock." So when the fifth annual 403(b) plan survey from the Plan Sponsor Council of America came out, I won't go so far as to say I was giddy. But, I was very pleased and to see the numbers from the latest survey of 403(b) plans, from participation and savings to employer contributions, generally point in one direction: up. I think there are many compelling reasons why the survey results are worthy of a shout-out:
* The majority of 403(b) plan sponsors contributed to their plans in 2012, with the average contribution nearly 10% higher than 2011.
* The percentage of participants contributing to plans increased to 66.2% in 2012 from 64.3% in 2011.
* And average deferral rates also inched higher from 5.7% from 5.4%.
* The number of 403(b) plans permitting Roth after-tax contributions continues to grow.
* The number of plans permitting catch-up contributions for those 50 and older continues to increase - and more plans (27.7%) are now matching those contributions.
* There's a renewed focus on education, with an increased use of email, webinars and one-on-one meetings with service providers.
Room for improvement
While these numbers are promising, I know there's always room for improvement:
* There are a limited number of small plans that permit Roth after-tax contributions.
* Higher education institutions on average make 65 funds available for participant contributions, two to three times higher than other industries in the survey.
* Only 55% of small plans offer target-date (lifecycle) funds for their participants, and of those that do not offer them, only 10% are considering the addition.
* Only 53% of all 403(b) plans have an investment policy statement, a fiduciary best practice.
But to me, these concerns really represent opportunities for financial professionals and TPAs to help 403(b) sponsors continue to modernize their plans - and a reason to meet with them for benchmarking (this article can help start the conversation). It also identifies gaps which provide different reasons to approach prospects as well.
Probably the strongest message I've taken away from these survey results is that non-profit plan sponsors and participants alike are displaying a resurgent faith in our nation's defined contribution retirement system. In recent years, critics of the private pension system have been using the economic downturn to claim that the system has failed - typically by pointing to investment losses causing lower projected balances, job loss creating lower employee contributions, and corporate uncertainty causing lower employer contributions.
However, now that the economy appears to be improving, and even though people have choices on where to save and invest, participation and contribution rates are up in the retirement system, indicating belief in the system. And that's something I can certainly get worked up about.
Friedman is the tax-exempt national practice leader with The Principal Financial Group. This article originally ran on The Principal's blog.
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