Employers seem to be more comfortable with the increased regulations of the 403(b) retirement vehicle that took place in 2009. As such, industry insiders say 2014 is shaping up to be one of the busiest for these plans yet, according to levels of request for proposal activity and contract consolidations.
The 2009 adjustments to 403(b)s which are tax-deferred, defined contribution retirement savings programs available to employees of public schools, non-profit entities and some clergy members were the first in more than 40 years. They led to a significant increase in responsibility for employers that use them and concerned some employers about increased oversight and penalties, explains Thomas J. Scalici, CEO at Bethlehem, Penn.-based Cornerstone Advisors Asset Management Inc.
Non-profits are resistant and slow to change, but with the rules more than five years in place [employers] realize the extent of their responsibilities and liabilities, Scalici says. Like they have done in other aspects of their business, they realize they need the help of a specialist who can guide them in decision-making on all aspects of their plan.
This creates an opportunity for advisers who are moving into space and realizing working with the vehicle is not that different than working with 401(k) plans. Today 403(b) plans are essentially 401(k) plans as there are numerous rules and regulations that employers at the various tax-exempt organizations have to follow in overseeing the 403(b) plan, says Alex Assaley, lead adviser at Bethesda, Md.-based AFS 401(k) Retirement Services LLC. They generally [dont] have the time or resources and are looking for an outside expert to help them navigate all these complex rules and regulations.
Scalici says his company has seen more activity in 403(b)s so far in 2014 than any other previous year. That, he believes, is driven by several important realities, including increased auditor attention on the plans and fee disclosure rules that have created more transparency around pricing. Employer benefit committees, he explains, are watching what they spend on such retirement vehicles and seeking out advisers now more than ever to help with that bottom line.
Aaron Friedman, national practice leader, tax-exempt at the Principal Financial Group says his company has also seen an increase in the activity around the plans since the regulations were changed.
At the time of the change in 2009, most employers had no formal plan governance in place and most had small human resource staffs. The firms simply didnt, and still many dont, have the manpower to do plan governance on their own, says John Guido, principal at Stamford, Conn.-based Retirement Research Inc. He adds: An adviser is just who these employers are looking for.
They heavily rely on advisers who do have that expertise, Guido adds. You have smaller plans in an environment with greater compliance and frankly these plan sponsors and advisers are taking up the mantle to help with fiduciary responsibilities.
It is time for advisers to look at this market and should know that its not that different than the 401(k) market, Guido says, echoing Assaleys comments.
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