Since the IRS final regulations for 403(b) plans took effect in 2009, the retirement plans for tax-exempt organizations are starting to look more like 401(k) plans. Thats spurred non-profits to turn to their retirement adviser and question whether or not to stay with their 403(b), says Chad Burch, an adviser at Fort Wayne, Ind.-based Phillips Financial.
Plan sponsors are taking their responsibilities more seriously than in the past, Burch says, and are turning to advisers for guidance on plan administration as well as other inquires. While retirement-related questions can be complicated, theres almost always an answer, he says, which is something that cant be said of health care.
Employers are also consolidating the number of vendors they use, Burch says. In the past, individual agents worked with staff members one-on-one. That was a costly delivery model, which in turn made for more expensive products, he says. Consolidation has reduced the cost for plan participants and increased the quality of products, Burch says.
Fifteen years ago, 403(b) products were inferior, and it made sense to invest in 401(k) plans, says Jim Rowley, president and CEO of NFP Lincoln Benefits Group, based in Fort Washington, Penn. Thats no longer the case, he says. Theyve caught up.
Five distinct segments of the market
The biggest misconception about the 403(b) space is that its a unified marketplace. Not true, Rowley says, there are five distinct segments of the market:
1) Public education
2) Hospitals
3) Higher education
4) Churches
5) Community-based organizations
While each segment has its own unique set of problems and solutions, Rowley says, there is one common theme for all 403(b) plans low participation. With an employer match, participation is around 60%, he says. That drops to about 40% if there isnt a match.
One reason could be the difference in employee population, Rowley says. Non-profit employees arent as motivated by money as those in the for-profit sector. Its just a different world, he says.
Automatic enrollment is another reason its more successful in 401(k) plans, Rowley says.
Three areas of focus
Education can help increase participation, and its one of three areas all 403(b) plan sponsors should focus on, says Bob Fischgrund, executive vice president at CBIZ Retirement Plan Services based in Kansas City.
Educating participants is essential, he says, as it teaches participants how to use the plan and maximize its benefit to ensure a secure retirement. A lot of participants dont take an active role, Fischgrund says, often times because they dont understand the plan.
Ensuring compliance is also vital, he says. Failing a DOL audit not only comes with a financial penalty, it can hurt the plan sponsors credibility, Fischgrund says.
The plan document is what the DOL will look at first, he says. Thats where a lot of plan sponsors get themselves in trouble. Its an area where professionals can help an adviser can make sure employers understand exactly whats in their plan document, Fischgrund says.
Plan sponsors must also understand all of the fees associated with their program and whether or not the amount being passed onto their employees is reasonable, Fischgrund says.
