What could be better news for financial professionals than to learn about a sizeable market segment that is increasing its use of advisers? Well, that is the case among non-profit organizations that sponsor 403(b) plans.
The latest
To make the pot even sweeter, industries that most increased use of financial professionals are those sitting on a significant portion of 403(b) assets: health care and private non-profit higher education.
- 69.6% of health care organizations turned to investment advisers in 2013 compared to 55.1% in 2012
- 58.6% of higher education organizations used investment advisors in 2013 versus 42.9% in 2012
Why the increased reliance on financial professionals? Its likely due to a growing recognition among 403(b) plans of the need to meet fiduciary responsibilities under ERISA. It also shows that 403(b) sponsors recognize the value in working with an intermediary to help meet plan and organizational goals.
Open to change
Beyond a greater desire to get help from intermediaries, the survey shows growing evidence that these sponsors are open to making potentially positive changes.
- Simplified investment platforms: 403(b) plan sponsors offered an average of 26 investment options in 2013, down from 31 in 2012 and edging closer to the average of 19 investment options in 401(k) plans. 403(b)s with the highest average participation rate (72.2%) are those with between 15 and 20 investment options.
- Increased use of target date options: Three quarters of 403(b) plans now offer target date investment options, a steady increase since 2009 when they were included in just over half of plans (51.2%).
- More personalized and interactive education: Sponsors increased use of e-mail significantly over the past five years from 51.5% in 2009 to 71.8% in 2013; webinars more than doubled in from 9.7% in 2009 to 26% in 2013; 60% used one-on-one meetings with service providers, up from 54.2% in 2012 and more than a third (34.5%) used individually targeted communications.
- Growing use of automatic savings: Sixteen percent now automatically enroll employees, up from 14.6% in 2012; more of those plans included automatic annual increases (20.7% in 2013 compared to 16.9% in 2012).
But wait, theres more
The survey also provides great insight into other key trends among 403(b) plans. That gives you an opportunity to help prospects and existing clients benchmark their plans. It also provides proof points for the recommendations you are making.
Beyond supporting decisions to make changes, the survey can help analyze the best approach to any change. For example, one very interesting analysis we performed was around employer contributions: employer match only, non-matching contribution only and a combination.
In looking at the data, we found that the 403(b) plans that combine both a matching and non-matching contribution get the most bang for the buck: the highest overall contribution to the plan was 11.1% (both employer and employee) with a lower cost to the employer than a pure non-matching contribution and about the same deferral as a straight matching contribution.
Thats the kind of analysis that can greatly reassure a plan sponsor who is making a critically important plan design decision.
Whether you are in the 403(b) marketplace or want to be, taking the time to review
Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for over 20 years and has been in the retirement plan business since 1986. A version of this blog originally ran on
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor® Financial Services Corporation, 1-800-547-7754, Member
