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Perspectives

Building a 403(b) Business: Where the Opportunity Lies

In the retirement plan world, change equals opportunity for financial professionals, and change has been a constant among 403(b) plans since the Internal Revenue Service (IRS) passed significant regulations in 2007.

 

But the biggest opportunity for change right now lies in one key segment of the 403(b) market:  private higher education.  How big is the opportunity?  A LIMRA study released this past May estimates the size of higher education 403(b) plan market to be more than $320 billion.  And the 2013 403(b) Plan Survey (see “403(b) Plan Sponsors Continue to Improve Plan Value”)from the Plan Sponsor Council of America (PSCA) indicates higher education plans are ready for change.

The backstory 

Like many other not-for-profit organizations, private higher education organizations historically followed the typical 403(b) retail model, providing employees access to annuity and mutual fund options from several providers through individual meetings with financial professionals or provider representatives at the workplace. While these personal interactions have served individuals, there have historically been no relationships between financial professionals and plan level decision makers, the people charged with looking out for the plan and the participant base as a whole.

Many institutions of higher education were reluctant to upset the apple cart when implementing changes for the final 403(b) regulations effective in 2009. A variety of financial professionals with various preferences toward providers and products continued to maintain individual relationships with employees who were vocal about maintaining the status quo.  As a result, administrators made very few structural changes and simply adopted compliance monitoring procedures to satisfy the regulations.

 

Aaron Friedman, tax-exempt national practice leader, the Principal Financial Group editors@plansponsor.com