Data and Research

Developing 403(b) Service Strategies Now May Pay Off

Some DC plan providers see big opportunity ahead in helping higher education institutions prepare their workforces for retirement via 403(b) and 457 plans.

By John Manganaro | July 05, 2016
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New research from Cerulli Associates finds that implementing and refining defined contribution (DC) plans in the public higher education sector could be a significant area of opportunity for experienced providers.

This is partly because of the overall shift away from defined benefit (DB) pensions in favor of DC, but also because the higher education sector is “beginning to adopt more 401(k)-like practices in terms of investment menu design, which may open it to providers and asset managers that have traditionally focused on corporate DC plans,” explains Jessica Sclafani, associate director at Cerulli.

Providers are targeting the market because of its unique characteristics, Cerulli finds: “The higher education sector of the not-for-profit DC market is considered attractive for a combination of reasons. The higher education component of the not-for-profit DC market has room for further vendor consolidation, in particular among large public organizations and some smaller private universities and colleges, which concentrates assets with a single provider.”

According to Cerulli, as of year-end 2014, the higher education sector of the non-profit/governmental DC market held the greatest percentage of 403(b) assets, clocking in at $393 billion, or roughly 44% of the market volume. Even more promising is the fact that, “unlike corporate DC plans, which have entered a period of negative net flows, not-for-profit (NFP) and governmental DC plans continue to increase their share of total U.S. retirement assets.”

There seems to be particular attention being paid in the marketplace to the idea of utilizing supplemental DC plans to achieve adequate retirement preparedness at the same time that DB pensions are getting significantly less generous. This high-level trend is opening up a variety of opportunities for advisers and providers to capitalize on their DC plan expertise to bring best-practice design to 403(b)s or other plan structures, Cerulli says. 

“Given Cerulli’s expectations for continued growth, it may behoove asset managers and providers to re-evaluate their exposure to the 403(b) component of the DC market,” Sclafani adds. “Participants in 403(b) plans have considerable latitude in terms of their choice to enroll, their vendor selection, and their investment options, unlike 401(k) plans in which many of these decisions are automated for the participant.”

NEXT: More on the supplemental 457 and 403(b) DC market