403(b) Plan Costs Trending Down

Plan designs are also changing.

Total Employee Retirement Income Security Act (ERISA) 403(b) plan costs—which includes administrative, advice, fees from Form 5500 filings, and asset-based investment management fees—have decreased since 2009, according to a BrightScope/Investment Company Institute (ICI) examination of ERISA 403(b) plans with at least $1 million in assets that filed audited Form 5500 reports with the U.S. Department of Labor.

In 2013, the average plan had a total plan cost of 0.73% of assets, down from 0.82% four years earlier. The decrease could be, in part, due to a different composition of plan investments.

Mutual funds were the largest share of plan assets (49%) in ERISA 403(b) plans in 2013. Variable annuities (including variable annuity mutual funds) held 28% of assets, and fixed annuities held 23% of assets.

Forty-six percent of ERISA 403(b) assets were in equity funds, 18% were in balanced funds (including target-date funds), and 7% were in bond funds. Index funds are widely available in ERISA 403(b) plans and represented about 17% of plan assets in 2013.

ERISA 403(b) plans offered an average of 25 core investment options to participants in 2013.

The study, “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2013,” also examined the elements of different 403(b) retirement plans, including automatic enrollment of employees into the plan, employer contributions, and participant loans.

More than 90% of 403(b) retirement plans offered by private-sector employers are now using a variety of plan features designed to boost participation among employees. Of the nearly 6,000 large ERISA 403(b) plans analyzed, 80% offered employer contributions, half had participant loans, and 10% included automatic enrollment for employees.

A little more than one-third of these plans offered both employer contributions and participant loans. Overall, about 6% of ERISA 403(b) plans included in the sample offered all three features.

The study included 403(b) plans covered by ERISA that had 100 participants or more and at least $1 million in plan assets.