403(b) Plan Improvement: An Adviser Opportunity

“There is still tremendous opportunity for advisers in the 403(b) space, particularly among smaller plans,” says Aaron Friedman, national non-profit practice leader, The Principal.

The latest 403(b) plan sponsor survey from the Plan Sponsor Council of America (PSCA) and sponsored by the Principal Financial Group found 403(b) plan sponsors are forging ahead with improvements to plan design and plan oversight (see403(b) Sponsors Continue Improving Plans“). However, Friedman told PLANSPONSOR that smaller plans (those with 1 – 49 employees) continue to lag larger plans in making improvements in several areas.

In particular, the survey found more than one-third of all 403(b) plan sponsors have made changes to their investment lineups within the last year. But, four times as many larger plans made changes (64.5%) than smaller plans (15.4%). Friedman says this shows there are not a lot of people working with smaller plans that are paying attention to the investments or doing due diligence on the investments.

Also, Friedman points out that 78% of sponsors of larger plans (1,000 or more participants), but only 34% of sponsors of the smallest plans have increased participant education in the last year. With the changes in the regulations and the plan changes sponsors are making, there is certainly a need for more education, and this is a place where advisers can add value, he says.

More than a quarter (26.9%) of the smallest 403(b)s indicated they are unsure of their Employee Retirement Income Security Act (ERISA) status, an increase from 19.3% a year ago. According to Friedman, The Principal thinks this is a good sign because it indicates they are reviewing their plans. “this is a great opportunity for qualified advisers. They can make sure the plan is operating in the appropriate manner, with appropriate investments,” Friedman says.

The number of plans with an accountable committee for investment and/or plan oversight has grown tremendously over the years, but only about 20% of the smallest plans have one. Advisers can bring to the table expertise about how to run a responsible plan. “Advisers have a great opportunity in this marketplace to help these small 403(b) sponsors organize, develop and implement strategies for their plans,” Friedman adds.

Without the help of an adviser, consultant or attorney, smaller plans may not be connected and know what the new rules are and what they need to do. Friedman told PLANSPONSOR that advisers need to visit non-profits in their communities, such as houses of worship, chambers of commerce and places they volunteer, and ask questions about whether have a 403(b), how it runs and how it’s working for employees.

“As we’re out there in various communities speaking to advisers, this is still a message that is hitting home. Advisers realize they already have these contacts and the opportunities are just waiting for them to act,” Friedman concludes.

Full results of the survey can be found at http://www.psca.org.