Plan sponsors have moved from just making changes to satisfy the 2007 regulations, to making adjustments to make their plans better, Aaron Friedman, national nonprofit practice leader at The Principal, told PLANADVISER. The fifth annual 403(b) plan survey, from the Plan Sponsor Council of America (PSCA) and sponsored by the Principal Financial Group, found 22.6% of organizations overall made changes to their plan within the last year.
Friedman said 24% made plan design changes, including adding a Roth feature, changing vesting schedules and changing eligibility requirements, but that when you add in the number who made changes to employee deferrals or matching contributions, that percentage jumps to 34%.Friedman noted that the first survey, in 2008, was done during challenging economic times, when participation levels were decreasing and employers were cutting or suspending match contributions. But, the survey found the majority (82.3%) of 403(b) organizations contributed to their plans in 2012, with the average contribution nearly 10% higher than 2011. Nearly 41% make matching contributions only, one-quarter make non-matching contributions only, and 16.4% make both matching and non-matching contributions to the plan.
The percentage of participants contributing to plans increased to 66.2% in 2012 from 64.3% in 2011. Average deferral rates also ticked higher to 5.7% from 5.4% in 2011. The number of plans permitting catch-up contributions for those 50 and older continues to increase and more plans (27.7%) are now matching those contributions. Seventeen percent of participants made the extra contributions in 2012 compared to 13.4% in 2011.
“[These findings] show the economy is improved, and given the choice of savings, participants still favor tax-advantaged retirement plans,” Friedman said.
One big change the survey found stuck out to Friedman. In the original survey in 2008, more than 22% of small plans reported they did not know their Employee Retirement Income Security Act (ERISA) status. He said this is not surprising considering the regulations were new and not a lot of attention had been paid to 403(b) plans prior to the regulations. The statistic is greatly improved now, with less than 15% of small plan sponsors reporting they do not know their status. Friedman noted that it appears from Form 5500 reporting that most plan sponsors do know their status. “This shows the regulations have improved plan sponsor knowledge and control, particularly among small plan sponsors,” he said.
The survey found overall 76.3% of respondent plans are ERISA, 16.4% are non-ERISA, and 7.3% of respondents were unsure of their plan’s ERISA status.The survey shows other improvements. The number of 403(b) plans permitting Roth after-tax contributions continues to grow. In 2012, 23.8% of plans allowed Roth, up from 21.7% in 2011 and continuing the growth from 10.9% in 2007. In addition, 403(b) sponsors increased use of all approaches to education with a greater use of e-mail (70.7% in 2012 vs. 65% in 2011); webinars (24.8% in 2012 vs. 19.9% in 2011); and one-on-one meetings with service providers (54.2% in 2012 vs. 50.6% in 2011).
Other survey findings include:
- Organization matching formulas average a maximum of 4.7% of participant’s pay (when eligibility and other conditions are met), while the average maximum non-matching contribution to the plan is 6.1% of pay.
- Plans offer an average of 27 funds for organization contributions and an average of 31 funds for participant contributions.
- 73.6% of plans offer target-date funds as an investment option.
- 52.8% of respondents have an investment policy statement, while 24.1% of plans are unsure if their plan has such a statement, down from 28.3% of plans in 2011 and 34.6% in 2010.
- Investments are most often monitored annually (48.2% of plans).
- 46% of organizations retain an independent investment adviser to assist with fiduciary responsibility.
- 24.4% of organizations offer investment advice to participants. An average of 23% of participants utilized investment advice when it was offered.
- 14.6% of organizations have an automatic enrollment feature. Automatic enrollment is more prevalent for large plans (29.1% of plans with 1,000 or more participants).
- The most common default investment options are target-date funds (56% of plans), followed by lifestyle funds (24% of plans).
- 82.7% of plans file a Form 5500 and 50.2% of plans had a CPA audit in 2012. The IRS has audited 6.6% of plans in the past.
- 69.5% of organizations evaluate plan-paid fees annually.
- 1.9% of plans state that they never review the fees, down from 5.9% in 2011.
- 75.5% of organizations monitor at least one participant behavior.
- 32.2% of organizations use a third-party administrator as their primary recordkeeper, and 26.1% use an insurance company.
- 82.6% of organizations use one plan provider, and 9.2% use two.
The 2013 survey reflects responses from 573 403(b) plan sponsors from all market segments. The survey report may be purchased from http://www.psca.org/2013_403b_report.