403(b) Plan Sponsors Reveal Investment Preferences in Survey

Plan advisers can help 403(b) plan sponsors looking for downside protection, active strategies and target-date funds (TDFs) that can be used as a decumulation vehicle in retirement.

Sponsors of 403(b) plans are more concerned about market volatility than 401(k) plan sponsors, according to the 2019 BlackRock DC Pulse: 403(b) Report.

Comparing responses from each plan type in its overall 2019 DC Pulse survey, BlackRock found 86% of 403(b) plan sponsors anticipated market volatility in 2019, compared to 71% of 401(k) plan sponsors. In addition, 93% of 403(b) plan sponsors have taken steps to prepare for market volatility.

These steps include:

  • 46% have conducted a plan design analysis;
  • 42% have added an investment option that seeks additional return;
  • 42% have reviewed the plan’s investment performance, including downside protection; and
  • 36% have conducted a reenrollment.

Nearly nine in 10 (89%) 403(b) plan sponsors prefer investments offering downside protection over investments that seek to outperform the market (vs. 71% of 401(k) plan sponsors). Additionally, 85% of 403(b) plan sponsors mentioned their organization is re-evaluating core fixed income to better manage risk and return (vs. 69% 401(k) plan sponsors).

The survey also found 403(b) plan sponsors are stronger advocates of active management than their 401(k) peers, as 87% said active strategies can get better returns than index strategies (vs. 68% of 401(k) plan sponsors). Ninety-two percent of 403(b) plan sponsors said an actively managed target-date fund (TDF) could reduce the impact of volatility for participants.

403(b) plan sponsors have been ahead in the game of offering retirement income products and services to participants. BlackRock’s survey found 85% of 403(b) plans offer investments designed to help support participant spending needs once they retire, compared to 55% of 401(k) plans. In addition, 90% of 403(b) plan sponsors are providing tools to help participants understand retirement income.

A large majority of plan sponsors said TDFs go hand-in-hand with generating retirement income. Eighty-seven percent agreed with the statement, “When selecting a TDF, it’s an important consideration whether or not it can be used as a decumulation vehicle in retirement. Only 68% of 401(k) plan sponsors agreed. Eighty-nine percent of 403(b) plan sponsors said their current TDFs can be used as a decumulation vehicle for participants in retirement, and 92% stated their participants would benefit from a TDF that generates guaranteed retirement income. This compares to 72% and 75% of 401(k) plan sponsors, respectively.

The survey also found 403(b) plan sponsors feel more responsible about the overall financial well-being of their employees than their 401(k) counterparts (99% vs. 90%). And, 403(b) plan sponsors are also more invested in employees after they leave: 68% feel very responsible to help participants plan for and manage their income in retirement, versus 37% of 401(k) plan sponsors.