403(b) Plans Show Confidence in Compliance

New research sponsored by AUL Retirement Services finds 403(b) plan sponsors are confident they understand their responsibilities and are not worried about IRS audits.

When asked if they understand their fiduciary responsibilities under the new regulations, an overwhelming majority of respondents from all surveyed segments—church, public school, health, and other organizations—claimed they understand their responsibilities, according to the research report. Ninety-three percent of public school respondents said they understand their fiduciary responsibilities, while 88% of health care and other organizations and 84% of church plan sponsors said the same.

In addition, respondents in the health care and other organizations segment were asked whether or not they understand the Pension Protection Act, and 65% indicated they do.

Perhaps due to this feeling that they understand their responsibilities, both the public school and health care and other organizations segments showed confidence about IRS audits. Only one-quarter of those surveyed in each segment indicated they have some level of concern about IRS audits. Just 7% of those surveyed in the public school market indicated they are concerned or very concerned about IRS audits, while only 6% in the health care and other organizations segment reported being concerned or very concerned.

The survey found that third party administrators are used by 92% of public school respondents, and the research suggests respondents might feel more comfortable with their fiduciary responsibilities and less fearful of IRS audits if they are utilizing a third-party administrator (TPA).

Commitment to Multiple Vendors

While experts in the industry speculated that new regulations would herd 403(b) plan sponsors toward a single-vendor environment, the AUL Retirement survey found many still utilize multiple vendors and those that do seem committed to maintaining that design.

Not surprisingly, more public school plans than plans in other market segments use multiple vendors. Among public school respondents, 92% said their plans use multiple vendors, and 96% of those respondents said they will continue to do so. A quarter of church plan respondents and a third of health care and other organizations respondents said they use multiple vendors, and among those, 86% and 95%, respectively, said the use of multiple vendors will continue.

AUL Retirement's research found a correlation between higher participation rates and 403(b) plans that offer a company contribution. In all three segments, the highest percentage of employee participation was under 25%; however, in instances where an employer match is offered, the participation rates increase substantially.

Sixty-five percent of respondents in the church plan segment indicated they offer employer contributions, as did 68% of respondents in the health care and other organizations segment. According to the research report, when there is not an employer contribution in the church segment, 70% of those plans have less than 25% participation. However, for those organizations that offer an employer contribution, 45% have greater than 25% participation.

In the health care and other organizations segment, only 30% of organizations that do not offer an employer contribution have participation rates above 25%, but 70% of organizations that do offer an employer contribution have participation above 25%.

In the public school segment, 93% of respondents indicated they do not offer any form of employer contribution, and this is likely one of the reasons this segment sees the lowest participation rates of those surveyed, with 68% of respondents indicating they have less than 25% participation.

Regarding other plan design issues, more than half of the church plans surveyed indicated they do not have a separate benefit formula for ministers. In addition, 44% stated they do not offer a post-retirement housing allowance. AUL noted that these benefits can have a great impact on attracting and retaining quality staff.

The Jackson Group utilized telephone surveys to conduct the research among nearly 700 organizations.

Advisers interested in obtaining a copy of "The New 403b Frontier”should contact Vicky Barnett at 317.285.1601 or vicky.barnett@oneamerica.com