Data & Research January 15, 2009

403(b)s Could Use Participation Help

403(b) plans are lagging in employee participation and plan features to incent participation, according to research from PLANSPONSOR.
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PLANSPONSOR’s 2009 403(b) Industry Report is based on the responses of 358 403(b) plan sponsors to the 2007 Defined Contribution (DC) Survey (see “Cover: 2007 PLANSPONSOR DC Survey: Picking Up the Pace“). Overall, the survey found only about one in five 403(b) plans use automatic enrollment. However, among those plan sponsors that did offer automatic enrollment, 60.3% said the primary reason for offering it was to be more proactive in helping employees save.

Those sponsors offering auto-enrollment also helped their participants with investment choices as the majority 59.1% used either target-date funds (36.6%) or risk-based lifestyle funds (22.5%) as their default investment for automatic enrollment.

Another plan feature that some research has indicated promotes employee participation is employer match. While the Industry Report showed 70.3% of 403(b)s include a company match, the majority of sponsors indicated a match rate of less than 50% of the first 6% of employee deferrals (40%) or only 50% of the first 6% of employee deferrals (25.9%).

A higher match rate could not only encourage more employees to participate, but may encourage them to participate at a higher savings rate. On average, sponsors reported, just two-thirds (65.9%) of participants are deferring enough salary to receive the full match.

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The Good News about Investing and Retirement Income

While 403(b) plan sponsors have room to improve participation efforts, PLANSPONSOR’s 2009 403(b) Industry Report showed they are doing a good job of helping existing participants invest.

According to the report, 49.2% of 403(b)s offer target-date funds, 27% offer risk-based lifestyle funds, and 20.3% offer managed accounts. On average, almost a third (31.8%) of participant balances are in these fund types.

Four in 10 (42%) sponsors said investment advice is offered to plan participants through their plan providers. Further, the survey found nearly three-quarters (74.4%) of organizations that sponsor a 403(b) said they have an investment committee for the plan, and more than two-thirds (69.6%) reported they formally review investment costs and fees annually. In addition, 74.6% have a written investment policy statement for the plan.

The Industry Report also found 403(b) sponsors are more likely than sponsors of other types to offer an annuity as a distribution option for retiring plan participants. More than half (58.7%) of 403(b) plans offer an annuity option, while only 27.7% of sponsors overall offer one.

 

 

For a copy of the 403(b) Industry Report or similar reports, contact Quinn Keeler at 203.595.3274 or qkeeler@assetinternational.com.

Data & Research January 15, 2009

And the Award for Best Online Calculator Goes to…

Research from Corporate Insight graded do-it-yourself retirement-planning calculator tools offered by brokerage firms to assist investors.
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Fidelity, TD Ameritrade, and Vanguard all scored A’s.

Although calculators are sometimes criticized for oversimplifying the retirement needs of Americans, they have also become helpful tools for many investors to understand how much they need in retirement. Corporate Insight, a consultant to the retail financial services industry, said given the uncertainty of today’s economy, it is important for self-directed investors to take a hands-on approach in planning for retirement.

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The firm looked at calculators and multi-step planning tools offered on the sites of brokerage firms. Corporate Insight determined the accessibility, complexity, and usability of the online calculators, according to a press release. Of the firms surveyed, 70% (or 14 firms) met the criteria by offering some form of retirement planning tool.

Fidelity earned an A+ from Corporate Insight for its comprehensive retirement planner, the release said. TD Ameritrade (A), Vanguard (A-), Charles Schwab (B+), and E*Trade Financial (B) also scored high marks for their do-it-yourself planners.

Corporate Insight found that four firms (Charles Schwab, Fidelity, TD Ameritrade, and Vanguard) automatically import the client’s actual account value into their retirement planning tools, allowing the client to skip over manual data entry. After clients have calculated their future finances, Fidelity, Charles Schwab, and E*Trade Financial offer solutions and suggestions for next steps on how to make retirement goals realities.

However, the majority of firms (64%) surveyed offer only basic calculators and lack the benefits of multi-step planning tools, according to the results. Thirty-six percent of firms offer a comprehensive retirement planner that: computes the client’s current retirement needs; predicts the future values of current holdings; and tailors a plan of action to the client’s goals and finances.

 

Corporate Insight recommends the following:

  •  Place tools in prominent, easily accessible Web site locations.
  • Allow clients to save information and continue later.


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