403(b)s Show Culture of Continuous Improvement

Sponsors of 403(b) retirement plans continue adapting to regulations from the Department of Labor (DOL) and continue making improvements.

The latest 403(b) plan sponsor survey from the Plan Sponsor Council of America (PSCA), by the Principal Financial Group, shows more stability and less uncertainty among 403(b) plan sponsors. The percent of plan sponsors who do not know their Employee Retirement Income Security Act (ERISA) status decreased, from 10% in 2010 to 6.8% in 2011. Twenty-percent fewer sponsors are uncertain whether they have an investment policy statement.  

“The engagement of 403(b) plan sponsors is much higher than in years past. They’re adjusting to the new regulatory environment and show a much better understanding of ERISA,” said David Wray, president of PSCA.    

Greater use of target-date funds continues, with 72.5% of plan sponsors offering target-date funds as an investment option, up from 69.1% in 2010.  

The number of plans permitting Roth after-tax contributions has doubled in the past four years. In 2011, 21.7% of 403(b) plans allowed Roth, up from 16.9% in 2010 and 10.9% in 2007.



In addition, 403(b) sponsors have enhanced education for and communication with participants. Use of e-mail communication has increased (65% in 2011 vs. 59.5% in 2010), as has the use of seminars/workshops (53% in 2011 vs. 41.8% in 2010).   

The survey results show nearly 40% of 403(b) plan sponsors made changes to their plan’s investment lineup in the last year, and nearly 26% plan a comprehensive redesign in the next 12 months.    

These trends signal opportunities for financial professionals to provide assistance to 403(b) plans, especially those who work with third-party administrators (TPAs). Nearly 35% of 403(b) sponsors report using the services of a TPA in 2011.  

“We’re seeing a culture of continuous improvement among 403(b) sponsors. Financial professionals can tap into that by using survey results to help clients benchmark their programs and shed light on areas that could be enhanced,” said Aaron Friedman, national nonprofit practice leader, The Principal.  “For instance, nearly 22% of 403(b) plan sponsors said they are still using money market funds as the default investment option whereas the strong trend among 401(k) plans is to use target-date funds as the default. That, combined with plan sponsors’ desire to continually renew investment options, could result in opportunities for financial professionals.”     

PSCA’s 2012 403(b) Plan Survey gathered information about the 2011 plan-year experience of 584 not-for-profit organizations. Full survey results may be purchased from PSCA at www.psca.org.