Data & Research April 22, 2007

403(b) Market Braced for Change

With final regulations rumored to be just weeks away, a new survey of the 403(b) market finds an industry seemingly poised to exploit those changes.
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The 2006 NTSAA (National Tax Sheltered Accounts Association) & Cerulli Associates 403(b) Vendor Survey notes a couple of key movements: a continuing trend toward open architecture (“more investment choices from a variety of well-respected asset managers”) and a trend toward single/limited vendor selection.
According to the survey, plan sponsors are limiting the number of vendors in order to ease their administrative burden; monitor participation rates, contributions, and withdrawals; and lower participant fees. In fact, it is widely anticipated that the pending final regulations (see “IRS Delays Implementing 403(b) Regs to 2008’) will result in 403(b) administrative responsibilities more in line with those common to 401(k) sponsors – and that, in turn, has been seen by many as the precursor to a serious consolidation of providers, certainly at the individual plan level (see also “Survey: 403(b) Sponsors Will Seek Outside Advice for New Regs’, “Sponsors Report Mixed Feelings About 403(b) Changes”).
Two Big Impacts
Vendors included in the NTSAA/Cerulli study said that the two greatest impacts of the pending 403(b) regulations are an increase in administrative issues that they will have to address, and vendor consolidation, with each cited by 57% of respondents. According to the report, many indicated that those increased administrative requirements will result in some providers making the decision to exit the market.
However, the report’s authors note that it is likely that most plan sponsors – particularly those in the non-ERISA market – will continue to offer access to between three and six vendors because they won’t want to appear to endorse any particular products. That array could still offer some significant variety, since the report says the vendors will likely include a “low-cost mutual fund vendor, a high-service variable annuity vendor, and mutual funds with imbedded advice.’
Among those changes, vendor respondents to the NTSAA/Cerulli study opined that the two most impactful to plan sponsors and participants would be the elimination of 90-24 transfers(1) and the requirement of a written plan document requirement (57% each). Other areas identified as potential high impact were:
  • 29% – clarification of a distributable event
  • 14% – nondiscrimination rules
  • 14% – universal availability requirement
  • 14% – mandatory that funds (contributions) are deposited by the 15th day of the next month (though 71% said this would have little or no impact)
Education Efforts
As for preparing for those final regulations, most 403(b) vendors were concentrating their efforts on educating employers and employees about the effect. Nearly all (93%) were enhancing their marketing and education efforts to ensure employers understand the new requirements, and 71% are beefing up their client education services so that participants understand the benefits of these programs (29% have added staff to educate or service employers/participants in this regard).
Half of surveyed vendors have made platform enhancements to accommodate the new regulations or to streamline the process for employers/participants, and roughly 29% have added new investment managers to provide a more complete open architecture environment. About one in eight (14%) have increased the number of advisers/home office personnel that talk face-to-face with employers about pending changes, according to the report.
Half of vendors responding to the survey were from insurance companies, 21% from asset management/mutual fund companies, and 29% were from “other” firms.
For more information or to order your copy of The NTSAA & Cerulli Associates 403(b) Vendor Survey, please call the NTSAA office at 314.692.9861.
(1)A 90-24 transfer is a trustee-to-trustee transfer. The IRS permits these transfers on a penalty-free individual basis from a current 403(b) vendor to another vendor, if the employer’s plan and existing vendor permit transfers.
Deans List April 21, 2007

A Different Kind of "Investment"

As the parent of a daughter away at college for the first time, the events in Blacksburg, Virginia, last week had a particularly horrific effect.
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No, she’s not going to school at Virginia Tech, but what happened there could happen anywhere. Parents often worry that, despite years of raising them carefully, our kids will, nonetheless, wind up in the wrong place at the wrong time. Yet, so far as we know now, all those poor kids did was be in the right place – where they were supposed to be – at a very wrong time. In a matter of minutes, bright and promising futures were brought to a premature close for no better reason than their proximity to a madman.
Many will try to get back to “normal’ this week – while for some, normal will never again seem possible. I’ve tried several times to pick up some other theme or idea to speak to in this week’s column – some normal topic, if you will – but all I can think of is those students that won’t be coming home to families. Families that, like mine, were anxiously waiting to have their family once again be complete.
People die unexpectedly every day, of course – and children much younger than the students at Virginia Tech unfortunately have their lives snuffed out in much less dramatic fashion. Still, those tragedies that grab our collective attention for a brief time can serve as a vital wake-up call to things that our busy lives all too frequently set aside for “another time.’
The admonitions that are part of our industry’s DNA – start early, do as much as you can, keep an eye on things – apply to many areas of life. As we make investments in our 401(k)s, we also invest in our friends and family – investments that generally produce a yield that would put to shame the most giddy hedge fund investor.
This week, if you don’t already, I’d encourage you to tell those you care for how you feel – tell them as often as you can; and keep an eye – or an ear – on them, particularly the ones you don’t see every day.
You never know how long you’ll have to do so, after all. And the only thing worse than losing a loved one – would be losing them without having told them how you feel.

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