Higher Education 403(b)s An Opportunity for Advisers

As 403(b) plans continue to evolve, there are still ample opportunities for plan advisers to help plan sponsors improve their plans and processes.

The fifth annual 403(b) plan survey, from the Plan Sponsor Council of America (PSCA) and sponsored by the Principal Financial Group, found 403(b) plan sponsors continue to make changes to improve the value of their plans and the retirement readiness of participants (see “403(b) Sponsors Continue to Improve Plan Value”). But, the data points to several areas that could improve.  

For example, the survey found higher education institutions on average make 65 funds available for participant contributions, two to three times higher than other industries in the survey. Aaron Friedman, national nonprofit practice leader at The Principal, noted that nearly half (47.9%) of these institutions still use more than one provider, and for 40% of them, it’s been at least five years since their last request for proposals (RFP). He thinks the problem is “historical.”   

“What happens is there are personnel coming into higher education institutions that may have already [gone] through a 403(b) plan consolidation, and they want that, but existing staff have ‘pet’ investments or providers,” Friedman told PLANSPONSOR. However, institutions are beginning to see that having fewer choices is better for participant outcomes.

“Plan sponsors should work with the responsible parties at higher education institutions to convince them of behavioral and administrative advantages,” he suggested, adding that advisers must be diligent in working with the appropriate people and not expect it to be easy. “It is an evolution and will take some time,” he said.  

In addition, advisers can use the survey to help clients benchmark their plans, and “to demonstrate that other 403(b) plan sponsors use half the number of investments,” Friedman recommended.  

Other survey findings that indicate opportunities for advisers in the 403(b) market in general include: 

  • 34.3% of organizations offer more than one type of retirement plan to essentially the same group of employees; 
  • Plans offer an average of 27 funds for organization contributions and an average of 31 funds for participant contributions; 
  • 24.1% are unsure if their plan has an investment policy statement; 
  • 46% of organizations retain an independent investment adviser to assist with fiduciary responsibility; 
  • 24.4% of organizations offer investment advice to participants;  
  • 15.7% of organizations are re-evaluating the allocation of plan-related expenses; and
  • 1.9% of plans state that they never review fees.