Increasing Participation in 403(b) Plans

With some exceptions, sponsors of 403(b) retirement plans, especially school systems, have problems getting employees to participate in the plans.


According to Stephen R. Banks, co-founder of TSA Consulting Group in Tucson, Arizona, only around 30% of eligible employees are participating in 403(b)s sponsored by school systems. Banks told attendees of the 2014 National Tax-Sheltered Savings Association (NTSA) 403(b) Summit one reason employees do not participate in 403(b) plans is the employer is not engaged.

He suggests advisers meet with school administrators and superintendents to educate them about what they need to do to make the plan successful. “If you’re successful in getting them engaged, all at stake will rise with that tide,” he said.

Tom Hendershot, founder of Hendershot Financial Group, added that 403(b) plan sponsors need to know why it is important for their plans to be successful, and why it is important to supplement defined benefit (DB) plans. He said he’s seen that if educators have a solid financial plan, they have better attitudes and are better educators. “If you can help participants retire, the retiring party is happier, and the school system budget is not as stressed,” he stated.

The next step is to get participants engaged, according to Banks. He noted that vWise and iJoin are two companies that use technology to allow employees to take action easily. iJoin uses phones, tablets or laptops in employee meetings so employees can take action to join the plan or request to be contacted by someone. vWise presents employees with information online in short snippets, allowing them opportunities to take action regarding their retirement savings along the way.

Shorter communications are important for getting employees’ attention, said Teresa Ward, who is responsible for OppenheimerFunds’ 403(b), IRA and small business retirement programs in New York, as our attention spans have become shorter with the availability of quick access to information. However, Hendershot noted technology can be used to engage employees, but they need help once plan sponsors get their attention.

Hendershot suggested plan sponsors or advisers ask participants how much of their last year’s income they would like to have annually in retirement—the answer will probably be 100% or more. Then sponsors or advisers should ask them how their current retirement planning efforts are doing in making that goal a reality. “This moves them,” he said.

Ward said other things that may move employees to save for retirement are peer pressure (see "Peer Pressure Could Help Raise Deferral Rates") and seeing an image of themselves in old age. She cited a study that found people who saw age-enhanced images of themselves were more likely to save more for retirement compared to those who weren’t exposed to their future selves.

“We want to tell plan sponsors we have the silver bullet for increasing participation, but there isn’t one, because if we had one, increasing participation wouldn’t be such a hot topic,” Ward concluded.