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403(b) Plans Simplify Investment Choices

Non-profit organizations that sponsor 403(b) plans are simplifying investment platforms by streamlining the options available for investors. According to the sixth annual Plan Sponsor Council of America's (PSCA) 2014 403(b) Plan Survey, more plans are offering target date investment options as part of a slimmer overall investment platform.

Sponsored by the Principal Financial Group ®, the benchmarking survey also found more sponsors are retaining investment advisors, possibly reflecting a growing recognition of fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA).

“403(b) plan sponsors are continuing to make progress in building retirement programs that can help lead to better outcomes for participants,” said Bob Benish, executive director of PSCA. “Overall we continue to see positive changes including working with investment advisors, which may be why plans are offering fewer investment options. Slow but steady progress is the most sustainable kind. It reflects the strength of the current employer-sponsored retirement system.”

The only comprehensive study in the industry that uncovers trends in retirement plans sponsored by non-profit organizations and public schools, colleges and universities, the 2014 403(b) Plan Survey found:

  • Simplified investment platforms: 403(b) plan sponsors offered an average of 26 investment options in 2013, down from 31 in 2012; edging closer to the average of 19 investment options in 401(k) plans 1. 403(b)s with the highest average participation rate (72.2 percent) are those with between 15 and 20 investment options.
  • More target date options: Three quarters of 403(b) plans now offer target date investment options, a steady increase since 2009 when they were included in just over half of plans (51.2 percent).
  • Help with fiduciary duties: More than half (51.3 percent) of sponsors retained independent investment advisors to assist with fiduciary responsibility, compared to 46 percent in 2012.
  • More personalized and interactive education: Sponsors increased use of e-mail significantly over the past five years from 51.5 percent in 2009 to 71.8 percent in 2013; webinars more than doubled in from 9.7 percent in 2009 to 26 percent in 2013; 60 percent used one-on-one meetings with service providers, up from 54.2 percent in 2012 and more than a third (34.5 percent) used individually targeted communications. Seven percent used mobile apps.
  • Automatic savings on the rise: Sixteen percent now automatically enroll employees, up from 14.6 percent in 2012; more of those plans included automatic annual increases (20.7 percent in 2013 compared to 16.9 percent in 2012).

Opportunities for financial professionals and third party administrators“The continuing demand for financial professionals shows that 403(b) sponsors recognize the value in working with an intermediary to help meet plan and organizational goals,” said Aaron Friedman, national tax-exempt practice leader, The Principal. “The health care and private higher education industries significantly increased use of investment advisors and had some of the biggest increases in use of automatic enrollment. They want to work with financial professionals and are open to making changes. That spells opportunity.”

Friedman says financial professionals can use the survey results to help existing clients benchmark their plans. The results can help identify gaps and create reasons to approach prospects as well.

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