A new survey from Plan Sponsor Council of America (PSCA) reveals plan sponsors' progress and commitment are changing for the better.
Sponsors of 403(b) retirement plans continue to adapt to new regulations from the U.S. Department of Labor (DOL). The not-for-profits continue to make improvements, especially to investment line-ups. These insights and more are revealed in the latest PSCA 403(b) plan sponsor survey, according to a press release, and show more stability and less uncertainty among 403(b) plan sponsors.
"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. "In many ways, sponsors of 403(b) plans are catching up to the 401(k) system."
The 403(b) plan sponsor survey, reflecting 2011 data, shows:
- More certainty. The percent of plan sponsors who don't know their ERISA status is down from 10.0 percent in 2010 to 6.8 percent in 2011. Also, 20 percent fewer sponsors are uncertain over whether they have an investment policy statement.
- Greater use of target date funds. This trend continues, with 72.5 percent of plan sponsors offering target date funds as an investment option, versus 69.1 percent in 2010.
- Significant increase in Roth feature. The number of plans permitting Roth after-tax contributions has doubled in the past 4 years. In 2011, 21.7 percent of 403(b) plans allowed Roth, up from 16.9 percent in 2010 and 10.9 percent in 2007.
- Enhanced education and communication. Use of email communication has increased (at 65.0 percent in 2011 vs. 59.5 percent in 2010), as has use of seminars/workshops (53.0 percent in 2011 vs. 41.8 percent in 2010). These increases likely reflect participant preferences and cost-efficiency trends.
- Continuous review and major restructuring of investment options. Nearly 40 percent of plan sponsors made changes to the investment lineup in the last year and nearly 26 percent plan a comprehensive redesign in the next 12 months.
"The economic downturn in 2008 - 2009 had a big impact on plan sponsors," Wray explains. "They got the message to exercise due diligence in reviewing investment options."
The trends signal opportunities for financial professionals to provide assistance to 403(b) plans, especially those who work with TPAs. Nearly 35 percent 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," says Aaron Friedman, national nonprofit practice leader, The Principal®
"For instance, nearly 22 percent 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," said Friedman. "That, combined with plan sponsors' desire to continually renew investment options, could result in opportunities for financial professionals."
Admirably, even the smallest of not-for-profits—still challenged by a slow recovery—continue, like larger plans, to demonstrate strong commitments to employee retirement security by continuing to improve and make contributions to 403(b) plans.
"That's why this benchmarking survey is so valuable. Not-for-profits need to be able to attract and retain high performers efficiently. Strong retirement programs are critical for helping these organizations compete for talent, and they want to know what their peers are doing," says Wray.
Full survey results are may be purchased from PSCA at www.psca.org.