Even 403(b)s With Multiple Providers Can Improve Plans

For 403(b) plans that haven’t yet embarked on fund and provider consolidation, there remain opportunities to build participant-friendly and cost-effective plan designs, a paper from Rocaton Investment Advisors suggests.

Diane Improta, managing director at Rocaton Investment Advisors in Norwalk, Connecticut, says Rocaton is hoping plan sponsors who read the paper will embrace the idea of fund and provider consolidation as a way to improve outcomes for participants, and to maximize participant retirement readiness and cost-effectiveness of their plans.

For those who haven’t consolidated providers, there are still best practices to improve outcomes for participants. Improta suggests plan sponsors consider automatic enrollment and deferral escalation, stretching their match formula and implementing strategies to reduce plan leakage. 

According to the paper, fiduciaries to Employee Retirement Income Security Act (ERISA)-governed plans should be diligent in fulfilling their fiduciary duties, documenting processes, meeting regularly and adhering to plan documents. Improta tells PLANSPONSOR many non-ERISA plans, such as those in the public higher education market, have adopted ERISA best practices.

As for fund consolidation, Improta says 403(b) plan sponsors can take baby steps. They can eliminate redundancies in their investment lineup, embrace open architecture and use funds not proprietary to their recordkeepers. Plan sponsors should look for quality investments and compare costs.

For plans with individual annuity contracts, Improta says some recordkeepers are encouraging plan sponsors to change contract terms and embrace group contracts. “Some may say it’s self-serving. By having an individual contract, a participant is promised a certain rate of return, but that doesn’t come without a cost,” she says. “Plan sponsors have to recognize legacy contracts exist, and if they adopt group contracts going forward, it’s only for dollars going forward.”

Improta suggests shutting down individual contracts to new assets. If the plan has money tied up in individual contracts, it will affect the fees the plan sponsor will be able to negotiate. “Moving to a group annuity will eventually fix the problem,” she says.

While these are ways to improve 403(b) plans and participant outcomes, still Rocaton suggests those who haven’t consolidated providers should consider doing so. “Those that have done a consolidation have made great accomplishments,” Improta contends.

“For plan sponsors that haven’t done this, they should be focused on improving participant outcomes,” she concludes.