Benefits February 4, 2014

How Are 403(b)s Ahead in the Game?

February 4, 2014 (PLANSPONSOR.com) – 403(b) plan sponsors are often told to take lessons from their 401(k) plan counterparts. But, in some ways, 403(b)s are ahead in the game.
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According to the 2013 PLANSPONSOR Defined Contribution (DC) Survey, 61.4% of 403(b) plans offer income-oriented products and services to plan participants. Only 19.8% of DC plan sponsors of all types, including 403(b)s, do so. Nearly twice as many plan sponsors among all plan types (60.2%) indicate they do not offer any income-oriented products or services than 403(b) plan sponsors (31.5%).

Seventy-eight percent of plan sponsors, overall, say it is important or very important to provide retirement income solutions to DC plan participants, compared to 82.7% of 403(b) plan sponsors. Eighty-three percent of 403(b) plan sponsors indicate their plans allow for systematic withdrawals at retirement, while 62.3% of DC plan sponsors of all plan types do the same.

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Three-quarters of 403(b) plan sponsors allow employees to participate in their plans immediately upon hire, while only 37.6% of DC plan sponsors of all types do. Similarly, 15.3% of 403(b) plan sponsors report employees are eligible to participate after six months of employment, but more than one-quarter (28.6%) of DC plan sponsors, overall, report the same.

The most common employer match contribution to DC plans among all plan types is 51% to 99% of the first 6% of an employee’s deferred salary. However, more 403(b) plan sponsors (15.4%) report their match is more than 100% of the first 6% of deferrals than plan sponsors of all types (7.6%). In addition, nearly twice as many 403(b) plans sponsors than plan sponsors of all types say they offer an employer non-elective contribution to plan participants (20.8% vs. 10.8%).

Nearly one-quarter (24.5%) of 403(b) plan sponsors indicate 90% or more of plan participants are deferring enough salary to get the maximum employer match, compared to 22.5% of DC plan sponsors of all types. 403(b) plan sponsors also vest participants in employer matching sooner, overall—35.8% say participants are immediately 100% vested in employer match contributions versus 32.8% of plan sponsors of all types. Thirty-five percent report 100% vesting of employer match between six months and three years, compared to 23.8% of plan sponsors of all types.

The DC Survey found 403(b)s have surpassed plan types overall in having an investment policy statement (IPS). Seventy percent indicate they have one for their plan, versus 67% of all plan types. And, 403(b)s are keeping a closer eye on target-date funds—83.5% of 403(b)s say their IPS specifically covers target-date funds and their underlying investments, compared to 62.3% of plans overall.

Slightly more 403(b) plan sponsors than DC plan sponsors overall (76.6% vs. 75.3%) offer advice to plan participants through at least one source. More also use participant savings outcome measures to gauge plan success—6% of 403(b)s use participants’ projected retirement income, compared to 4% of plans overall, and 8% use participant income replacement rate ratios, compared to 6% of plans overall.

While 403(b) plan sponsors are ahead in the game in some ways, and catching up to their 401(k) counterparts in others, PLANSPONSOR’s 2014 Plan Benchmarking Report also indicates areas that can be improved upon.

The 2014 Plan Benchmarking Report features proprietary data collected in late 2013 by PLANSPONSOR in its annual Defined Contribution (DC) Survey. The report highlights various plan design features and outcomes of more than 5,300 U.S. DC plans. Information about how to purchase the report, and various industry reports, is here.

Benefits February 3, 2014

Are You Getting Enough from Your Adviser?

February 3, 2014 (PLANSPONSOR.com) – Small retirement plan sponsors may not be getting the services from an adviser they need.
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Just fewer than half of plan sponsors do not think they are getting good value for their plan, says Stephen Davis of Guardian Retirement Solutions. It’s a surprising statistic, but, “they’re out there, and they’re looking for help,” Davis tells PLANSPONSOR.

In the micro plan market (less than $5 million in assets, and fewer than 100 participants), plan sponsors face a number of challenges to running a plan. Employers in this market should be sure that they are getting the best service from an adviser.

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Small plan sponsors rarely have the luxury of a separate committee. Instead of a treasurer, HR person, chief financial officer, it’s just one person, Davis says. The adviser can provide a great deal of value helping the employer sort through the tasks that a committee would handle, such as how to leverage the different service providers and helping them figure out how a relationship manager can help with employee education.

The adviser can help the plan sponsor determine if fiduciary support is needed, and what kind, whether the demographics of the company point to a combination of 3(21) investment adviser and 3(38) investment manager services, or just 3(21) service. The adviser who is a good, active listener can act as a sounding board to the plan sponsor the way a committee does, Davis says.

In the micro plan market, there has been a slow uptick in the use of auto features, Davis says, such as auto enrollment and auto increases. “Small-plan sponsors are likelier to want a do-it-for-me approach, which can work well with auto features,” he says.

However, Davis points out, plan sponsors are still challenged by the census information they need to supply for auto features to work–data such as participant dates of birth, hours worked and salary for the time period–which can account for some slowness in adopting these features.

Better Service

Plan sponsors can scout several ways to get better service from an adviser, Davis says.

Good advisers are typically supported by fiduciary support providers and relationship managers. The adviser should remain in constant contact with the plan sponsor. In large plans, the adviser sits down twice a year or more with the plan sponsor to go over investments and participation data. “In the small market it’s almost the reverse,” Davis says, with some small sponsors telling the adviser not to be in touch unless something is broken in the plan.

An adviser should make sure the plan sponsor sits down for an annual plan review, Davis says. The review should be easy to read, and the meeting can take place with just plan sponsor and adviser, or the adviser can bring along the relationship manager from the plan provider(s). The annual review is a way to solidify the relationship, Davis says, while identifying any pain points in the plan. Are certain demographics investing too aggressively or too conservatively? Could participation be improved? Something is going to come up in the plan review that needs to be worked on.

A key determinant of plan success is participation. Plan sponsors should determine if the plan adviser is active in educating employees and truly helping to drive participation. Many small advisers do not want to take on the fiduciary management services of a plan— it’s just not efficient for small practices. In that case, the plan sponsor should assess the level of help the adviser gives in helping manage fiduciary responsibility, by suggesting 3(21) and 3(38) providers.

The plan sponsor should assess whether the adviser is helping the business have the best possible plan, and whether the plan is the right one. In some small businesses, the retirement plan helps the business owner build personal net worth, and can be a wealth builder in case someone has not established a lot of value in preparation for a sale, Davis says.

A good adviser provides communication and participant education, either from the practice or through a relationship manager who can also design an education policy statement and help support it. “Education policy statements are becoming more common,” Davis says. The adviser can help the plan sponsor craft the statement, but may do so using the services of a relationship manager or other staff from the plan provider(s) or a third-party administrator (TPA) to help staff meetings.

“One out of two people with a plan has a headache,” Davis says, but there are ways to improve both the plan and the service from an adviser.

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