Data and Research July 2, 2018

Recordkeepers Dedicated to Serving 403(b) Plans Are Established

Following IRS regulations for 403(b) plans passed in 2007, many vendors (recordkeepers) exited the business.
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Prior to Internal Revenue Service (IRS) regulations passed in 2007, 403(b) plans were very different from 401(k)s, many having multiple vendors (what 403(b) plan sponsors called recordkeepers) as plans were based very much on tax-sheltered annuities and participants engaged individually with annuity providers without plan sponsor oversight. In addition, some plans were exempt from Employee Retirement Income Security Act (ERISA) provisions.

Ten years after the regulations went into effect, 403(b) plans are looking more similar to 401(k)s, but differences still remain. Following the new regulations, recordkeepers had to decide whether they could accommodate the new regulations given the differences in 403(b) plans. Many exited the business.

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But now, a new slate of recordkeepers have stepped up to the plate. They have refined their services and systems to accommodate 403(b) plan differences and the different segments that make up the 403(b) plan market—K-12, higher education institutions, health care organizations and churches and charities.

According to PLANSPONSOR’s 2018 Recordkeeping Survey, the top recordkeepers by 403(b) plan assets are TIAA, Fidelity Investments, Transamerica, VALIC and Voya Financial. The top recordkeepers for ERISA 403(b) plans are TIAA, Lincoln Financial Group, Newport Group, VALIC and Principal Financial Group. For non-ERISA plans, the top five are Security Benefit Life, Voya Financial, VALIC, AXA and Fidelity Investments.

This group includes many different names of recordkeepers than those for 401(k) plans, showing certain firms have dedicated themselves to the 403(b) market.
Data and Research June 26, 2018

Recordkeeper Market Caters to All Plan Sizes, but Differently

The 2018 PLANSPONSOR Recordkeeping Survey has found smaller plans tend to align with adviser-centric recordkeepers or those supplying core business services—e.g., payroll—while larger plans migrate toward providers offering proprietary, and customizable, platforms.
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The 401(k) plan is the most common institutional retirement savings vehicle and now accounts for more than 60% of all defined contribution (DC) plans, participants and assets. But the market is far from uniform.

Over 90% of 401(k) plans have less than $10 million in total plan assets, yet these plans account for only 20% of total 401(k) participants and less than 15% of the total assets. Stated differently, the 700 largest plans—accounting for 0.1% of all plans—control 50% of all assets and over one-third (36%) of all participants.

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The 2018 PLANSPONSOR Recordkeeping Survey has found the industry has evolved to cater to the unique needs of these two distinct markets, with smaller plans commonly sold or serviced through intermediaries and larger plans more apt to be sold directly. Recordkeepers have somewhat mirrored this trend, resulting in two somewhat separate and distinct competitive landscapes. Smaller plans tend to align with adviser-centric businesses or those supplying core business services—e.g., payroll—while larger plans migrate toward providers offering proprietary, and customizable, retirement plan platforms.

According to the survey, the top five recordkeepers by total 401(k) assets are Fidelity Investments, The Vanguard Group, Empower Retirement, Alight Solutions and Voya Financial. However, when looking at the top recordkeepers by 401(k) plans with less than $10 million in assets, they are Paychex Inc., American Funds, John Hancock Retirement Plan Services, ADP Retirement Services and Ascensus. The top recordkeepers by 401(k) plans with greater than $200 million in assets are Fidelity, Vanugard, Empower, Wells Fargo and Charles Schwab.

Still, through these different recordkeepers, even the smallest plans can offer participants competitively priced investment options, managed accounts, mobile apps and comprehensive financial wellness education.

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