2018
Plan Administration Guide, Part Two: Recordkeeping Survey

With over $350 billion in recordkept assets, 457 plans account for the third largest pool of defined contribution (DC) assets, providing public, governmental and certain nongovernmental employees with access to benefits typically associated with 401(k) and nonqualified deferred compensation (NQDC) plans. Governmental 457(b) plans—similar to 401(k) plans in terms of eligibility guidelines and contribution limits—are the largest subset of plans and cover 6.5 million participants, while nongovernmental 457 plans must limit participation to highly compensated employees (HCEs).

Many recordkeepers service both plan types, but the governmental plan market is dominated by four providers—Empower Retirement, ICMA-RC, Nationwide and Voya Financial—which accounts for about 85% of governmental 457(b) assets. The nongovernmental 457 plan market is only slightly less concentrated, with the four largest providers—Lincoln, TIAA, T. Rowe Price and VALIC—overseeing almost 70% of total assets.

Unsurprisingly, 457s, as supplemental savings plans, are less successful at capturing participant savings than are other plans—the $47,800 in average 457 plan assets per participant is lower than the comparable figures for both 401(k) ($78,300) and 403(b) ($61,300) plans. But, as the plans’ asset growth is in line with other plan types, recordkeepers appear committed to helping 457 plan participants succeed. —BOK

Prior to 2008, plan sponsors could find just two types of providers in the nonqualified deferred compensation (NQDC) market: specialists, who offer deep NQDC-specific expertise, and generalists, who offer NQDC administration as a convenient add-on to their qualified plan business. Since then, the market has become more blended, with the emergence of “hybrid” organizations capable of delivering on both value propositions. Today, the market is almost evenly split, with hybrid organizations totaling more assets/participants, and specialists retaining more plans, which may explain why only 10% of the overall market bundles NQDC plans with other services.

Generally speaking, NQDC plans are small—75% have fewer than 25 participants and 65% have less than $5 million in assets/liabilities—and are funded via a rabbi trust (70%). Mutual funds are the most common source of funding (75%), with corporate-owned life insurance (COLI) and business-owned life insurance (BOLI) together running a distant second (15%). Approximately 20% of NQDC plans are unfunded. Although they are small, NQDCs can be an important but complex benefit for high-income employees/executives, so finding a provider capable of delivering the right combination of knowledge, administration, funding strategies and participant education is no less important than decisions related to larger, more common plan types. —BOK