403(b) Plan Trends
A summary of 403(b) Retirement Plan Trends for 2019 based on results from the Plan Sponsor Council of America Survey
There was a recent Plan Sponsor Council of America survey of 403(b) plans issued and we thought we would cover some of the highlights.
One of the big changes we have seen from these surveys year over year is that 403(b) plan sponsors are considering themselves plan fiduciaries and acting more like plan fiduciaries, like they should. In 2009 the IRS issued some regulations that basically require sponsors to become more like a fiduciary.
FEES
About 25% of 403(b) plan sponsor made changes to their plan fees. 50% use plan fee levelization and really what this means is that if a mutual fund in the plan has any revenue sharing that would go back to the Record Keeper, and a lot of the mutual funds the revenue share is different between the funds, they use fee levelization where they will actually credit that back to each individual participants account so that there is no disparity between which funds are in and how much you're getting charged for the plan. So that's a big Trend we start to see in the 403(b) space.
Another trend we're seeing that is very similar to 401(k) plans is percentage of employees making contributions over time. This has increased over the years, as well as how much the employees are putting into the plan.
ROTH
Some differences are in the availability of Roth over time. If we look at Roth for 403(b) plans, this has increased dramatically from about 15% ten years ago to about 35% today. If we look at the for-profit space, over 70% of 401(k) plan sponsors offer Roth. So that may be one area for 403(b) plans to look for improvement.
AUTO FEATURES
Second area is automatic enrollment. We've seen a dramatic increase in automatic enrollment for 403(b) plans. It went from 7-8% to about 25% now but in the for-profit space over 60% of plans now use automatic enrollment. The trend used to be automatically enrolling participants at 3% or less. We're seeing more plan sponsors now enrolling participants anywhere from 4-6%. So maybe that's an area where 403(b) plan sponsors can look to enhance the program.
Another change we've seen here is that for a number of years, not-for-profits were known as having very rich benefits compared to the for-profit space. In the last two or three years this has actually changed. The average 403(b) plan is putting in about 4% of payroll for employees. In the for-profit industry, employer contributions are averaging around 5% so if you're looking to attract and retain employees and competing with for-profit businesses, this may be an area you want to look at.
GOVERNANCE
In summary if you think about ways to improve your 403(b) plan, it all starts with governance. Do you have a committee? Is there a charter that establishes the committee? Does the committee meet on a regular basis? The most common meeting frequency that we see plan sponsors use is quarterly. Look at your investment policy statement, we're starting to see more 403(b) plan sponsors want to look more like the for-profits with respect to participation features like automatic enrollment, Roth, and employer contributions. 2019 is a good year to take a look at your 403(b) plan to see if that is up to date.