Do not-for-profit entities that have 403(b) plans care more about outcomes than for-profit firms with 401(k) plans?
Though the recent Plan Sponsor Council of America (PSCA) 2015 403(b) Plan Survey does not answer that question directly, there are indications that 403(b) plans may, in fact, be more receptive to advisors that advocate for retirement readiness and financial wellness. Which means that experienced plan advisors looking to get paid for the value they add, while stepping out of the race-to-the-bottom when it comes to fees, may find the 403(b) market attractive.
Not all 403(b) plans are alike. Plans for K-12 schools are considered 403(b)s but are technically not governed by ERISA and act dramatically differently than their ERISA counterparts. Within ERISA 403(b) plans, there are three distinct markets:
- Health care
- Education (higher ed and private schools but not K-12 public)
- Religious and eleemosynary
According to the PSCA 2015 survey, 49% provide a traditional match, with 61% contributing 100% up to 3%. But consider the fact that 97% contribute something and many employers, especially larger ones, also offer a DB plan. However, Aaron Friedman of Principal Financial (sponsor of the PSCA research) points out that fewer than half of the plans use a financial professional.
“403(b) plan sponsors care more about their employees because it’s part of their corporate fibre,” notes David Hinderstein, principal and founder of Strategic Retirement Group in White Plains, N.Y., who specializes in larger 403(b) plans, mostly in the health care and higher-ed markets. “They want their retirement plan to be consistent with their mission — the decision on retirement readiness has already been made.” For many people in management, and especially the board members, there is a dedication and sensitivity to social issues. “Their corporate strategy is, ‘We care.’ They can’t do the opposite when it comes to their retirement plan.”
So why do only 12.7% of 403(b) plans use auto-enrollment, as the PSCA survey found? That number may be skewed by non-ERISA plans and the 23.5% of plans with 1,000 or more employees that do use the auto feature. Just like with 401(k) plans, the “ideal plan” is not yet widely embraced in the 403(b) market.
So with more than half of 403(b) plans without an advisor and a potentially more receptive audience, it seems like experienced 401(k) plan advisors touting financial wellness should find parts of the 403(b) market very receptive.
