As a researcher, I am frequently asked this question by record keepers and advisors. The question arises from a hypothesis that people who work for not-for-profit organizations have a different view of the world. That is, they are more mission-driven and more sensitive to organizational values, and less concerned about compensation for the work they do.
The hypothesis extends into how they view the value of their workplace benefits and how that affects their satisfaction levels with the services they receive.
In the 2013 Annual DCP Participant Study conducted by my firm, Boston Research Group, the question about the differences and similarities between 401(k) and 403(b) participants was addressed. The 7,000 active DC participants in this year’s study were asked to identify the type of plan they have, and as a follow-up, what industry their organization competes in (e.g., health care, higher education, etc.), and if their employer is a non-profit versus a for-profit.
The study yielded 5,700 401(k) and 800 403(b) participants. Below are the findings.
Let’s Start with Demographics
Demographically there are both similarities and differences between the two groups. They both have a median age of 40 and are similar with respect to marital status. But the biggest differences occur in the areas of gender and education. While participants in 401(k) plans show an even split in gender (51% male, 49% female), 403(b) participants show a skew toward female (60%). Not surprisingly with respect to education, fully one-third (34%) of 403(b) participants have a graduate degree, compared with 21% among 401(k) participants. As a consequence, the median 403(b) household income is slightly higher ($81,000) than their 401(k) counterparts ($75,000).
Is There a Difference in Satisfaction with the Record Keeper?
Generally, the study showed that overall satisfaction levels were the same in both groups, with 401(k) participants (41%) as likely to say they are “Very Satisfied” as their 403(b) counterparts (40%). The record keepers receiving above-average marks from participants were (listed alphabetically): American Funds, Charles Schwab, Fidelity, Lincoln, MassMutual, Principal, T. Rowe Price, Valic and Vanguard.
Nonetheless, satisfaction among 401(k) participants is 5 to 9 percentage points higher than 403(b) participants when looking across the various service channels. And lastly, looking at satisfaction with the investment programs, the two groups are statistically the same.
How Confident Are They About Retirement?
First the similarities. The data show that 401(k) and 403(b) participants are very similar in their confidence in making good financial investment decisions (29% versus 24%, Very Confident, respectively).
They are also at very similar stages of their financial preparation for retirement. For example, both groups are equally likely to say they are taking aggressive, active steps toward preparing financially for retirement (32% 401(k) versus 34% 403(b)). And, in terms of confidence that they will have enough money to retire, 403(b) participants are equally confident (22% Very Confident) as their 401(k) colleagues (25%).
How Do They Feel About Their Employers and Jobs?
Interestingly, only 33% of 403(b) participants are “Very Satisfied” with their employer, compared with 42% of 401(k) participants. However, they are closer in terms of how they feel about their jobs (37% Very Satisfied for 403(b) participants compared with 41% of 401(k) participants). But clearly, 403(b) is not higher than 401(k) in this regard. Furthermore, considering employees’ engagement [1. Engagement is a composite index of 13 measures of employees’ loyalty, advocacy, discretionary effort, misconduct, perceived community focus, perceived customer satisfaction and brand image, and inspiration of co-workers. I developed this index in conjunction with LRN, a leading corporate culture consulting firm.] with their company, 401(k) participants are actually more engaged than 403(b) participants.
How Do They Feel About Their Plans?
To provide a backdrop, more than 8 in 10 401(k) participants (82%) reported having a matching contribution program, while far fewer 403(b) participants reported having a match (68%).
Despite this difference, both groups place an equal level of value on their DC plan as an employee benefit (42% “highly value”). They also are equally likely to feel their plan is “superior to most plans” (13%) or is “good, meeting basic retirement needs” (46%).
Conclusion
Looking across the data, one can see that there are more similarities than differences between 401(k) and 403(b) participants. In a sense, record keepers and advisors are serving very similar groups. Certainly, one can conclude that service channels and products need not be developed separately for the 401(k) versus the 403(b) participant. That is, their needs and preferences are homogeneous.
In my research in corporate culture, I have found that their values are not very different either. Obviously, when communicating with 403(b) participants one can emphasize their industry, such as higher education or health care. But beyond that, recommend that the products, services, channels, etc. be homogeneous.
Warren Cormier is the president of Boston Research Group. He also serves as CEO of the National Association of Retirement Plan Participants.
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