403(b) Participants Accumulate Less Retirement Savings than 401(k) Participants

August 27, 2008 (PLANSPONSOR.com) - A new Spectrem Group report finds lower savings rates, fewer employer match contributions, and conservative investing habits could account for a lower accumulation of retirement savings for 403(b) plan participants when compared to their 401(k) counterparts.

Only 38% of participants in 403(b) plans contribute 6% or more of their salaries to their retirement plans, compared with 48% of private-sector 401(k) participants. In addition, among those eligible to make catch-up contributions, participants in 401(k) plans are twice as likely to be doing so as 403(b) participants, the report said.

Spectrum Group’s survey of 205 participants in 401(k) plans and 196 participants in 403(b) plans found that just 57% of 403(b) participants receive employer match contributions – considerably fewer than the 74% of 401(k) participants who do. Those enrolled in 403(b) plans are twice as likely as those in the 401(k) group to receive no employer contributions at all.

What’s more, participants in 403(b) plans are slightly more conservative investors than 401(k) participants. Overall, 52% of 403(b) participants describe their plan investment strategy as very or somewhat conservative compared to 43% of 401(k) participants.

The two groups have about the same number of investment options available to them, but on average, 403(b) participants use a smaller number of these funds than 401(k) participants (4.5 versus 6.1). In addition, 403(b) participants are also less likely to have any of their investments in target-date or lifestyle funds. Stable value funds are the most widely used; 56% of 403(b) participants invest all or some of their balances in them.

Perhaps as a result of these differences, 36% of 403(b) participants report a retirement plan balance of $50,000 or more, compared to 39% of 401(k) participants. Thirty-eight percent of 403(b) participants have an account balance less than $10,000 versus 33% of 401(k) participants.

Both 403(b) and 401(k) participants say they expect their retirement plan balances will be their largest asset at retirement (44% and 40%, respectively). The traditional largest asset, equity in a primary residence, ranks second (28% and 30%, respectively).

About half of both groups use professional advisers to assist them with plan investment decisions. The proportions who describe themselves as self-directed and that rely on friends and family members are also essentially the same. However, 403(b) participants report using an adviser associated with a plan provider that they met at the workplace, while 401(k) participants are more likely to use an outside adviser that they met through a referral from a friend or business associate.

Most 401(k) and 403(b) participants have some degree of confidence that they will have sufficient income to live comfortably in retirement (69% of 401(k) participants and 73% of 403(b) participants).

To purchase a copy of the report, "Participants in 401(k) and 403(b) Plans: Are They Different?" click here .