403(b) Sponsors Using Lots of Outside Help

November 9, 2010 (PLANSPONSOR.com) – Seventy-nine percent of 403(b) plans turned to an outside adviser to help then navigate through new Internal Revenue Service (IRS) regulations, and 75% still use such external services.

That was a key takeaway from a Thursday Webinar for 403(b) plan sponsors featuring Charles C. Cornelio, president of Defined Contribution at Lincoln Financial Group, and George Walper, President of consultancy Spectrem Group.

Of those continuing to use an outside adviser, 43% have that person focusing on helping them change the administration of the plan and  25% do general consulting, according to Spectrem Group data. Pubic K-12 plans primarily focus their adviser on helping with compliance issues while Health Care organizations ask the adviser to focus on plan design and investment monitoring services.

Forty percent of the outside advisers used are TPAs, up dramatically from the 2% figure seen in a 2007 study, according to Walper. Some 22% are fee-based consultants, down from 35% in the earlier research. Twenty percent of non-profits use auto enrollment, compared to the 50% of 401(k) programs, Walper said.

Meanwhile 20% of non-profits offer investment advice, slightly behind the 22% of 401(k) plans that do so. Walper said the comparatively low takeup rate is understandable, given the legal and regulatory complexities associated with offering advisory services. “That’s a huge need in the country,” Walper said. “We understand there’s a lot of regulatory concern (but) all that has to be sorted out because there has to be a much better way of providing advice to ordinary participants.”

Walper said health care organizations are more likely to have a corporate 401(k) approach to their 403(b) plans, with 47% using a single provider versus the 12% of public K-12 programs that only use a single vendor.

Help in Picking Vendors  

Walper also indicated that more Public K-12 plans have engaged an adviser to help select other outside providers – 43% in the latest study versus 22% in 2007. The figures are much closer for Health Care plans – 56% in the latest survey versus 51% in the earlier study.

The Spectrem executive said Public K-12 school systems are more likely to want to retain a personal approach in providing plan services while Health care organizations prefer electronic service delivery.

Both men agreed service provider consolidation trends are likely to continue in coming years and that the current legal and regulatory focus on transparency would also likely stay in the picture.

Finally, according to Cornelio, Lincoln has been studying potential new use of the Iphone and Ipad devices to help deliver information to participants and plan sponsors including potentially teleconferencing with participants via Skype. It’s all part of what Cornelio said has been requests from sponsors for more and newer ways to interact with participants. “Plan sponsors should be applauded for being concerned about this and help to educate participants,” he said.