403(b) Vendors Brace for Change

April 17, 2007 (PLANSPONSOR.com) - With final regulations rumored to be just weeks away, a new survey of the 403(b) market finds an industry seemingly poised to exploit those changes.

The 2006 NTSAA (National Tax Sheltered Accounts Association) & Cerulli Associates 403(b) Vendor Survey notes a couple of key movements: a continuing trend toward open architecture (“more investment choices from a variety of well-respected asset managers”) and a trend toward single/limited vendor selection.

According to the survey, plan sponsors are limiting the number of vendors in order to ease their administrative burden; monitor participation rates, contributions, and withdrawals; and lower participant fees. In fact, it is widely anticipated that the pending final regulations (see ” IRS Delays Implementing 403(b) Regs to 2008 “) will result in 403(b) administrative responsibilities more in line with those common to 401(k) sponsors – and that, in turn, has been seen by many as the precursor to a serious consolidation of providers, certainly at the individual plan level (see also ” Survey: 403(b) Sponsors Will Seek Outside Advice for New Regs “, ” Sponsors Report Mixed Feelings About 403(b) Changes” ).

Two Big Impacts

Vendors included in the NTSAA/Cerulli study said that the two greatest impacts of the pending 403(b) regulations are an increase in administrative issues that they will have to address, and vendor consolidation, with each cited by 57% of respondents. According to the report, many indicated that those increased administrative requirements will result in some providers making the decision to exit the market.

However, the report’s authors note that it is likely that most plan sponsors – particularly those in the non-ERISA market – will continue to offer access to between three and six vendors because they won’t want to appear to endorse any particular products. That array could still offer some significant variety, since the report says the vendors will likely include a “low-cost mutual fund vendor, a high-service variable annuity vendor, and mutual funds with imbedded advice.”

Among those changes, vendor respondents to the NTSAA/Cerulli study opined that the two most impactful to plan sponsors and participants would be the elimination of 90-24 transfers (1) and the requirement of a written plan document requirement (57% each). Other areas identified as potential high impact were:

  • 29% - clarification of a distributable event
  • 14% - nondiscrimination rules
  • 14% - universal availability requirement
  • 14% - mandatory that funds (contributions) are deposited by the 15 th day of the next month (though 71% said this would have little or no impact)

Education Efforts

As for preparing for those final regulations, most 403(b) vendors were concentrating their efforts on educating employers and employees about the effect. Nearly all (93%) were enhancing their marketing and education efforts to ensure employers understand the new requirements, and 71% are beefing up their client education services so that participants understand the benefits of these programs (29% have added staff to educate or service employers/participants in this regard).

Half of surveyed vendors have made platform enhancements to accommodate the new regulations or to streamline the process for employers/participants, and roughly 29% have added new investment managers to provide a more complete open architecture environment. About one in eight (14%) have increased the number of advisers/home office personnel that talk face-to-face with employers about pending changes, according to the report.

Half of vendors responding to the survey were from insurance companies, 21% from asset management/mutual fund companies, and 29% were from "other" firms.

For more information or to order your copy of The NTSAA & Cerulli Associates 403(b) Vendor Survey, please call the NTSAA office at 314.692.9861.


(1)A 90-24 transfer is a trustee-to-trustee transfer. The IRS permits these transfers on a penalty-free individual basis from a current 403(b) vendor to another vendor, if the employer's plan and existing vendor permit transfers. You can read more about 90-24 transfers at

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