403(b) Webcast Series: Plan Design Best Practices

The new 403(b) regulations have left plan sponsors with a list of important priorities: reducing costs, simplifying administration, mitigating fiduciary risk, providing better retirement for employees, as well as an increased focus on selecting and monitoring investments.

John Ragnoni, EVP, Tax-Exempt Market Business, Fidelity Investments, told attendees at a June 8 Webcast that vendor consolidation has become an attractive option for helping to meet these goals. In addition, he said plan sponsors are using the new regulations as a catalyst for justifying necessary plan design changes such as consolidating vendors.  

According to Ragnoni, among Fidelity clients 34% have consolidated to three or fewer vendors. Health care plan sponsors are more likely to pare down to one, while higher ed plan sponsors are more likely to reduce to two, including an annuity option.  

Some plans are still waiting to see how the regulations are affecting them, and some are non-ERISA.  

In addition, 85% of sponsors that registered for the Webcast indicated they are considering reducing vendors. “We have a way to go before we see consolidation efforts slowing,” Ragnoni commented.  

More specific survey results include:  

  • In the higher education market, 80% started with 10+ vendors, 30% consolidated to one or two, 70% to three plus; and 
  • In the health care market, 10% started with 10+ vendors, 100% consolidated to one or two. 


Ragnoni contends that vendor consolidation provides a better participant experience. Reducing the number of vendors has resulted in deeper, value-added relationships with providers. Vendor consolidation also lessens the administrative burden so benefits and HR staff are able to focus on other strategic initiatives. Finally, he says vendor consolidation reduces lower overall costs for employers resulting in improved costs for participants.  

Meanwhile, Bruce White, VP & Managing Director, Tax-Exempt Market Business, Fidelity Investments, told Webcast attendees that fiduciary and compliance drivers of vendor consolidation are the required transaction monitoring, required plan reporting/audits, and investment oversight.

Vendor Consolidation Best Practices  

White suggests that 403(b) plan sponsors evaluate their current plan and define objectives to create a better plan design for the organization and participants. Ragnoni adds that there is no one plan design that fits all, as each employer has unique needs.  

According to White, sponsors must gain consensus within the organization on the objectives, set vendor criteria, and evaluate vendors using an RFP or rebid process. To gain consensus within the organization, including from key employees, sponsors should establish an oversight committee and use careful communications explaining the business rationale for the objectives.  

Participants should also be told the business rationale for vendor choices as well as the benefits offered by selected providers to help not alienate employees who may be losing a favorite vendor.  

To differentiate offerings of a number of responders to an RFP, White suggests looking at three basic categories other than investment offerings: experience and results, services to employees, and services to the plan sponsor such as helping with fiduciary responsibility or offering a streamlined administrative portal. There should be at least one vendor with an open architecture fund lineup so the plan is not limited to proprietary funds and has access to best funds, and providers should complement each other to avoid redundancy in investment offerings.  

When consolidating vendors, White says in some cases sponsors will be able to map old investments to new investments, but in some cases it will require participants to re-elect choices. He says a negative enrollment process with defaults is effective.  

The realized benefits of vendor consolidation can be better retirement readiness for employees, increased enrollment, increased deferral amounts, and a more diversified asset allocation, according to White. He says automatic enrollment, automatic deferral increases, and the use of target-date or managed accounts can also help improve these outcomes, as well as strong communications and one-on-one guidance.  

Ragnoni suggests sponsors reach out to providers, peers, and consultants for help through the consolidation process.

Case Study  

During the Webcast, White discussed a case study in which the University of North Carolina System (UNC) reduced 55 vendors to two and 16 plans to one (each campus had its own 403b before).  

Both providers collaborated on participant communications and transition support, he noted. Vendor consolidation was especially beneficial to small campuses that did not have the resources to handle new requirements. The process took a little over six months.  

Consolidating vendors decreased paperwork and manual transactions, reduced total plan costs, established more diverse investment offerings, and created a uniform plan service level.  

“UNC can now reach employees not participating, and can now provide simplified communications and plan information,” White said.  

Audio of the Webcast is here.

-Rebecca Moore