403(b)s Are Here to Stay

August 12, 2011 (PLANSPONSOR.com) - Although regulations have been streamlined to make 403(b) plans more consistent with 401(k) plans, not-for-profit organizations intend to maintain their current plans, according to Diversified Investment Advisor’s Prescience 2015: Expert Opinions on the Future of Retirement Plans.

Experts responding to the survey believe most 403(b) plans in place today will still be in place in 2015, particularly in the healthcare sector which will scramble to keep up with the changes brought about by the reform process. Only 13% of experts on the Prescience panel agreed that most 403(b) plans currently in place will be replaced by a 401(k), while 72% disagreed.   

Vendor consolidation will continue, but a small and vocal minority of sponsors will persist in using multiple vendors. Forty-four percent of Prescience experts agreed that over 90% of 403(b) plan sponsors will be using a single provider by 2015. The market share of the top three providers in the higher education sector will erode as more institutions seek to take advantage of open investment architecture; 49% of the panel agreed with this. Experts predict that one-quarter of private higher education institutions will be using a single open architecture vendor by 2015 and most retirement plan assets of the sector will be invested in mutual funds.   

The study indicates that in the public higher education sector, there still will be no end in sight to the short-funding of defined benefit plans. Employee cynicism at these institutions will grow, and reliance on 401(a) money purchase plans and 403(b) plans will become ever greater.  

The study also indicates that the defined contribution plans of 2015 will be better-suited to help participants achieve a successful retirement (see Experts Predict Improved Retirement Plans) and adviser use will increase (see Retirement Plan Adviser Use Expected to Increase).  

The study examines trends in retirement plans with $25 million to $1 billion in assets. Sixty-eight retirement plan experts from 54 organizations answered the 181-question survey, including PLANSPONSOR Editor-in-Chief Nevin Adams. Diversified chose survey participants based on their positions as thought leaders and experienced professionals in the retirement plans business.