How Are 403(b)s Ahead in the Game?

February 4, 2014 ( – 403(b) plan sponsors are often told to take lessons from their 401(k) plan counterparts. But, in some ways, 403(b)s are ahead in the game.

According to the 2013 PLANSPONSOR Defined Contribution (DC) Survey, 61.4% of 403(b) plans offer income-oriented products and services to plan participants. Only 19.8% of DC plan sponsors of all types, including 403(b)s, do so. Nearly twice as many plan sponsors among all plan types (60.2%) indicate they do not offer any income-oriented products or services than 403(b) plan sponsors (31.5%).

Seventy-eight percent of plan sponsors, overall, say it is important or very important to provide retirement income solutions to DC plan participants, compared to 82.7% of 403(b) plan sponsors. Eighty-three percent of 403(b) plan sponsors indicate their plans allow for systematic withdrawals at retirement, while 62.3% of DC plan sponsors of all plan types do the same.

Three-quarters of 403(b) plan sponsors allow employees to participate in their plans immediately upon hire, while only 37.6% of DC plan sponsors of all types do. Similarly, 15.3% of 403(b) plan sponsors report employees are eligible to participate after six months of employment, but more than one-quarter (28.6%) of DC plan sponsors, overall, report the same.

The most common employer match contribution to DC plans among all plan types is 51% to 99% of the first 6% of an employee’s deferred salary. However, more 403(b) plan sponsors (15.4%) report their match is more than 100% of the first 6% of deferrals than plan sponsors of all types (7.6%). In addition, nearly twice as many 403(b) plans sponsors than plan sponsors of all types say they offer an employer non-elective contribution to plan participants (20.8% vs. 10.8%).

Nearly one-quarter (24.5%) of 403(b) plan sponsors indicate 90% or more of plan participants are deferring enough salary to get the maximum employer match, compared to 22.5% of DC plan sponsors of all types. 403(b) plan sponsors also vest participants in employer matching sooner, overall—35.8% say participants are immediately 100% vested in employer match contributions versus 32.8% of plan sponsors of all types. Thirty-five percent report 100% vesting of employer match between six months and three years, compared to 23.8% of plan sponsors of all types.

The DC Survey found 403(b)s have surpassed plan types overall in having an investment policy statement (IPS). Seventy percent indicate they have one for their plan, versus 67% of all plan types. And, 403(b)s are keeping a closer eye on target-date funds—83.5% of 403(b)s say their IPS specifically covers target-date funds and their underlying investments, compared to 62.3% of plans overall.

Slightly more 403(b) plan sponsors than DC plan sponsors overall (76.6% vs. 75.3%) offer advice to plan participants through at least one source. More also use participant savings outcome measures to gauge plan success—6% of 403(b)s use participants’ projected retirement income, compared to 4% of plans overall, and 8% use participant income replacement rate ratios, compared to 6% of plans overall.

While 403(b) plan sponsors are ahead in the game in some ways, and catching up to their 401(k) counterparts in others, PLANSPONSOR’s 2014 Plan Benchmarking Report also indicates areas that can be improved upon.

The 2014 Plan Benchmarking Report features proprietary data collected in late 2013 by PLANSPONSOR in its annual Defined Contribution (DC) Survey. The report highlights various plan design features and outcomes of more than 5,300 U.S. DC plans. Information about how to purchase the report, and various industry reports, is here.