Largest 403(b) Segments Differ in Plan Designs

May 10, 2013 ( - The health care and higher education 403(b) segments represent $485 billion or 67% of the total 403(b) market, according to a LIMRA study.

Health care comprises $165 billion or 23% of the market, while higher education comprises $320 billion or 44%. The K-12 segment comprises $125 billion or 17% of the total 403(b) market.  

While both the higher education and health care market segments utilize 403(b) plans, there are important differences between them. For example, higher education plans have higher average participation rates (82% versus 65% in health care) and are more likely to offer a match (82% versus 72%). Health care plans are more likely to offer a defined benefit (DB) plan than their counterparts in higher education.  

In addition, higher education plans are more likely to use multiple providers (17% versus 5% for health care). Both market segments are equally likely to offer automatic enrollment, but health care plans are more likely to use automatic deferral escalation (26% versus 14% for higher education).

The study found 403(b) plan sponsors are likely to exhibit more paternalistic attitudes than 401(k) plan sponsors: 403(b) plan sponsors were more likely to say the primary objective of their plan is to help employees save enough to retire (86%), while about half of 401(k) plan sponsors reported that the primary objective of their plan is to offer a competitive benefit to attract and retain talent. 

Half of health care firms and one-third of education firms use an adviser or consultant. Plans that work with advisers are more likely to believe they have met plan challenges, such as fiduciary responsibility, managing fees and expenses, and understanding changing regulation and legislation.  

“As plans in these segments become more similar to their 401(k) counterparts, they become an attractive market beyond the traditional not-for-profit retirement plan providers,” said Alison Salka, corporate vice president and director of LIMRA Retirement Research. “But our research reveals that each 403(b) segment has different characteristics that influence the services they value and need. Companies looking to enter this market need to understand the trends, needs and perspectives of these segments as they look to win a share of this market.”  

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