By the end of 2018, more than 17 million participants had invested almost $1 trillion in 403(b) plans, making 403(b) plans the 2nd-largest defined contribution market behind 401(k) plans. Although 403(b) plans and 401(k) plans have started looking increasingly similar in recent years, clear differences still remain. Most notably, the majority of 403(b) plans (74%) are exempt from requirements set forth by the Employee Retirement Income Security Act (ERISA), and some continue to offer multi-vendor environments, where a participant can choose from a number of recordkeepers to service his plan. Multi-vendor plans introduce additional compliance requirements that carry significant penalties if not met, meaning sponsors must understand how participant contributions are allocated and how providers share information across participant accounts. Conversely, sponsors can opt for a single-vendor plan, to consolidate and simplify plan administration.
Across the industry, service models have changed to align with specific sub-segments of the market. Affluent industries such as higher education and health care—which respectively represent 43% and 25% of total 403(b) plan assets—often have different servicing needs than do the K–12 schools (13%), churches and charities (10%) that make up the rest of the market. Investment lineups are also changing as more contemporary investment options like mutual funds and other institutional investments displace the annuity contracts on which the industry was built. All of this change has fueled recent improvements in processes, systems and technology that have helped to modernize the plan sponsor and participant experience.To help readers better understand the competitive landscape, our 2019 403(b) Market Survey provides insight into the experience and capabilities of select recordkeepers. Profiles are meant to be representative of provider offerings; please contact providers directly with any specific questions regarding the products or services listed in the guide. —Brian O’Keefe