Service, Investment Choice Top Factors in 403(b) Vendor Selection

February 9, 2009 ( - While one might think that cost is the prevailing factor for school districts selecting vendors for their 403(b) plans, a survey conducted in 2008 reveals employee service and choice of investment funds are more important.

The July 2008 survey, conducted by LIMRA in collaboration with the Association of School Business Officials International (ASBO) among ASBO members, found 56% of the more than 4,000 school districts polled selected employee service as an important factor in vendor selection. Half of respondents said choice of investment funds is important.

Only 35% of school districts polled selected cost as an important factor in vendor selection. However, LIMRA noted that for districts that have more than 12 vendors, cost was more important (45% versus 25% of those with 12 or fewer vendors).

The survey found more than a third of districts (37%) do not receive any value-added services from vendors LIMRA specifically asked about, perhaps indicating that value added services are an area in which vendors can differentiate themselves in the market. However, LIMRA found 81% of school districts said they would not payer higher fees than currently for any added services.

Forty-six percent of districts indicated vendors currently provide online account information, while a third (34%) said they receive onsite time from vendor representatives. More than a quarter each said they receive customized participant communication and education (27%) and contribution and distribution compliance monitoring (26%) from vendors currently.

Most districts (55%) indicated they did not send out a request for proposal (RFP) in the vendor selection process, while a third indicated they did use an RFP with the help of a third party administrator (TPA) or consultant.

K-12 Districts a Businessfor Consultants

Services school districts will pay for, according to the LIMRA study: TPA or consultant services.

Among those districts that did not currently pay for a TPA or consultant as of the July 2008 survey, 59% said they would be willing to over the following 18 months. The biggest number (89%) said they would pay a TPA or consultant for compliance monitoring.

Eighty-two percent said they would hire a TPA or consultant to perform compliance testing, and 80% said they would pay for recordkeeping consolidation.