The 403(b) Difference Still Matters

Although sweeping IRS regulations made 403(b) plans more uniform, they still require specialized service.

In 2007, the IRS published new regulations for 403(b) plans intended to improve oversight and compliance and standardize operations. Since then, many 403(b) plans have aligned more with the design and operations of 401(k) plans.

However, certain provisions are allowed in 403(b) plans but not allowed in 401(k)s, and many plans have legacy accounts that are not easily removed. Tim Rouse, executive director at the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, notes that “403(b) plans, especially non-ERISA or multi-vendor arrangements common in public and nonprofit sectors, require specialized support for information sharing, compliance and participant disclosures across vendors.” Rouse says recordkeepers that serve 403(b) plans have kept pace with many changes, but their ongoing needs include streamlined multi-vendor coordination and modern tools for engagement.

Among respondents to the 2026 PLANSPONSOR Recordkeeping Survey that completed the 403(b) section less than half (46.7%) provide common remitter services—monitoring compliance with loan and contribution limits, among other things. However, 80.8% provide information sharing using the SPARK Institute industry standard file format, and 65.4% provide information sharing using other custom file formats as required by third-party administrators and/or plan sponsors.

Not the Same as 401(k)s

Michael Ready, a partner in and retirement plan specialist at Summit Financial Group, says, “I feel like this has been a problem for a long time: that recordkeepers really treat 403(b) plans as, basically, 401(k)s with a different label … Many 403(b)s have moved to single providers [since the 2007 regulations], but there’s a lot of legacy cleanup that’s needed.”

Ready notes that some 403(b) plan sponsor organizations have really lean HR teams and perhaps no benefits department and says that recordkeepers should prioritize service model over price.

Plan sponsors should look for a recordkeeper that has a history of working with 403(b) plans, Ready says, as some things can get complex. “403(b)s are subject to the universal availability rule and the 20-hour exclusion,” he notes as an example. “Now that interacts with the long-term, part-time rules [from the SECURE Act] built into these recordkeeping systems.”

He adds that certain 403(b) plans can offer a 15-year special catch-up contribution, in addition to new catch-up rules and the Roth catch-up mandate in new legislation. “Now you might be asking a lean HR team at a not-for-profit to keep track of this stuff, and I couldn’t keep track of it,” Ready says.

If legislation passes to permit collective investment trusts in 403(b) plans, Ready is not sure whether the recordkeepers who have traditionally served 403(b)s will be able to program for CITs on their platforms.

“I really don’t know if they are built on some type of group annuity chassis, if they’d have to figure out how that all works with the CITs,” he says. “I don’t know what that will look like.”

Ready says that due to these complexities, it is probably more difficult for a new provider to get into the 403(b) space.

“I would suspect that most of them would say—because I’ve seen this from some 401(k) providers—unless you have enough assets, we don’t even want you as a 403(b) client,” he says. “My fear is [that in] the 403(b) space, there’s just not going to be many providers out there that do small 403(b) plans.”

As a result, Ready foresees a bigger role for pooled employer plans. “I think that maybe that’s where 403(b) PEPs come in,” he says. “I’ve seen more large plans joining a 403(b) multiple employer plan, but I could see smaller organizations joining a 403(b) PEP if they can get the price right.”

Where 403(b) PEPs Fit

Ready says the adoption of PEPs has not been as fast among 403(b) plans as among 401(k)s, “mainly because of the complexities with a 403(b). There are complexities that a lot of recordkeepers have just stayed away from.”

While 403(b) adoption of MEPs/PEPs has been more measured than for 401(k)s due to regulatory nuances and existing multi-vendor models, Rouse notes that SPARK’s Marketplace Update and member reports indicate increasing interest in PEPs, particularly among smaller nonprofits and associations seeking administrative efficiencies.

Respondents to the 2026 PLANSPONSOR Recordkeeping Survey, reported recordkeeping is provided for nine 403(b) PEPs and 53 403(b) MEPs.

Recordkeeper Selection and Benchmarking

Ready warns that growth for recordkeepers no longer means just winning plans—it means winning participants and their wallets. PEPs deliver more participants to recordkeepers that may try to monetize them via managed accounts, rollovers and wealth management.

“Plan sponsors have to govern that relationship, not just price it,” Ready says. “It’s a governance issue, and none of it is inherently wrong, but it means the recordkeeping relationship now has this embedded conflict that just benchmarking your fees won’t catch. So committees have to ask, ‘What does our recordkeeper earn from our participants behind that fee that they’re charging us? Do we know about it? Did we knowingly approve that?’”

Whereas the standard has been for plan sponsors to benchmark every three to five years, Ready believes the new landscape calls for provider management to be a committee agenda item every year.

Rouse says important factors for plan sponsors to look at when selecting a new recordkeeper or when benchmarking their own include:

• Technology and Integration: Robust Application Programming Interfaces, data security and seamless payroll coordination;
• Compliance Expertise: Proven track record with SECURE 2.0, Roth catch-up and evolving rules, plus strong participant disclosure and reporting capabilities;
• Participant Outcomes: Personalization, retirement income solutions, financial literacy tools and engagement analytics;
• Fee Transparency and Value: Total cost of services alongside demonstrated return on investment;
• Scalability and Innovation: Support for PEPs, lifetime income and future-proofing against regulatory changes; and
• Service Quality: Dedicated support, cybersecurity standards and alignment with sponsor goals.

Though 403(b) plans and 401(k) plans have their differences, systems and service models are key factors for sponsors of both when selecting and benchmarking recordkeepers.

“There’s been a shift [in thought about recordkeepers] somewhat to ‘cheapest price isn’t always the best; go with higher level of service,’” Ready says. “But I think that’s even more important in the 403(b) space.”

—Rebecca Moore