Investment in 403(b) plans jumped in 2012

By BenefitsPro

By Paula Aven Gladych

Investment in 403(b) plans continues to rise as both plan sponsors and participants upped their dedication to the retirement savings plans in 2012.

The fifth annual 403(b) plan survey from the Plan Sponsor Council of America found that the majority of 403(b) organizations contributed to their plans in 2012, with the average contribution nearly 10 percent higher than 2011. It also identified opportunities in the 403(b) space that financial advisors and third-party administrators could benefit from.

Sponsored by the Principal Financial Group, the benchmarking survey looks at trends in retirement plans sponsored by nonprofit organizations and public schools, colleges and universities.

It found that the percentage of participants contributing to plans increased to 66.2 percent in 2012 from 64.3 percent in 2011, and the average deferral rate also jumped up to 5.7 percent from 5.4 percent in 2011.

The number of 403(b) plans permitting Roth after-tax contributions continues to grow. In 2012, 23.8 percent of plans allowed a Roth feature, up from 21.7 percent in 2011 and 10.9 percent in 2007.
More 403(b) plans are allowing those 50 and older to make catch-up contributions and 27.7 percent are now matching those contributions. The survey found that 17 percent of participants made the extra contributions in 2012 compared to 13.4 percent in 2011.

Education became a major focus in 2012, with 70.7 percent of plan sponsors making better use of email, nearly 25 percent using webinars and 54.2 percent holding one-on-one meetings.

Only 11.6 percent of 403(b) participants had outstanding loans in 2012 representing only 1 percent of plan assets, about half the amount that was reported in PSCA’s 2012 survey on 401(k) plans. The number of participants taking a hardship withdrawal from 403(b) plans continued to decline from 1.6 percent in 2011 to only 1.2 percent in 2012.

The survey found a few areas where improvements could be made, areas of opportunity for financial professionals and third-party administrators.

It found that nearly 15 percent of small plans permit Roth after-tax contributions compared to 42.9 percent of larger organizations and that higher-education institutions on average make 65 funds available for participant contributions, two to three times higher than other industries in the survey.

“The data indicates there are opportunities to help 403(b) sponsors continue to modernize their plans,” said Aaron Friedman, national non-profit practice leader for The Principal. “One of the biggest opportunities may lie with higher education. Nearly half (47.9 percent) of these institutions still use more than one provider and for 40 percent of them, it’s been at least five years since their last RFP.”

The Plan Sponsor Council of America, a national, non-profit association of 1,200 companies and their six million employees, advocates increased retirement security through defined contribution programs to federal policymakers.

The Principal Financial Group is a global investment management company offering retirement services, insurance solutions and asset management.

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