A growing number of 403(b) retirement plan sponsors use third-party administrators(TPAs) for key plan services, and a new analysis shows thatpractice may be leading to better plan design.

Research from the ProfitSharing/401k Council of America (PSCA) finds that 403(b) plansthat use a third-party administrator tend toward better overallplan design. The research, sponsored by the Principal FinancialGroup, showed an increase in the percent of 403(b) plansponsors who use TPAs, from 24.6 percent in 2010 to 28.7 percent in2011. The survey also showed that TPAs work in the small planmarket and the large plan market — 56 percent of all surveyrespondents with 1,000 or more participants use a TPA.

The 2011 403(b) Plan Survey also found that 403(b) plan sponsorswho use TPAs reported higher default deferral percentages; MoreTPA-serviced plans offer a four percent default deferral rate thanall plans (21.9 percent vs. 16.4 percent), and fewer offer a 3percent default deferral rate than all plans (40.6 percent vs. 49.3percent).

PSCA, as part of the research, gave some insight intoopportunities for TPAs and 403(b) plans:

• Investment policystatements. More TPA-serviced plans (53.9 percent) haveinvestment policy statements than all plans (46.2 percent) in thesurvey.
• Participation. Theparticipation rate among TPA-serviced plans (63.7 percent) is lowerthan among all plans (74.7 percent). This may present anopportunity for TPAs to work with financial professionals andservice providers who play active roles in enrollment and ongoingparticipant education.
• Investment options.TPA-serviced 403(b) plans offer, on average, 42 differentinvestment options, while the average number of investment optionsfor all plans is just 28. TPAs may want to consider the benefits ofoffering fewer investment options, since participants tend tobecome overwhelmed by too many choices and, as a result, end upchoosing not to participate at all.