Number of choices in 403(b) market impacts participation

A lack of choice in 403(b) retirement plans results in reduced participation among school district employees, according to a new report by the American Society of Pension Professionals & Actuaries Pension Education and Research Foundation.

The white paper, “Protecting Participation: The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans,” examines the role of choice in the 403(b) marketplace. It shows that this choice is valuable to help workers prepare for retirement and maintain their participation levels.

403(b) plans provide an important method for school district employees to save for retirement. 403(b) plans differ from 401(k) plans in that school districts with tight budgets have fewer resources to develop a culture of savings—often leaving participants with more responsibility to learn about the plan, how much to save and how and where to invest their money, according to the report.

“The numbers from the school districts we analyzed point to a telling trend—that reduction in choice results in reduced participation. We saw reductions in participation of over 50 percent when the number of investment providers was reduced,” said Dr. Geralyn Miller, associate professor and director of research for the Institute for Pension Plan Management at Indiana University – Purdue University Fort Wayne.

“Legislative proposals are being introduced across the country that are intended to save on administrative costs by eliminating many of the current 403(b) plan options. This research shows that school districts should consider other approaches to reducing administrative costs,” said Judy Miller, ASPPA’s chief of actuarial issues and director of retirement policy.

The paper notes that school districts can reduce costs while maintaining choice by using an independent third party administrator to run the plan and by providing transparent disclosure of investment fees and other expenses to workers. A joint 403(b) taskforce, made up of The American School Business Officers Association, National Education Association and National Tax Sheltered Accounts Association, has been formed to address transparency and fees in the 403(b) marketplace.

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