403(b) plans streamline investment choices

Non-profit organizations are making it easier for retirement investors to save money in 403(b) plans by streamlining the available options and offering more target date funds, according to a survey by the Plan Sponsor Council of America.

The PSCA’s 2014 403(b) Plan Survey, sponsored by the Principal Financial Group, also found more sponsors have investment advisors to help participants make the best decisions.

“403(b) plan sponsors are continuing to make progress in building retirement programs that can help lead to better outcomes for participants,” Bob Benish, executive director of PSCA, said in a statement. “Overall we continue to see positive changes including working with investment advisors, which may be why plans are offering fewer investment options. Slow but steady progress is the most sustainable kind. It reflects the strength of the current employer-sponsored retirement system.”

The sixth annual survey of 403(b) plans is the only one in the industry that examines trends in retirement plans sponsored by non-profits and public schools, colleges and universities.

This year, it found that 403(b) plan sponsors offered an average of 26 investment options in 2013, down from 31 in 2012, moving closer to the average of 19 investment options in 401(k) plans.  403(b) plans with the highest average participation rate, 72 percent, were those with between 15 and 20 investment options.

In addition, three-quarters of 403(b) plans now offer target date investment options, a steady increase since 2009, when just over half, 51.2 percent, included them.

And more than half, 51.3 percent, of sponsors retained independent investment advisors to assist with fiduciary responsibility, compared to 46 percent in 2012.

“The continuing demand for financial professionals shows that 403(b) sponsors recognize the value in working with an intermediary to help meet plan and organizational goals,” said Aaron Friedman, national tax-exempt practice leader, The Principal. “The health care and private higher education industries significantly increased use of investment advisors and had some of the biggest increases in use of automatic enrollment. They want to work with financial professionals and are open to making changes. That spells opportunity.”

Among the additional key findings: Automatic savings are on the rise. Sixteen percent of 403(b) plan sponsors now automatically enroll employees, up from 14.6 percent in 2012.

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