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

Research from the Profit Sharing/401k Council of America (PSCA) finds that 403(b) plans that use a third-party administrator tend toward better overall plan design. The research, sponsored by the Principal Financial Group, showed an increase in the percent of 403(b) plan sponsors who use TPAs, from 24.6 percent in 2010 to 28.7 percent in 2011. The survey also showed that TPAs work in the small plan market and the large plan market — 56 percent of all survey respondents with 1,000 or more participants use a TPA.

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

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

Investment policy statements. More TPA-serviced plans (53.9 percent) have investment policy statements than all plans (46.2 percent) in the survey.
Participation. The participation rate among TPA-serviced plans (63.7 percent) is lower than among all plans (74.7 percent). This may present an opportunity for TPAs to work with financial professionals and service providers who play active roles in enrollment and ongoing participant education.
Investment options. TPA-serviced 403(b) plans offer, on average, 42 different investment options, while the average number of investment options for all plans is just 28. TPAs may want to consider the benefits of offering fewer investment options, since participants tend to become overwhelmed by too many choices and, as a result, end up choosing not to participate at all.

Instant Insights /

Study: 403(b)s that use TPAs have stronger plan design

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