DC Plan Admin: 403(b)
make provider changes during the first wave of plan changes are
re-evaluating their decisions—whether evaluating new options
for investments, further provider consolidation or new participant education options.
One issue driving the increase in RFP activity is consolidation among plans, says Brodie Wood, national practice leader for
Diversified’s not-for-profit market. Especially among health care
employers, there have been mergers resulting from the health
care reform legislation, creating redundancies in plans.
Steinhilber adds that there is also the continuing challenge for plans remaining multivendor; sponsors must seek
help with the coordination of information across vendors. The
best solution, he believes, is to move to a single provider, but if
this is not possible, third-party administration firms can help
In addition, according to Jon Prescott, president at CPI
Qualified Plan Consultants, smaller K- 12 schools are looking
for a single 403(b) administration service, because unions have
resisted consolidating vendors. However, a few sponsors did see
unions move to a single provider, also requiring RFPs.
Furthermore, because K- 12 schools are government agencies, they are under pressure to monitor budgets and dollars;
therefore, they are rebidding contracts to make sure they receive
the most reasonable costs for services on behalf of taxpayers,
Prescott says. In the private university and colleges market, plan
sponsors are also looking to a single provider because they want
more control over plan administration.
403(b) plan sponsors are also evaluating open architecture
for investment plan lineups, moving away from offering variable annuities to offering mutual funds, notes Wood. He adds
that in the 403(b) retirement plan market, there is much money
locked up in individual annuity contracts, and it would be easier
for sponsors if the money was moved to other investments. Plan
sponsors can turn to their vendors for assistance; for example,
Diversified offers tools to help participants decide if they want
to move money out of these contracts, and counselors will help
them with the paperwork.
In RFPs, 403(b) plan sponsors should ask how much of
the system for providing the oversight needed for plans is automated and how much is manual. This will show a firm’s level
of financial commitment to 403(b) solutions. Sponsors should
also ask whether a provider has on-the-ground staff for education, Steinhilber adds.
Other trends leading to an increase in RFP activity, according to Wood, include 403(b) plan sponsors that are unsure of
their Employee Retirement Income Security Act (ERISA) status.
Some sponsors are choosing to abandon non-ERISA status for
attention to the fiduciary process and fees among 403(b) plans,
says Ray. The release of this information will motivate actions
such as fee benchmarking, and plan sponsors will need the help
of an adviser. It will lead to increased RFPs and search activity,
and potentially more vendor consolidation, he says.
Steinhilber notes that, in particular in the nonprofit retirement plan market segment, fee disclosure regulations are push-ing them to consider how to communicate fees to employees,
especially with multiple vendors. But it is also an opportunity
for plan sponsors to get a handle on what providers are offering and the costs associated with such offerings. According to
Steinhilber, sponsors have not been paying attention to fees, so
there may be surprises.
For plan sponsors and participants trying to understand
the disclosures they are given, qualified retirement plan advisers can be a big source of help. In addition, advisers can assist
sponsors with the delivery and coordination of fee disclosures
As is the case with 401(k) plans, running a 403(b) plan is increasingly becoming a team effort. Wood says 403(b) plan sponsors
need a combination of help from providers, consultants and
When searching for one of these partner organizations,
Steinhilber says sponsors should look for a provider that can
meet participants’ needs, keeping in mind that some will want
help on-site. Providers should also have plan metric capabilities, to look at the data and recognize target audiences, and then
create a participant education plan specific to the needs of the
audience in the education meeting.
Prescott adds that plan sponsors must look for provider
firms that have a history in plan administration and regulation
compliance. 403(b) plan sponsors need to observe the financial
strength of providers and their commitment to the business and
to providing retirement income, Ray adds.
According to Ray, when hiring an adviser or consultant,
plan sponsors should check that the adviser has legal and technical capabilities to meet the needs of the plans. The adviser
should understand the nuances of the 403(b) space, such as
individual contracts and how assets move. It is important that
an adviser is capable of telling sponsors what they have in their
plans, what the rules say, how much control they have and how
to enhance the plans.
“The main thing is going to be the participant outcomes,”
Ray says. “At the end of the day, people need, and want, to
retire. The focus of the business is moving toward participant
outcomes—not only saving enough but being able to pay for
expenses in retirement. There is also an emotional factor; outcomes have to meet with the expectations of participants, and
providers need to understand that.” —Rebecca Moore