PLANSPONSOR - June/July 2019 - 47

was daunting. " Some wanted to terminate
their 403(b) and move to a 401(k) because
of data aggregation rules, " recalls Aston
Blake, national nonprofit market leader
with MassMutual in Enfield, Connecticut.
Providers committed to staying in the
403(b) plan market stepped up to help sponsors.
MassMutual and AIG Retirement
Services, for just two, took on the role of
data aggregator, gathering information
from a sponsor's various providers. AIG
and others also offered common remitter
services, gathering contributions and loan
repayment information and disbursing
that to the appropriate providers.
" The general feeling for our workplace
solutions division was excitement, "
says Blake. " We were skating to where the
puck was going, not to where it was. We felt
403(b) plan sponsors were going to start to
consolidate providers-and they did.
" Our solution for 403(b)s was already
a single-vendor model, " he says. " We were
not playing in the multi-provider market
intentionally. We felt that wasn't best for
the plans-it's hard to administer and hard
for participants to understand all options. "
That said, most of MassMutual's
403(b) business is ERISA-governed plans.
Blake says the company does have some
non-ERISA plan clients that are church
and government plans and believes those
are the only type that work as non-ERISA.
" I know there are other non-ERISA
plans under the ERISA safe harbor, but
those wouldn't be able to use the safe
harbor exemption with MassMutual's
solution, for instance, because it's a singlevendor,
'group-wire' mutual fund product
where the assets move at the plan sponsor's
discretion.
" After the regulations, " he adds,
" many non-ERISA 403(b) sponsors either
realized they really were ERISA plans
or, because of oversight required by
the IRS regulations, gave up their nonERISA
status. "
Form 5500 data from the Department
of Labor (DOL) show that, in 2007, just 152
403(b) plans filed; in 2016-the latest year
for which data is available-21,236 filed.
Since the regulations became final,
the IRS has helped with compliance by
opening a preapproved plan document
program for 403(b) plans. Plan sponsors
have until next March 31 to decide whether
to adopt a prototype plan document.
Investment Menu Updates
Walsh says 403(b)s, at their core, have
been about providing lifetime income for
employees. The overwhelming product
of choice, he says, has been annuities,
rather than other guaranteed-income-type
products. Annuities are the only financial
instruments available, other than Social
Security, that can provide a guaranteed
stream of income during retirement that
cannot be outlived, he says.
" On the plan level, this means sponsors
might consider requiring that some or all
of the participant's accumulation that
stems from the employer's contribution
be automatically directed into a guaranteed
income product upon a participant's
retirement, " he says. " But it's not an 'all or
nothing' process. We work with our plan
sponsors and, in turn, our participants
to help them create a tailored income
strategy that fits their needs. "
Before the IRS regulations, many
403(b) plans included individual annuity
contracts, as participants were left on their
own to purchase investment products.
But this caused problems when sponsors
wanted to consolidate providers, as
the contract holder had to decide whether
to transfer his assets to a different plan
investment-the employer could not force
him-and if he did make the transfer, he
had to pay surrender charges.
Levy says AIG saw sponsors shift
from individual annuities to group
annuity contracts; about 40% of plans
now offer group contracts.
According to Walsh, TIAA has
offered group annuity contracts since the
early 2000s, but the regulations accelerated
the number of clients using them.
He says the regulations also reinforced
the message that TIAA needed
to provide an open-architecture mutual
fund platform and, at the same time,
demonstrate from a fiduciary perspective
how sponsors can combine annuities and
mutual funds. TIAA's Income for Life
Custom Portfolios include annuities.
AIG also developed an open-architecture
mutual fund platform to catch up
with the needs of the modern 403(b) plan
industry. The open architecture platform
provides more choices of plan investment
options and solutions such as target-date
funds (TDFs), custom TDFs and managed
accounts, Levy says.
Consultant Use Grows
As Walsh sums it up, " The regulations
modernized the 403(b) industry. " For one
thing, sponsors started using investment
policy statements (IPSs). They also began
looking to consultants for help. " In 2008,
virtually none of our clients used consultants;
now roughly 70% of our top clients
[do], and that has been a core change to
our business, " Walsh says. TIAA's clients
have hired independent consultants to
help them with the new regulations, and
consultants offer more services than ever
for plan sponsors and participants, he says.
AIG offered adviser services before
the regulations passed and continues to
see a strong demand for them. It provides
in-person seminars, as well as one-on-one
financial planning with participants.
Also, according to Walsh, when sponsors
do requests for proposals (RFPs), they
now ask for services typically offered to
401(k) plans. TIAA fields inquiries about
participant communications, mobile solutions
and plan design, for instance. He
points to an evolution in pricing for services,
as well. With individual annuity contracts,
fees were at the contract level. Then
the market moved to asset-based fees, and
now sponsors expect per-participant fees.
" More than 10 years after the final
regulations, the IRS got the result it
wanted, " he says. -Rebecca Moore
For more about 403(b) plans, see the
2019 PLANSPONSOR 403(b) Survey at
www.plansponsor.com/research.
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