PLANSPONSOR - October 2017 - 32

Kidwell recalls it as a challenge but
also an opportunity to help employers
realize that the regulations were not
just a passing event, but a process. The
providers that stayed in the market
aided with this, he says.
Fast Forward 10 Years
Kidwell says that now, a decade later,
many 403(b) plan sponsors take a strategic
approach to running their plan,
in terms of its design, administration
and employee communications; these
sponsors work to align their plan's
benefits and mission.
Friedman notes that plan sponsors
have grown far more aware of
compliance and the need for appropriate
administrative processes and
procedures. " It's come along slowly,
but, for the most part, they are there
now, " he says.
A survey conducted by the Plan
Sponsor Council of America (PSCA)
found many plan sponsors are making
improvements to their 403(b) plans,
What Our Data Says
According to the 2016 PLANSPONSOR
Defined Contribution (DC) Survey, average
asset-weighted expense ratios of all investment
options in 403(b) plans are mostly
in line with those of all DC plans. While
there were slightly more 403(b) plans with
expense ratios in the upper extremes than
in all DC plans, 21.8% of 403(b) plans had
expense ratios between 0.25% and 0.50%
compared with 21.2% of all DC plans, and
15% of 403(b)s had expense ratios between
0.51% and 0.75% compared with 16.7%
of all DC plans. The survey found 7.5% of
403(b) plans had expense ratios between
0.76% and 1.00%, while 12.3% of all DC
plans had expense ratios in this range.
Even among non-ERISA [Employee Retirement
Income Security Act] 403(b) plans,
there was
little difference between their
expense ratios and those of all DC plans,
the survey found. -RM
often adopting practices that first became a trend among 401(k)
plans. For example, 21% of 403(b)s now automatically enroll their
participants, and, of those, the percentage of plans with a default
deferral rate of 3% or less decreased by half from 2016 to 2017,
while the percentage of 403(b) plans with deferral rates north of
3% increased from 21.6% to 34% during that same period.
According to Kidwell, today's landscape, moreover, contains
many more single-provider, open-architecture plans. Providers
have stepped up to make administration easier, encouraging
plan sponsors to bundle services for their various plans-for
example, their 403(b)s, defined benefit (DB) plans, money
purchase pension plans (MPPPs) and nonqualified plans. This
way, the sponsor can offer single payroll remittance, singlepoint-of-contact
call centers, simplified investment lineups,
documentation for hardships and loans and cost savings for
employers. Providers have also improved the participant experience,
making communications and procedures more accessible
for employees.
Even in the historically nonqualified, state-run K-12
403(b) plan market-which faces union pressure to maintain
the status quo-similar changes have been occurring. Debby
Karton, benefits coordinator for the National Public Pension
Fund Association (NPPFA) in Glenview, Illinois, says hundreds
of school districts across the country have made the decision to
improve their 403(b) plans and consolidate to a single provider.
Some districts have decided, in-house, which provider to choose,
while others have elected to join existing co-ops or build co-ops
32 PLANSPONSOR.com October 2017
with other districts. The latter allows
a district to join an existing plan and
outsource plan management.
Recently, the IRS opened its
preapproved plan document program
for 403(b) plans. Both Kidwell and
Friedman believe this will allow
for more consistency in the 403(b)
plan market-but this will not come
without challenges.
According to Friedman, there is
much variability in provisions, even
in the administrative appendices that
must be attached to documents. " One
provider's plan document is different
from another's, and we don't know
how this will play out when sponsors
go from provider to provider, " he says.
Additionally, funding contracts that
conflict with the terms of a plan document
are also a concern. " Provider
A may have written a preapproval to
incorporate provisions of its annuity
contracts, but that may contradict the
contracts of a new provider, " he says.
Room for Improvement
Even with the current 403(b) plan improvements, several areas
still need attention, experts say. For instance, many plan sponsors
still use multiple providers. The reason is that some participants
have an individual annuity contract, which may not be eliminated
without their consent. They are subject to fees if they extricate
themselves from an annuity before 10 years from the purchase
date. But that issue will be resolved soon, Kidwell believes.
Friedman notes that the Society of Professional AssetManagers
and Recordkeepers (SPARK) got involved early on
with the concept of data sharing to enable plan sponsors to
track participant plans. To do this, however, requires cooperation
from the multiple providers, which has failed to materialize.
" Competitors don't want to share information with one another, "
he observes.
As an alternative, Principal has started working with independent
third-party administrators (TPAs). " There is a need for
an independent third party to work with providers to pull information
together, " Friedman says. " If the TPA is independent,
providers don't feel threatened. We see more and more demand
for that, and providers are responding. "
In addition, Kidwell says, 403(b) plan sponsors need to
continue to be better informed about plan governance and
compliance responsibilities. OneAmerica is rolling out a platform
to provide plan sponsors with a go-to source to keep
them up to date. The website, called the Tax-Exempt Center of
Excellence, went live on the first of this month. -Rebecca Moore
http://www.PLANSPONSOR.com
PLANSPONSOR - October 2017

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