Specifically, these sponsors had problems understanding new standards of compliance and evolving fiduciary responsibilities, and being ready for annual plan audits, as part of the expanded Form 5500 annual reporting requirement to the federal government. Coordinating plan loans and hardships from multiple plan vendors was also an issue.

[See 403(b) sponsors confused by new regulations]

Penalties for plans not in compliance range in severity both for individuals and institutions, depending on the compliance or fiduciary issue. These can range from fines to full plan disqualification – which could make all plan assets subject to taxation.

"This year's survey proves that 403(b) plan sponsors are still working hard to comply with the new regulations," says David Wray, president, PSCA. "Although the rate of change has slowed since our 2009 survey, there are still significant adjustments underway as plan sponsors respond to the needs of their participants and their plans."

Survey Highlights: 

Automatic Enrollment

12.3 percent of plans have an automatic enrollment feature. Automatic enrollment is more prevalent for large plans (29.6 percent of plans with 1,000 or more participants). The most common default investment options are target-date funds (34.2 percent of plans), followed by lifestyle funds (28.9 percent of plans).

Catch-up Contributions

Catch-up contributions for participants age 50 and over are permitted in 93.0 percent of plans. 15.4 percent of eligible participants made catch-up contributions in 2010. Of organizations that permit catch-up contributions, 21.1 percent match them.

Eligible Employees

84.8 percent of employees at respondent organizations are eligible to participate in their organization's 403(b) plan.

ERISA Status of Respondents

74.4 percent of plans are ERISA, 15.6 percent are non-ERISA, and 10.0 percent of respondents were unsure of their plan's ERISA status. Seven percent of non-ERISA plans are considering becoming ERISA plans.

Hardship Withdrawals

74.7 percent of plans allow participants to take hardship withdrawals. 1.6 percent of plan participants took a hardship withdrawal in 2010 when permitted.

Investment Advice

21.6 percent of organizations offer investment advice to participants. The most common type of advice offered is one-on-one counseling in person (88.5 percent of organizations).

Investment Options

Plans offer an average of 26 funds for organization contributions and an average of 28 funds for participant contributions.  20.6 percent of plans have between 21 and 50 funds and 11.3 percent have more than fifty funds available for participant contributions.  69.1 percent of plans offer target-date funds as an investment option.

Investment Policy Statements

46.2 percent of respondents have an investment policy statement. 34.6 percent of plans are unsure if their plan has such a statement.

Loans

72.1 percent of plans allow participants to borrow against their plan assets. 49.5 percent allow loans for any reason, while 22.6 percent allow loans only in hardship situations.

Organization Contributions

82.6 percent of organizations make contributions to the plan. 36.9 percent make matching contributions only, 29.0 percent make non-matching contributions only, and 16.7 percent make both matching and non-matching contributions to the plan.  The majority of organizations made contributions in 2010 when provided for in the plan including 96.5 percent of plans with only matching contributions and 94.1 with only non-matching contributions.  The average organization contribution per active participant in 2010 was $3,450, and the median contribution was $2,364.

Participant Contributions

96.4 percent of plans permit participant contributions. Pre-tax contributions are permitted in 95.6 percent of plans, while Roth and 401(m) after-tax contributions are permitted in 19.5 percent of plans. 6.6 percent of plans require participants to contribute to the plan as a condition of employment.

Participation Rates

The average percentage of eligible employees with a balance in the plan is 74.7 percent. An average of 64.2 percent of eligible employees contributed to the plan in 2010. The average account balance for active plan participants is $70,794. 

Plan Education

The most common educational approaches are enrollment kits (89.6 percent of organizations) and on-site one-on-one meetings (63.1 percent), though there has been an increase in the use of electronic methods to educate participants with 59.5 percent using e-mail and 50.2 percent using Intranet/Internet.

Preparation of the 5500

84.1 percent of plans file a form 5500. The form 5500 is prepared by the record keeper at 34.3 percent of organizations, by the auditor at 28.0 percent, and by a form 5500 aggregator at 14.9 percent of organizations.

Roth Feature

16.9 percent of plans permit Roth after-tax contributions, up from 13.9 percent of plans in 2009 and 10.9 percent in 2007. Roth availability is more common at large organizations with 27.8 percent of plans with 1,000 or more participants offering Roth.  9.5 percent of participants made Roth contributions when permitted.

Vesting

57.4 percent of plans provide immediate vesting for non-matching employer contributions, and 60.5 percent of plans provide immediate vesting for matching contributions. Among plans that do not provide immediate vesting, graduated vesting is the most common arrangement for both matching and non-matching contributions.