New research exploring the makeup of 403(b) plans is finding that a lot of the features 401(k) plans use to increase employee participation—from expanded investment options to auto features—are now part of the 403(b) package.
The study from Brightscope and the Investment Company Institute (ICI), the "Brightscope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2013," analyzes 403(b) plans covered by the Employee Retirement Income Security Act of 1974 (ERISA) that had 100 participants or more and at least $1 million in plan assets.
Among the study's findings are that ERISA 403(b) plans offered an average of 25 core investment options to participants in 2013.
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On average, 403(b) plans offered participants the choice of 11 equity funds, three bond funds, and eight target-date funds. Nearly all plans offered at least one equity fund and one bond fund. About 70 percent of plans offered a suite of target date funds, and 88 percent offered fixed annuities.
Mutual funds held 49 percent of large ERISA 403(b) plan assets in 2013. Variable annuities held 28 percent of assets, and fixed annuities held 23 percent.
And while there are still a lot of annuity choices within 403(b)s, there used to be a lot more—but investment options already common in 401(k) plans have been creeping in. The reverse hasn't been true as often, although increasingly since the Great Recession, people are looking for guaranteed lifetime income options in their 401(k)s.
Most large 403(b) plans are now offering employer contributions—in fact, four fifths of the nearly 6,000 large ERISA 403(b) plans (those with $1 million or more in plan assets and at least 100 participants) covering about seven out of 10 large ERISA 403(b) plan participants had employer contributions.
In addition, larger plans are more likely to have participant loans outstanding and to offer automatic enrollment. Also, plans offering automatic enrollment are more likely to have both employer contributions and participant loans outstanding than plans that do not have auto enrollment.
The flexibility provided by participant loans, as well as the lure of employer contributions, have made an effective combination with auto enrollment to boost participation.
Since 2009, target-date funds have become more common. In 2009, about half of ERISA 403(b) plans included target date funds in their core investment lineups; this had risen to more than two thirds of plans by 2013.
Similarly, the percentage of participants who were offered core target date funds increased from 71 percent of participants to 79 percent between 2009 and 2013, and over the same period, the percentage of assets invested in target date funds increased from 7 percent to 15 percent.
And the costs have gone down. In 2013, the average total plan cost was 0.73 percent of assets, down from 0.82 percent in 2009. The average participant was in a lower-cost plan, with a total plan cost of 0.63 percent of assets in 2013 (down from 0.68 percent in 2009), while the average dollar was invested in a plan with a total plan cost of 0.53 percent in 2013 (down from 0.59 percent in 2009).
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