An October 2011 white paper by the American Society of Pension Professionals & Actuaries (ASPPA) Pension Education and Research Foundation (PERF) looks at the impact of choice and participation in school-sponsored 403(b) plans.
PERF’s white paper, “Protecting Participation: The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans,” examines the role of choice in the 403(b) marketplace and how the elimination of investment provider choice impacts public school employees’ participation in those plans. The paper shows that this choice is valuable to help workers prepare for retirement and maintain their participation levels.
The paper notes that school districts can reduce costs while maintaining choice by using an independent third party administrator (TPA) to run the plan and by providing transparent disclosure of investment fees and other expenses to workers. Concurrent to this research, a joint 403(b) Taskforce with partners from American School Business Officers Association (ASBO), National Education Association (NEA), and National Tax Sheltered Accounts Association (NTSAA) has been formed to address transparency and fees in the 403(b) marketplace.
403(b) plans provide an important method for school district employees to save for retirement. 403(b) plans differ from 401(k) plans in that school districts with pinched budgets have less resources to develop a culture of savings—often leaving participants with more responsibility to learn about the plan, how much to save and how and where to invest their money.
A Telling Trend
“The numbers from the school districts we analyzed point to a telling trend—that reduction in choice results in reduced participation. We saw reductions in participation of over 50 percent when the number of investment providers was reduced,” said Dr. Geralyn Miller, associate professor and director of research for the Institute for Pension Plan Management at Indiana University – Purdue University Fort Wayne.
“At a time when many states are experiencing pressure funding pension plans, it’s never been more important to examine this research that clearly shows that limiting teachers and other public school employees’ choices will negatively impact their participation and thus, their ability to save for a secure retirement. This is not the time to take choice off the table,” said Debra A. Davis, ASPPA assistant general counsel and director of government affairs.
“Legislative proposals are being introduced across the country that are intended to save on administrative costs by eliminating many of the current 403(b) plan options. This research shows that school districts should consider other approaches to reducing administrative costs,” said Judy A. Miller, ASPPA chief of actuarial issues and director of retirement policy.
PERF encourages school district employees and policymakers interested in this issue to visit “Save My 403(b)” to share their views on the proposals and learn more information about what’s happening in their states.
403(b) Plan Sponsors Rising to the Challenge, SHRM Online Benefits Discipline, May 2011
IRS Offers Relief on 403(b) Written Plan Requirement, SHRM Online Benefits Discipline, December 2008
403(b) Retirement Plan Final Regs: An Overview, SHRM Online Benefits Discipline, August 2007
New Regulations Making 403(b)s More Like 401(k)s, SHRM Online Benefits Discipline, July 2007
Primer: 401(k), 403(b) and 457(b) Plans, SHRM Research, July 2004
SHRM Online Benefits Discipline
SHRM Online Retirement Plans Resource Page