A Look at Current 403(b) Trends

The annual 403(b) survey by the Plan Sponsor Council of America (PSCA) is a great window into the world of 403(b) plans.?Nonprofit organizations should pay attention to these survey results as it shows us a lot of the current trends for plan sponsors and their participants.?As nonprofits were still dealing with Covid when the survey was done in 2021, there’s some very interesting stats that I noticed in the survey.?

??????????????First, the average deferral rate went up from 6.2% to 6.9%, which means participants on average were saving more and perhaps participation in the plan also increased.?This makes sense as we did see some participants stop contributions completely at the height of the pandemic.?I think it was partly that but the next few stats I’ll lay out also had a big impact on increasing deferral rates.

??????????????From a plan design standpoint, the number of 403(b) plans allowing for Roth contributions increased from 49.5% to 58.8%.?The 403(b) world has been lagging behind their 401(k) counterparts for a while when it comes to offering the ability to make Roth contributions, so it’s great to see more plans adopting this.?There was also a large increase in the number of plans moving to immediate eligibility for employer contributions, going from just 7% of plans up to 20%.?From an ease of administration standpoint, I think this is also a great plan design feature as it coincides with the Universal Availability provision for 403(b) plans.?As I’ve written about in the past, this provision is unique to 403(b) plans and requires that plans allow participants to make deferrals immediately upon hire with some exceptions (see past newsletter on Universal Availability for more information).?Both plan design features encourage employees to participate in the plan sooner and at a higher deferral rate.

??????????????The next two stats highlight another trend that’s been huge in the 401(k) world but slower to adopt in nonprofit retirement plans.?The number of plans offering investment advice increased from 41.6% the previous year to 54.2% in 2021.?Also, increasing financial literacy moved above increasing participation as the number 1 purpose in providing retirement education to employees.?This is huge!?As we focus more on financial wellness and retirement planning rather than just simply getting employees enrolled in the plan, overall participation and deferral rates will naturally increase.?

??????????????These are all very interesting trends and I think we will see 403(b) plan stats move very close in line with their 401(k) counterparts within the next few years.?What I think will drive this is not the recordkeepers providing more financial wellness programs, but rather retirement plan advisors taking a larger role in working with employees.?Recordkeepers are great for providing on demand educational content, but in the end, I feel strongly that employees just want another human to sit down with and talk to about their retirement planning.?That will be the role of 403(b) plan advisor moving forward.?Thanks for reading this week and as always please feel free to reach out if I can ever be a resource!

About Strategic Retirement Partners?

Strategic Retirement Partners is a nationwide independent retirement plan consulting services firm dedicated to providing guidance in decision-making and problem solving to employers and sponsors of retirement plans. With 23 offices from coast to coast, Strategic Retirement Partners currently consults on over 975 corporate and non-profit plans and over $16.8 billion in assets as of January 1, 2022.?

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