403(b) Plans Simplify Investment Choices
New Plan Sponsor Council of America survey finds streamlined platforms for do-it-myself investors
Non-profit organizations that sponsor 403(b) plans are simplifying investment platforms by streamlining the options available for investors. According to the sixth annual Plan Sponsor Council of America's (PSCA) 2014 403(b) Plan Survey, more plans are offering target date investment options as part of a slimmer overall investment platform.
Sponsored by the Principal Financial Group®, the benchmarking survey also found more sponsors are retaining investment advisors, possibly reflecting a growing recognition of fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA).
“403(b) plan sponsors are continuing to make progress in building retirement programs that can help lead to better outcomes for participants,” said Bob Benish, executive director of PSCA. “Overall we continue to see positive changes including working with investment advisors, which may be why plans are offering fewer investment options. Slow but steady progress is the most sustainable kind. It reflects the strength of the current employer-sponsored retirement system.”
The only comprehensive study in the industry that uncovers trends in retirement plans sponsored by non-profit organizations and public schools, colleges and universities, the 2014 403(b) Plan Survey found:
- Simplified investment platforms: 403(b) plan sponsors offered an average of 26 investment options in 2013, down from 31 in 2012; edging closer to the average of 19 investment options in 401(k) plans1. 403(b)s with the highest average participation rate (72.2 percent) are those with between 15 and 20 investment options.
- More target date options: Three quarters of 403(b) plans now offer target date investment options, a steady increase since 2009 when they were included in just over half of plans (51.2 percent).
- Help with fiduciary duties: More than half (51.3 percent) of sponsors retained independent investment advisors to assist with fiduciary responsibility, compared to 46 percent in 2012.
- More personalized and interactive education: Sponsors increased use of e-mail significantly over the past five years from 51.5 percent in 2009 to 71.8 percent in 2013; webinars more than doubled in from 9.7 percent in 2009 to 26 percent in 2013; 60 percent used one-on-one meetings with service providers, up from 54.2 percent in 2012 and more than a third (34.5 percent) used individually targeted communications. Seven percent used mobile apps.
- Automatic savings on the rise: Sixteen percent now automatically enroll employees, up from 14.6 percent in 2012; more of those plans included automatic annual increases (20.7 percent in 2013 compared to 16.9 percent in 2012).
Opportunities for financial professionals and third party administrators
“The continuing demand for financial professionals shows that 403(b) sponsors recognize the value in working with an intermediary to help meet plan and organizational goals,” said Aaron Friedman, national tax-exempt practice leader, The Principal. “The health care and private higher education industries significantly increased use of investment advisors and had some of the biggest increases in use of automatic enrollment. They want to work with financial professionals and are open to making changes. That spells opportunity.”
Friedman says financial professionals can use the survey results to help existing clients benchmark their plans. The results can help identify gaps and create reasons to approach prospects as well.
The Plan Sponsor Council of America (PSCA) is a nonprofit association that provides services, best practice information, and advocacy to defined contribution plan sponsors. Members have access to a broad range of resources and programs that address the varying needs of both small and large companies. Membership includes 1,200 companies ranging in size from Fortune 100 firms to small, entrepreneurial businesses, and non-profit organizations.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)2 is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $495.5 billion in assets under management3 and serves some 19.2 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1 PSCA 56th Annual Survey of 401(k) plans (reflects 2012 data).
2 "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
3 As of March 31, 2014
Important Information on target date funds:
Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Asset allocation and diversification do not ensure a profit or protect against a loss. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation.
Investors should carefully consider a mutual fund’s investment objectives, risks, charges and expenses prior to investing. A prospectus, or summary prospectus if available, containing this and other information can be obtained by contacting a financial professional, visiting principal.com, or calling 800-547-7754. Read the prospectus carefully before investing.
Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline.
International and global investment options are subject to additional risk due to fluctuating exchange rates, foreign accounting and financial policies, and other economic and political environments.
Asset allocation and diversification do not ensure a profit or protect against a loss. Additionally there is no guarantee an asset allocation investment option will provide adequate income at or through retirement.
Fixed-income and asset allocation investment options that invest in mortgage securities are subject to increased risk due to real estate exposure.
Investment options are subject to investment risk. Shares or unit values will fluctuate and investments, when redeemed, may be worth more or less than their original cost.
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Princor Financial Services Corporation, 800-547-7754, Member SIPC and/or independent broker/dealers. Securities sold by a Princor Registered Representative are offered through Princor®. Principal Funds Distributor, Princor and Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392. Certain investment options may not be available in all states or U.S. commonwealths.