In “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2013” BrightScope and the Investment Company Institute note that studying 403(b)s is more complicated than it may seem, since they are offered by public-sector but also private-sector employers and some 403(b) plans — but not all of them — are subject to ERISA. The paper discusses the 403(b) plans to which ERISA applies, which account for more than 40% of 403(b) plan assets.
The study’s key findings include the following.
Employer contributions to 403(b) plans are widespread. In 2013, 80% of the nearly 6,000 large ERISA 403(b) plans — those which held at least $1 million in plan assets and had at least 100 participants — provided employer contributions.
Automatic enrollment, employer contributions and outstanding participant loans were more likely among larger 403(b) plans. A sample of nearly 6,000 ERISA 403(b) plans with at least 100 participants and assets of $1 million or more found that nearly 20% of the plans that had at least 5,000 participants had all three, while less than 5% of the plans with 100-499 participants did.
The study found that half of the plans with assets of $1 million-$100 million had outstanding participant loans; 54% of plans with assets of more than $1 billion had them, and 71% of plans with assets of more than $500 million-$1 billion did.
Plans with automatic enrollment were more likely to have employer contributions and participant loans outstanding. In 2013, more than half of ERISA 403(b) plans with at least 100 participants and assets of at least $1 million that had automatic enrollment also had employer contributions and outstanding participant loans. On the other hand, less than 40% of plans that lacked automatic enrollment had the other two features.
403(b) plans offered a wide variety of investment options to employees. In 2013, the average ERISA 403(b) plan offered 25 core investment options. Nearly all plans offered at least one equity and bond fund, about 70% of plans offered a suite of target date funds, and 88% offered fixed annuities.
Mutual funds were the most common investment vehicle in ERISA 403(b) plans. In 2013, 49% of the assets in large ERISA 403(b)s were held in mutual funds; 28% were held in variable annuities, and 23% were held in fixed annuities. Mutual fund expenses in ERISA 403(b) plans generally were lower in larger plans and are dropping.
Equity funds accounted for the largest share of assets in ERISA 403(b) plans. In 2013, 46% of large ERISA 403(b) plan assets were held in equity funds; 18% were held in balanced funds; and 7% were held in bond funds.
Target date funds (TDFs) have become more common in ERISA 403(b) plans since 2009. In 2009, approximately 50% of ERISA 403(b) plans included TDFs as part of their core investments; by 2013, more than 66% did.
Index funds are widely available in ERISA 403(b) plans. Index funds amounted to approximately 17% of plan assets in 2013 and comprised the greatest share of the largest ERISA 403(b) plans’ assets.
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