Multiple 403(b) Providers Benefit Participants, Study Says

Participants benefit if they can choose between multiple 403(b) providers, a recent white paper says. 

In “Benefits of Multiple 403(b) Providers: Having a Choice Positively Affects Participant Behaviors,” Edward Kenney and Tali Yarmush of Equitable, with Equitable Research partner Zeldis Research Associates, find that there are many benefits to making multiple 403(b) providers available to plan participants. 

These findings take on heightened importance, Kenney and Yarmush suggest, because with growing uncertainty about whether pensions can fully cover retirement expenses, 403(b) plans are “progressively becoming more important to teachers’ retirement planning.” And they cite as further support for this position the NTSA’s findings in its study, “Improving Retirement Savings For America’s Public Educators,” regarding the effects of state pension funding gaps and benefits cuts in state retirement plan systems. 

Participation

Making multiple providers available fosters higher 403(b) participation, Kenney and Yarmush found. 

 

Number of Vendors	Average Participation Rate
1	25%
2-4	26%
5-10	28%
11-14	30%
15 or more	33%

“As teachers become more reliant on employer-sponsored 403(b) retirement plans, plan participation becomes more important—and districts where a choice of multiple providers is offered tends to lead to greater 403(b) participation,” they write. They note that the NTSA found that there is greater participation in 403(b) plans in school districts that make multiple providers available, and that the ASPPA Pension Education and Research Foundation found that reducing the number of providers hurt participation rates based on case studies in four states. 

Kenney and Yarmush say that while it is unclear why this happens, they cite Robert Clark’s analysis of North Carolina school districts that appeared in the Journal of Pension Economics & Finance, in which he suggests that higher participation rates may be the result of a higher amount of marketing activity when there are multiple vendors. “Higher marketing levels could drive greater awareness of provider choice, leading to greater plan participation rates overall—even if educators did not enroll with the providers doing the marketing,” write Kenney and Yarmush. 

Benefits of Multiplicity

Kenney and Yarmush argue that participants can derive many benefits from that multiplicity of providers:

• Greater familiarity with the plan.
• Deeper engagement. 
• Greater confidence in the plan.
• Higher satisfaction with the plan.
• Higher annual contributions. And they cite NTSA’s finding that plans which provide access to 15 or more plan providers have average contribution rates 203% higher than plans that offer just one plan provider. 
• Higher median account balances, which Kenney and Yarmush note the NTSA found as well. 

Further, Kenney and Yarmush find participants with greater choice of plan providers also have higher account balances.

Best Practices 

Kenney and Yarmush suggest that a variety of steps school districts can take if they decide to make multiple 403(b) providers available. 

• Remember that: 
  • Having just one provider entails challenges, such as a heavier burden in tracking legacy accounts, tracking hardship distributions and loans, and heavier fiduciary obligations—as well as risks.
  • Outside vendors offer support in communications, compliance, financial transactions and recordkeeping.
• Maintain a single plan document, even when there are multiple plan providers. 
• Cooperate with providers to ensure the appropriate products and providers are available to teachers. Furthermore, Kenney and Yarmush suggest adopting a uniform and product-neutral retirement education program for teachers.