Opportunity in the 457(b) Market

Retirement plans — and the opportunity to serve them and their participants and beneficiaries — are not limited to pensions, 401(k)s and 403(b)s. They also entail 457(b) plans — a market that offers fresh opportunity.

And it’s a sizable opportunity, NTSA Executive Director Brent Neese observed at a Jan. 29 session of the NTSA 30th Anniversary Summit in Tampa, FL. The 457(b) market, which serves governmental entities, is almost the same size as the 403(b) market, he told attendees, with 10 million participants. Not only that, Neese added, there are 89,000 governmental bodies in the United States, and their ranks have “increased dramatically in the last 40 years,” especially with the creation of special purpose governments and districts.

“There’s nothing consistent about government except politics,” remarked Neese, noting that every jurisdiction is very different. And the experience of the panelists in the session bore out his observations.

“When working with county governments, there are different constitutionals,” said Jacob Peacock, Director of Retirement Solutions for AndCo; among them are county boards of supervisors, county commissions and tax collectors. Similarly, Joseph Randazzo of Buckeye Deferred Compensation, LLC and FNA Wealth Management, Ltd., told attendees that the state of Ohio is an example of such multiplicity. There is a requirement that the Ohio plan be offered to government employees in the state, but municipalities can offer up to two additional plans. “The majority of the state is left to fend for themselves,” he said.

Procurement is another complication. “Procurement is an interesting thing,” said Peacock, remarking that it can be tricky and nerve-wracking. Dana Blydenburgh, Director of Retirement Services for the City of Lakeland, FL, expressed a similar sentiment, remarking, “Procurement can be a dirty word.” But both had constructive things to say about how to go about it as well, and from differing vantage points. Blydenburgh, approaching it from the point of view of an entity seeking the services of a provider, said that validation and good documentation are needed in making decisions about procurement and providers; Peacock offered a provider’s point of view, emphasizing that one “needs to really understand the procurement rules.”

And there can be inertia in administering and sponsoring 457s, Peacock and Blydenburgh indicated. “Sometimes people inherit plans when they are elected,” Peacock said of government officials, which can cause them to be cautious about making changes to a plan. He said that his firm, which has clients in 32 states, has found that “in many cases” there are existing legacy relationships and affinity arrangements. “It can be challenging to adjust a plan and benefits in such circumstances,” he said.

Blydenburgh bore out his observation, remarking that she led the effort to reduce the number of providers for the city’s plan from five to one. She said that she “had to work through the minutiae of changing the landscape.”

Decisions must be made in the best interest of the participants, Peacock said, noting that he has found that basing decisions only on price is a mistake and can result in participants receiving inferior service. In a similar vein, Blydenburgh told attendees that she had to educate the City of Lakeland’s Board of Supervisors regarding fiduciary duties. And Randazzo said that it’s important to offer a plan to participants, rather than “jamming participants into a product.”