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Study Finds Choice Boosts 403(b) Participation, Contributions

New research published by the National Tax-Deferred Savings Association (NTSA) confirms that there is a connection between the number of options – and advisors – available to employees in public education 403(b) plans and participation and contribution rates in those plans.

Those findings are outlined in just-published research “Improving Retirement Savings for America’s Public Educators,” a white paper authored by Jason J. Fichtner, Ph.D., a Senior Lecturer of International Economics at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies.  The research examines the impact of participant choice of investment providers in 403(b) plans, and further looks at the extent to which school district employees want choices in their 403(b) plans and the positive impact choice has on participation and savings rates.

Overall, the research finds that public employees who have access to retirement educational resources at the workplace and the assistance of financial professionals are saving earlier and contributing more to their 403(b) plans. In contrast, the study found a decrease in investment choice and reduced access to advisors leads to lower retirement plan participation by employees in public education 403(b) plans. Conversely, it also found higher participation and contribution rates when plans offered a greater number of providers.

The research finds:

  • Twenty-five percent greater participation in plans with 15 or more investment providers compared to plans with only one provider.
  • Account balances are, on average, 73% higher among plans with 15 or more providers compared to single provider arrangements.
  • A 203% increase in average contribution rates among plans providing access to 15 or more providers compared to plans with only one provider.
  • Single provider arrangements have the lowest participation rate; 8% below the national average.

“Simply stated, the data reveals a positive and significant correlation between the number of choices/advisors and participation,” notes Fichtner. “The research revealed that the number one factor driving participation and savings rates in school districts is participant choice.” 

“The range of participation rates in America’s public school districts is dramatic, suggesting that the choices that each school district makes available to employees and the resources that they provide to help employees understand the benefits of participation are key differences in driving participation rates,” noted NTSA Executive Director Brent Neese in a press release.

The report is being made available to school districts nationally to assist them in understanding how to improve 403(b) participation and savings rates to help employees achieve a comfortable and timely retirement.