Question 21 — Benchmarking Participant Attrition Rates

Q. I am a CPA involved with tax deferred retirement plans, such as 403(b) and 457(b) plans. I am doing research into market data regarding the amount of participant attrition third party administrators (TPAs) have experienced since the IRS regulations took effect in 2009. As you know, since 2009 the IRS regulations have increased the compliance requirements placed on TPAs that administer these plans, and often fees are passed on to participants. I am trying to research the attrition rate that TPAs have experienced as a result of these fees. Essentially, is there a benchmark rate that is prevalent in the industry?  Are there certain TPAs that have reported their plan participant attrition rates that may serve as data points?

As you can imagine, since these plan regulations are relatively new, there is limited data that I have come across. Has the NTSA considered this issue in the past?

A. While we do have a report from the Spectrum Group that 403(b) assets have grown to $995 billion, we do not have new data on the participant attrition despite the fact that we have heard reports that participation rates have dropped, in particular in situations in which the employer has reduced the number of providers. We will call the NTSA’s attention the need to encourage a study to pin down participation rates so that information can be available to both employers and the service provider industry. In the meantime, the IRS has expressed concern about low participation rates, and is, in fact, requesting that employers provide information on whether "meaningful opportunity" to enroll and make changes (as required under the universal availability rules) has been provided.