While further research would assist in validating the results, the data from the research conducted by the NTSA in partnership with the Plan Sponsor Council of America (PSCA) concerning the participation and savings rates of public education employees reveals a correlation between limiting advisors and investment providers and a decrease in the level of participation by employees in 403(b) plans.
This does not appear to be caused by alternate factors. Thus, the data suggests that fewer employees participate in 403(b) plans when the number of available investment providers and access to trusted advisor resources is limited.
The research shows that this is primarily due to the disruption of the advisor-client relationship. When public educators and staff no longer have access to the option(s) in which they chose to save and the professional assistance of their trusted advisor, they stop saving. For example:
- A Pennsylvania school district experienced a 40% drop after reducing investment provider options.
- A Maryland school district went from 10 investment providers to 1 and saw the number of active participants drop from 1,000 to 775 participants. In 2016, the district increased the choices to four investment providers and has since seen an increase in participation.
- A Florida school district went from 12 to 5 investment providers and lost more than 1,000 active contributors, all of whom have not resumed participation since the change.
- 262 school districts in Michigan went from 16 to 5 investment providers in 2009. Participation went from 23,000 to fewer than 17,000 active contributors.
Today, after adding back several investment providers, they are finally back to 23,000 participants.
- In 2009, Iowa transitioned from a competitive, open 403(b) marketplace model to a narrow number of five options, only to see participation rates in the program plummet dramatically—with some counties showing enrollment reductions of up to 50%. The number of investment choices was recently expanded to 30 approved companies, with the hope that the workers will once again save for retirement in the 403(b) plan.
Editor’s Note: This is an occasional feature in the NTSA Advisor. This tip is taken from the 403(b) Plan Sponsor Guide, which is being made available to school districts nationally to assist them in understanding how to improve 403(b) plan participation and savings rates to help employees achieve a comfortable and timely retirement.
The 403(b) Plan Sponsor Guide is part of the content contained in the NTSA Certified Retirement Education Specialist (CRES) materials. The NTSA Certified Retirement Education Specialist (CRES) program and designation has been developed in order to equip advisors to be qualified and available to teach the NTSA educational program, which is designed to provide teachers with the basics of planning for retirement and improve their retirement readiness. More information about CRES is available here.
The 403(b) Plan Sponsor Guide is part of the content contained in the NTSA Certified Retirement Education Specialist (CRES) materials. The NTSA Certified Retirement Education Specialist (CRES) program and designation has been developed in order to equip advisors to be qualified and available to teach the NTSA educational program, which is designed to provide teachers with the basics of planning for retirement and improve their retirement readiness. More information about CRES is available here.
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