The price of recordkeeping services is not uniform; it can vary depending on type of retirement plan. A blog entry discusses why pricing for 403(b)s is different than that for 401(k)s.
In “The Differences Between 403(b) and 401(k) Pricing,” Michael Webb of Cammack Retirement offers some explanations regarding why such services are priced differently.
Webb observes that while there are some exceptions, especially among the largest retirement plans, recordkeeping generally costs less for 401(k) plans than for 403(b) plans with assets of comparable size. He attributes that to fundamental differences between 401(k) and 403(b) plans. And that, in turn, results in 403(b) plans taking more work to administer. “And more work equals more money,” he notes.
Webb argues that the following factors help explain why recordkeeping is more expensive for 403(b) plans.
Lack of Employer Control. Unlike 401(k) plans, 403(b) plans usually have multiple contacts, and many are individual. Writes Webb, “Those contracts could reside with a single vendor but are often with multiple providers. As you can imagine, pricing this mess can be nightmarish, as a 403(b) recordkeeper not only has to factor in the assets that will be in the control of the plan sponsor, but those that are not, since these assets affect the pricing of services such as compliance and participant communication.”
Lack of Trusts. It is rare for a 403(b) to be funded by a group trust, says Webb; instead, they largely are funded by annuity contracts and custodial accounts. Group trusts take less work, he says, which adds to the cost for 403(b) plans.
Annuity Contracts. Webb argues that annuities are still a “dominant investment type” for 403(b)s, and that since they are “difficult to recordkeep,” their dominance adds to the expense of work on 403(b)s.
Multiple Providers. Webb says that it is not unusual for a 403(b) to have multiple recordkeepers, which adds to the complexity of the process as well as it its cost.
But, Webb says, all is not lost. “The good news for 403(b) plan sponsors is that outside of the group trust issue, these pricing barriers are within the plan sponsor’s control,” he writes. “If plan sponsors take appropriate action, they can obtain pricing with their 403(b) plans that is very close to, if not the same as, their 401(k) plan counterparts. And that’s a good thing, as many 403(b) plan sponsors are unable to move to a 401(k) plan due to the nondiscrimination testing requirements for salary deferrals.”
In “The Differences Between 403(b) and 401(k) Pricing,” Michael Webb of Cammack Retirement offers some explanations regarding why such services are priced differently.
Webb observes that while there are some exceptions, especially among the largest retirement plans, recordkeeping generally costs less for 401(k) plans than for 403(b) plans with assets of comparable size. He attributes that to fundamental differences between 401(k) and 403(b) plans. And that, in turn, results in 403(b) plans taking more work to administer. “And more work equals more money,” he notes.
Webb argues that the following factors help explain why recordkeeping is more expensive for 403(b) plans.
Lack of Employer Control. Unlike 401(k) plans, 403(b) plans usually have multiple contacts, and many are individual. Writes Webb, “Those contracts could reside with a single vendor but are often with multiple providers. As you can imagine, pricing this mess can be nightmarish, as a 403(b) recordkeeper not only has to factor in the assets that will be in the control of the plan sponsor, but those that are not, since these assets affect the pricing of services such as compliance and participant communication.”
Lack of Trusts. It is rare for a 403(b) to be funded by a group trust, says Webb; instead, they largely are funded by annuity contracts and custodial accounts. Group trusts take less work, he says, which adds to the cost for 403(b) plans.
Annuity Contracts. Webb argues that annuities are still a “dominant investment type” for 403(b)s, and that since they are “difficult to recordkeep,” their dominance adds to the expense of work on 403(b)s.
Multiple Providers. Webb says that it is not unusual for a 403(b) to have multiple recordkeepers, which adds to the complexity of the process as well as it its cost.
But, Webb says, all is not lost. “The good news for 403(b) plan sponsors is that outside of the group trust issue, these pricing barriers are within the plan sponsor’s control,” he writes. “If plan sponsors take appropriate action, they can obtain pricing with their 403(b) plans that is very close to, if not the same as, their 401(k) plan counterparts. And that’s a good thing, as many 403(b) plan sponsors are unable to move to a 401(k) plan due to the nondiscrimination testing requirements for salary deferrals.”
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