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The State of 403(b) Plans

What is the state of affairs regarding 403(b) plans? A recent study looked at certain aspects of the plans, including how the funds in those plans are invested.

In “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans,” BrightScope and the Investment Company Institute (ICI) analyze plan-level data gathered from audited private-sector Form 5500 filings of nearly 4,000 ERISA 403(b) plans.

First of all, employer contributions are widespread: According to the report, almost 80% of ERISA 403(b) plan sponsors made them in 2012. Thirty percent followed simple employee match formulae; the most common was matching 100% of contributions up to 5% of an employee’s salary. The most common default initial contribution rate among ERISA 403(b) plans with automatic enrollment was 3% of employee salary.

BrightScope says that ERISA 403(b) total plan costs — which included administrative, advice and other fees from Form 5500 filings, as well as asset-based investment management fees — dropped from 2009 to 2012, from 0.80% of plan assets to 0.75% of plan assets.

The BrightScope/ICI report also provides detailed information concerning how 403(b) plan funds are invested. Key findings include:

  • In 2012, the average ERISA 403(b) plan offered 23 core investment options. Of those, approximately 10 were equity funds, seven were target date funds and three were bond funds.

  • Nearly all plans offered at least one equity and bond fund, 84% offered fixed annuities and about 70% offered a suite of target date funds.

  • Mutual funds were the most common investment vehicle in ERISA 403(b) plans.

  • Equity funds accounted for the largest share of assets in ERISA 403(b) plans.

  • Target date funds have become more common in ERISA 403(b) plans since 2009. In 2009, 51.4% of ERISA 403(b) plans included target date funds in their core investment offerings; by 2012, 68.5% of plans did so.

  • Index funds are widely available in ERISA 403(b) plans, and in 2012 the largest ERISA 403(b) plans — those with plan assets of more than $1 billion — were most likely to offer them.