LIMRA study details growth of 403(b) market

A new LIMRA research report examines the two largest 403(b) market segments — health care and higher education — to understand the similarities and differences between the segments and how they compare with 401(k) plans. The 2013 report, Exploring 403(b) Plan Practices and Trends: Healthcare and Higher Education, was conducted by LIMRA with select results from the Boston Research Group’s 2012 Defined Contribution Provider (DCP) survey of the 401(k) industry.

Based on LIMRA’s study, the health care and higher education 403(b) markets represent $485 billion or 67% of the total 403(b) market. While both the higher education and health care market segments utilize 403(b) plans, there are important differences between them. For example, higher education plans have higher average participation rates (82% versus 65% in health care) and are more likely to offer a match (82% versus 72%). In addition, higher education plans are more likely to use multiple providers (17% versus 5% for health care).

“As plans in these segments become more similar to their 401(k) counterparts, they become an attractive market beyond the traditional not-for-profit retirement plan providers,” said Alison Salka, corporate vice president and director of LIMRA Retirement Research. “But our research reveals that each 403(b) segment has different characteristics that influence the services they value and need. Companies looking to enter this market need to understand the trends, needs and perspectives of these segments as they look to win a share of this market.”

Health care firms are more likely to offer a defined benefit (DB) plan than their counterparts in higher education, the report found. Both market segments are equally likely to offer automatic enrollment, but health care plans are more likely to use automatic deferral escalation (26% versus 14% for higher education). These kinds of features help employees to begin to save and reach the optimum savings rates necessary to fund their desired retirement lifestyle.

Half of health care firms and one-third of education firms use an advisor or consultant, according to the LIMRA study. Plans that work with advisors are more likely to believe they have met plan challenges, such as fiduciary responsibility, managing fees and expenses, and understanding changing regulations and legislation.

Source: LIMRA press release, May 7, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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