Go with What You Know When Advising in the 403(b) Market

Go with What You Know When Advising in the 403(b) Market

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Help plan participants with retirement readiness, turning income on in retirement and the options for pension assets and Social Security planning.

The dizzying array of investing options and hands-off oversight by the administrators of some plans can lead to high fees that can erode retirement savings. So educating educators and serving those in the community through your knowledge of preparing clients for retirement and the benefits of participating and contributing in plan options that make sense for participants is essential for engaging prospects within the 403(b) market.

A 403(b) plan is a retirement savings plan for employees of tax-exempt organizations that qualify (hospital services and healthcare organizations are a big segment); public schools, state colleges and universities; and churches and clergy. They’re also known as tax-sheltered annuities, voluntary savings plans or supplemental plans. Some are set up as salary reduction plans – in which employers don’t contribute. Others include employer contributions.

Many are ERISA plans (subject to the federal rules for private pensions of the Employee Retirement Income Security Act of 1974), though a significant amount of assets – 57% of all 403(b) assets were in non-ERISA plans, according to data from a 2013 study by BrightScope and the Investment Company Institute. (ERISA plans are subject to specific regulations, so you may want to check with your firm’s compliance department for specific information.)

Recently, total plan assets reached nearly $1 trillion. As of the first quarter of 2018, total 403(b) plan assets were $988 billion, up 4.7% from $944 billion compared to the same period in 2017, according to the Investment Company Institute, which also cites figures from the American Council of Life Insurers and the Federal Reserve Board.

Employees enrolling in 403(b)s face choices – and challenges – similar to those enrolling in 401(k) plans, yet with a few tweaks. These may include having to choose among multiple vendors’ investment options, whether to put a portion of their money into variable or fixed annuities, or to opt for target-date funds.

Increasingly, 403(b) plans are also offering employees a self-directed brokerage account option, or SDBA. With these accounts, employees participating in a 403(b) plan can build their own portfolio. In general, these accounts allow participants to put their money into a wide variety of investments – beyond those offered by the plan’s fiduciaries. These accounts are typically best for sophisticated investors willing to assume responsibility for selecting investments and monitoring their portfolio.

Employees might not even be aware that their 403(b) plan offers the SDBA. So a great icebreaker for advisors already working with clients who contribute to a 403(b) plan or seeking new ways to serve the teachers, healthcare workers and nonprofit employees in their community is to ask whether or not they know about the SDBA option in their plan. This also opens up the conversation to the potential benefits of active management, based on the client’s risk profile and time horizon.

When you get down to it, the key education and planning concepts and processes you already provide your current clients with are the same things that 403(b) plan participants and prospective clients are looking for. This includes education around retirement readiness, the best options for turning assets into income, and advising on other income needs in retirement.

On that score, the topics within workshops or seminars you may already be doing, such as maximizing Social Security, or how to plan for survivor benefits, also apply to 403(b) plan participants. And, since a large group enrolled in 403(b) plans includes teachers, you can offer even more educational input on retirement planning specific to educators through understanding the pension systems in the state, union or school district in your area.



“The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2013. May 2016. https://www.ici.org/pdf/ppr_16_dcplan_profile_403b.pdf (accessed August 2, 2018).

“The US Retirement Market, First Quarter 2018,” Investment Company Institute, June 2018. www.ici.org/info/ret_18_q1_data.xls (accessed August 1, 2018).

“Retirement Plans FAQs regarding 403(b) Tax-Sheltered Annuity Plans,” Internal Revenue Service, July 2018. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-403b-tax-sheltered-annuity-plans (accessed July 31, 2018).

“Cracking the 403(b) Retirement Plan Market: A Primer,” Brian O’Connell, Advisor News, October 11, 2017. https://advisornews.com/innarticle/cracking-403b-retirement-plan-market-primer#.W2MNadVKipp (accessed July 31, 2018).

“Why advisors should target the 403(b) market,” Katie Kuehner-Hebert, October 11, 2017. http://proactiveadvisormagazine.com/advisors-target-403b-market/ (accessed August 1, 2018).



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