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403(b) plans reducing number of investment options, survey finds


Educational institutions and other sponsors of 403(b) plans reduced investment options by an average of 16% last year, reflecting a desire for greater simplicity for participants, according to an annual survey by the Plan Sponsor Council of America issued Tuesday.

“This is significant,” said Robert Benish, executive director and interim president of PSCA, referring to a survey report showing the average number of options dropped to 26 last year from 31 in 2012.

“This leads me to believe that sponsors are listening more to outside consultants about the viability of their investment menus,” Mr. Benish said in an interview. Too many choices “can lead to analysis paralysis” among participants, he added.

The 403(b) plans “have been evolving over a number of years” from a retail investment approach to a more institutional investment approach similar to that of 401(k) plans, said Aaron Friedman, national tax-exempt practice leader for Principal Financial Group, which sponsored the PSCA survey that covered 578 plans. This evolution has led to a trimming of investment options, Mr. Friedman said.

According to the latest PSCA survey of 401(k) plans, the average investment menu contains 19 options. The 401(k) survey, published in October, is based on 2012 data.

Among other findings in the 403(b) plan survey:

• Seventy-five percent of plans offered target-date funds last year, up from 73.6% in 2012 and 51.2% in 2009.

• Auto enrollment was offered by 16% of plans last year vs. 14.6% in 2012.

• Among plans that featured auto enrollment, 20.7% offered auto escalation in 2013 while 16.9% offered it in 2012.

• The use of independent investment advisers to help with fiduciary responsibilities rose to 51.3% of plans last year vs. 46% in 2012.

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.