Expand Your Reach by Working With 403(b) Plans
If you currently work with 401(k) plans, you can leverage your experience to serve 403(b) plan sponsors and their employees. That’s because 403(b) plans have evolved to a point where they're not all that different from 401(k) plans.
A 403(b) plan is a retirement plan for employees of nonprofit organizations. These are hospitals, healthcare services organizations, public and private colleges, and employees of 501(3)(c) tax-exempt organizations. Expanding the reach of your practice to serve 403(b) plans can uncover many opportunities.
Here are some similarities between 403(b) and 401(k) plans:
- Eligible employees put savings into an employer-sponsored plan on a tax-deferred basis. They may choose between traditional pre-tax contribution or a Roth contribution.
- Annual IRS deferral limits are the same for both. The increased contribution limits for those 50 and older are the same as well.
- Savings can roll over to another qualified retirement plan if participants change employers.
Thinking about expanding your market to 403(b) plans? Keep these key topics in mind:
Prospecting. Start by narrowing your prospects to a few groups. Consider state or private colleges and universities, charities, cultural organizations and other associations. Think about aligning your prospecting with your own interests. If you’re an art or history buff, reach out to museums.
Opportunities. Only 57.7% of tax-exempt organizations work with a financial professional.* This is an opportunity for you to provide the same value as you do to your current 401(k) market.
Priorities. According to a recent survey by the Plan Sponsor Council of America, retirement income solutions and financial wellness have become more important to 403(b) plan sponsors. This means that priorities and goals for 403(b) plan sponsors are not much different than for 401(k) clients.
According to the PSCA survey, the top 10 403(b) plan priorities for 2022 compared to 2020 are:
| Priority | 2020 | 2022 |
|---|---|---|
| Increasing participation rates | 21.7% | 22.5% |
| Plan compliance/reducing fiduciary liability | 31.4% | 21.7% |
| Providing retirement income options for participants | 6.2% | 13.0% |
| Providing financial wellness tools | 8.5% | 12.3% |
| Increasing deferral rates | 12.4% | 10.1% |
| Enhancing participant education | — | 8.0% |
| Reducing plan cost | 7.8% | 5.1% |
| Changing the investment lineup | 6.2% | 2.2% |
| Conducting an advisor or consultant search | 1.9% | 1.4% |
| Conducting a recordkeeper search | 0.8% | 1.4% |
ERISA vs. Non-ERISA 403(b) plans. A 403(b) ERISA plan is subject to meeting certain requirements, such as:
- Form 5500 filings
- Summary plan descriptions
- Summary annual reports
- ERISA bonding, fee disclosures and fiduciary responsibility
- Nondiscrimination requirements
Plans sponsored by 501(c)(3) organizations are generally subject to ERISA. However, some educational institutions and governmental employers are exempt from ERISA requirements. Consider an organization's ERISA status as you develop your prospecting and marketing strategy. Keep an eye out for a future In the Loop article that will take a deeper dive into ERISA vs. non-ERISA 403(b) plans.
Contact your retirement plan consultant for more information about 403(b) plans.
More About Sales Insights & Tools
