Choice Is Critical to 403(b) Participation

| October 5, 2011 | 0 Comments

Research Shows Reduction of Choice Negatively Impacts Participation

ARLINGTON, VA, (October 05, 2011) – The American Society of Pension Professionals & Actuaries (ASPPA) Pension Education and Research Foundation (PERF) issued research today on the impact of choice and participation in school-sponsored 403(b) plans.

PERF’s white paper “Protecting Participation: The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans,” examines the role of choice in the 403(b) marketplace and how the elimination of investment provider choice impacts public school employees’ participation in those plans. The paper shows that this choice is valuable to help workers prepare for retirement and maintain their participation levels.

403(b) plans provide an important method for school district employees to save for retirement. 403(b) plans differ from 401(k) plans in that school districts with pinched budgets have less resources to develop a culture of savings—often leaving participants with more responsibility to learn about the plan, how much to save and how and where to invest their money.

“The numbers from the school districts we analyzed point to a telling trend—that reduction in choice results in reduced participation. We saw reductions in participation of over 50% when the number of investment providers was reduced,” said Dr. Geralyn Miller, Associate Professor and Director of Research for the Institute for Pension Plan Management at Indiana University - Purdue University Fort Wayne.

“At a time when many states are experiencing pressure funding pension plans, it’s never been more important to examine this research that clearly shows that limiting teachers and other public school employees’ choices will negatively impact their participation and thus, their ability to save for a secure retirement. This is not the time to take choice off the table,” said Debra A. Davis, ASPPA Assistant General Counsel and Director of Government Affairs.

“Legislative proposals are being introduced across the country that are intended to save on administrative costs by eliminating many of the current 403(b) plan options. This research shows that school districts should consider other approaches to reducing administrative costs,” said Judy A. Miller, ASPPA Chief of Actuarial Issues and Director of Retirement Policy.

The paper notes that school districts can reduce costs while maintaining choice by using an independent third party administrator (TPA) to run the plan and by providing transparent disclosure of investment fees and other expenses to workers. Concurrent to this research, a joint 403(b) taskforce with partners from the Association of  School Business Officials (ASBO), National Education Association (NEA), and National Tax Sheltered Accounts Association (NTSAA) has been formed to address transparency and fees in the 403(b) marketplace.

School district employees and policymakers interested in this issue are encouraged to visit, “Save My 403(b)”  to share their views on the proposals and learn more information about what’s happening in their states.

For more information on 403(b) plans:


About PERF: The ASPPA Pension Education and Research Foundation, Inc. (ASPPA PERF) was chartered in the District of Columbia in 1976 as a nonprofit charitable foundation under Internal Revenue Code §501(c)(3). The purpose of ASPPA PERF is to foster excellence in pension education and to promote scholarly research in the pension field.


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