WINDSOR, Conn. -- 403(b) plans offer twice the number of investment options to participants than do 401(k) plans, according to the results of a recent study of $422 billion in nonprofit retirement plans by consultant Spectrem Group.
Spectrem's survey also found participants in 403(b) plans -- defined contribution plans and tax-deferred annuity arrangements offered to schools and nonprofit entities -- have greater access to asset allocation funds and brokerage account options than employees in 401(k) plans.
The goal of Spectrem Group's survey was to understand the key issues for 403(b) plan providers, said Ann Mahrdt, a senior consultant in Spectrem's retirement services practice. Among the concerns investigated were plan design, plan services and demands for new features such as Internet access and customer-service representatives, she explained.
Spectrem's poll found the average number of investment choices in 403(b) plans is 14, compared with an average of seven options offered in 401(k) plans. Asset allocation funds are available in 29% of 403(b) plans, with brokerage and trading accounts offered in 18% of the plans, according to the survey.
The number of 403(b) plans offered has grown at the rate of 12% annually during the past five years. The largest portion of assets is invested in fixed annuity arrangements, Ms. Mahrdt said.
For example, of the $422 billion in nonprofit retirement plans in 1997, $219 billion was invested in fixed annuities, $139 billion in variable annuities and $64 billion in mutual fund custodial accounts. In 1993, of the $262 billion in 403(b) non-profit retirement plans, $168 billion was invested in fixed annuities, $73 billion in variable annuities and $21 billion in mutual fund custodial accounts, according to Spectrem's research results.
According to the study results just a few plan providers, mostly insurance companies, dominate each of the segments of the 403(b) market. The market segments identified in the study are public schools, private schools, colleges and universities, health care providers, and charitable and other organizations.
Houston-based VALIC was the lead provider of 403(b) plans for public schools and was the second-most used provider in the private school and college and universities segments, the study revealed. Meanwhile, the Teachers Insurance and Annuity Association -- College Retirement Equities Fund, New York, took the lead in the private schools, colleges and university and charitable organizations market segments. Lincoln Benefit Life, Lincoln, Neb., had the most business in the health care arena.
The study found most assets are in college and university 403(b) plans. While the college/university segment accounts for only 9% of the plans, those plans hold half of the market's assets. Public schools have 41% of the plans but represent only 25% of the 403(b) plan market, Ms. Mahrdt said.
Public schools generally have plans with a smaller number of participants. Close to 70% of the plans in the public school sector have less than 100 participants. By contrast, 78% of college and university plans have more than 100 employees investing in them.
Spectrem's survey was based on telephone interviews with 809 nonprofit organizations conducted in February and March.