Proposed changes to the tax code could drive many 403(b) plan executives to scale back the number of providers they use, leading to a battle for market share among the top firms, industry watchers predict.
According to Spectrum Group, Chicago, public educational institutions, on average, use more than nine bundled providers, while independent schools are using around three. Consultants predict that plan sponsors will trim their lineup to one or two providers because of the new tax rules.
Under the proposals, all 403(b) plans would have to follow guidelines similar to those of 401(k) plans, although 401(k) plan sponsors are required to have only one provider.
The 401(k)-like guidelines expected to become effective this summer, include requiring a written plan document, accounting for excess contributions and monitoring the transfer of assets among plan providers.
The proposed rules would force administrators at schools and hospitals that operate 403(b) plans to spend more time on retirement issues.
Establishing a plan document, for example, includes issues related to eligibility, enrollment, deferrals, beneficiaries, who the fiduciary is, rollover options, matching contributions, who the investment managers are, and what the investment options are.