The fight for market share among 403(b) plan record keepers is heating up, as more sponsors try to save money by consolidating administration of their plans as well as by reducing and simplifying investment choices.
“We expect consolidation to continue and accelerate,” said Edward Moslander, senior managing director of institutional sales and services for TIAA-CREF, New York.
“This is the tip of the iceberg,” said Joseph Masterson, senior vice president and chief sales and marketing officer at Diversified, Harrison, N.Y., predicting consolidation will proceed at a healthy pace for 10 to 15 years.
Although many recent large 403(b) consolidations have occurred at universities and colleges, sponsors in other 403(b) categories — health-care institutions, school districts, non-profit organizations and foundations — also are reducing the number of providers.
“Sponsors are taking an overall look at the quality of their programs — from both a plan administration and participant outcomes perspective — and they realize multiple providers doing the same thing wasn't helping them meet their goals,” Mr. Moslander said.
Consolidation has been spurred by changes in Internal Revenue Service regulations, most of which took effect in 2009, that require sponsors to exercise greater fiduciary responsibilities, including preparation of more comprehensive plan documents and greater attention to loans and hardship withdrawals.
When multiple providers serve a plan, “everyone has a different approach to a loan and everyone has a different approach to a withdrawal,” Mr. Masterson said.
Consultants and providers also say practical matters are driving this trend, including reducing the sprawl and overlap of investment options that, in some plans, can run into the hundreds or even exceed 1,000.
“The old scattershot approach of money (being invested) everywhere is confusing,” said Marina Edwards, a Madison, Wis.-based senior consultant for Towers Watson & Co.
“A key driver is cost constraints, whether it's K-12 budgets or hospital budgets, and providers are picking up on this,” Ms. Edwards added. “The consolidation trend will continue because when 403(b) plans pool their dollars, they purchase institutional funds and have more purchasing power.”
And when a sponsor consolidates administration of its 403(b) plan, it also consolidates administration of its other plans such as a 457(b) or 401(a) plan, Mr. Moslander said.
“We have experienced this trend across the 403(b) market in general,” Ms. Edwards added. “Sponsors are seeking ways to streamline the plan administration and investment options offered to participants.”