Average asset-weighted total plan costs for 403(b) plans dropped to 51 basis points in 2012, down from 59 basis points in 2009, said a report released Tuesday by the Investment Company Institute and BrightScope.
The report analyzed data for 403(b) plans that filed Form 5500 documents with the Department of Labor.
For plans with more than $1 billion in assets, the average asset-weighted total cost — a combination of management fees, administrative fees, advice fees and other costs — dropped to 44 basis points from 45 basis points during the period. For plans with less than $1 million in assets, the average cost fell to 144 basis points in 2012 from 168 basis points in 2009.
One possible contributor to reduced costs could have been that plan sponsors and investors were becoming more fee conscious, said Sarah Holden, senior director for retirement and investors research at ICI in a telephone interview.
The report also found that the percentage of total 403(b) assets invested in target-date funds rose to 12.3% in 2012 from 6.7% in 2009. Similarly, the percentage of 403(b) plans surveyed that offered target-date funds in their core investment lineups rose to 68.5% in 2012, up from 51.4% in 2009.
ICI and BrightScope further looked at 403(b) contribution levels and found that of the employers surveyed, about 78% contributed to their plans in 2012, with 31% using a simple match formula. For example, the most common simple match was a 100% match of contributions up to 5% of an employee's salary.
Also, for plans that auto-enrolled participants, 43% used a default contribution rate of 3% of salary, 19% used 2%; 14% used 4%; and 13% used a default contribution rate of 5% or more.
Other key findings from the report include:
- Mutual funds represented the largest percentage of total 403(b) assets, 47%, in 2012, followed by variable annuities, 27%; and fixed annuities, 26%.
- As in 401(k) plans, equity funds held the largest share of 403(b) plan assets (43%) in 2012, Ms. Holden said in the interview.
- Among the plans surveyed, index funds represented about 14% of total surveyed assets in 2012 and represented the largest percentage of assets (one-fifth) in plans with more than $1 billion.
- The plans surveyed offered, on average, 23 core investment options, including 10 equity funds, three bond funds and seven target-date funds.
The ICI/BrightScope report was based on an analysis of 3,924 plans representing more than $270 billion in assets based on Form 5500 documents filed with the Department of Labor. It follows an earlier report on 401(k) plans.
