403 (b) s plans by offering multi-vendor

 

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Copyright 2009 Euromoney Institutional Investor Rights Reserved PLCAll and defined contribution savings plan Alert

2 February 2009

416 words


403 (b) s plans by offering multi-vendor



The school districts are trimming the number of suppliers in their 403 (b) plans as a result of new regulations of the Internal Revenue Service, but will continue to offer multi-provider plans, according to new data.

Change of rules: 403 (b) the Directors of the K-12 market, a study recently published Limra, found that although the IRS approve the regulations of a single vendor approach, districts, on average, only that would reduce from 12 to six vendors. Among respondents, 72% said they were down because of the sellers to the new rules.

The regulations seek to harmonize 403 (b) arrangements with other employees of tax-deferred, like 401 (k), resulting in more paperwork for school districts to consolidate the plans to encourage suppliers (DCSPA, 12/08).

Tom Modestino, senior analyst for Cerulli Associates, said the data show how, despite expectations of a large and rapid consolidation in the dramatic 403 (b) market, the process will take time.

Modestino said he believed the participants focus on a wide range of choice is the reason. "[A single vendor approach] might be wishful thinking on the part of providers that are well positioned in this market or perhaps not understanding how districts and programs to operate," he said.

Cecilia Shiner, an analyst at Limra assigned the number drops to only six, instead of more easy to manage under the new rules, because union contracts and state regulations often prevent single supplier arrangements.

The study also showed that more than half of the district officials considered employees of service (56%) and investment choices (50%) to be important when choosing a supplier. For this reason, the company said that the selection of staff in fund could be an advantage for the 403 (b) providers.

Data showed larger districts tend to have more vendors. "These neighborhoods may be more sensitive because they are able to negotiate better terms because of their size," said Shiner.

Other findings:

* 72% of districts had no written plan, while 54% have not yet changed the amount of sellers in the plan, but intend to do so.

* 59% of districts that do not pay for the services of a consultant or third-party administrator would be willing now to do so in the next 18 months. Mid-and large districts would be willing to pay for services.

The results were drawn from the responses of 294 school administrators in an online survey conducted in July. The study was published this month to members of the association.

16 February 2009

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