LIMRA Study: Market share requires deep understanding of trends, needs
WINDSOR, Conn. May 7, 2013 — A new LIMRA research report, Exploring 403(b) Plan Practices and Trends: Healthcare and Higher Education, examines the two largest ERISA 403(b) market segments — healthcare and higher education — to understand the similarities and differences between the segments and how they compare with 401(k) plans.
“As plans in these segments become more similar to their 401(k) counterparts, they become an attractive market beyond the traditional not-for-profit retirement plan providers,” said Alison Salka, corporate vice president and director of LIMRA Retirement Research. “But our research reveals that each 403(b) segment has different characteristics that influence the services they value and need. Companies looking to enter this market need to understand the trends, needs and perspectives of these segments as they look to win a share of this market.”
Based on LIMRA’s study, the healthcare and higher education 403(b) markets represent $485 billion or 67 percent of the total 403(b) market (see chart below). While both the higher education and healthcare market segments utilize 403(b) plans, there are important differences between them. For example, higher education plans have higher average participation rates (82 percent versus 65 percent in healthcare) and are more likely to offer a match (82 percent versus 72 percent). In addition, higher education plans are more likely to use multiple providers (17 percent versus five percent for healthcare).
Healthcare plans are more likely to offer a defined benefit (DB) plan than their counterparts in higher education. Both market segments are equally likely to offer automatic enrollment, but healthcare plans are more likely to use automatic deferral escalation (26 percent versus 14 percent for higher education). These kinds of features help employees to begin to save and reach the optimum savings rates necessary to fund their desired retirement lifestyle.
Half of healthcare firms and one-third of education firms use an advisor or consultant. Plans that work with advisors are more likely to believe they have met plan challenges, such as fiduciary responsibility, managing fees and expenses, and understanding changing regulation and legislation.
The study observed a distinction between the objectives of 403(b) plan sponsors compared with 401(k) plan sponsors. In the survey, 403(b) plan sponsors were more likely to say the primary objective of their plan is to help employees save enough to retire (86 percent). By contrast, about half of 401(k) plan sponsors reported that the primary objective of their plan is to offer a competitive benefit to attract and retain talent.
“We learned that 403(b) plan sponsors are likely to exhibit more paternalistic attitudes than sponsors of 401(k) plans,” said Salka. “Companies will be more successful communicating with potential plan sponsors if they recognize their primary purpose for offering a defined contribution plan.”
The 2013 report Exploring 403(b) Plan Practices and Trends: Healthcare and Higher Education was conducted by LIMRA with select results from the Boston Research Group’s 2012 Defined Contribution Provider (DCP) survey of the 401(k) industry.