New regulations that are shifting the 403(b) market from highly individualized and retail-focused to one that is more efficient and institutionalized present new opportunities for advisors, third-party administrators (TPAs), and investment-only asset managers, according to new research by Cerulli Associates.
The regulations, issued by the U.S. Treasury Department and the Internal Revenue Service in 2007 and that became effective in 2009, require 403(b) plans to more closely mirror 401(k) plans. Cerulli notes that 403(b) segments, such as healthcare, are moving toward a single provider and will more closely resemble a 401(k) plan than other 403(b) market segments like the K to 12 education market, which continues to have multiple providers.
Cerulli’s research, which is available in its latest quarterly retirement-focused publication, also highlights the significant growth the 403(b) industry is experiencing. In 2010, 403(b) assets totaled $750 billion, surpassing the industry’s previous high of $734 billion in 2007, Cerulli says. By 2016, Cerulli projects the 403(b) market will hit $1 trillion in assets under management.
The firms that can accommodate the changing needs of the various 403(b) market segments and capitalize on the market’s growth, Cerulli says, include:
- Advisors: As the retail relationships between advisors and participants in the 403(b) space diminish, opportunities are being created for more 401(k)-like retirement specialist advisors who act as plan fiduciaries.
- Asset Managers: As 403(b) plans become more single-plan-provider- and ERISA-based, they will also be more open architecture, enabling IO asset managers to grow their DCIO businesses.
- TPAs: As more 403(b) plans become ERISA-based (during the past five years the percentage of ERISA 403(b) plans has increased from 17% to 40%), plan sponsors will continue to need help with the regulatory responsibilities, creating opportunities for TPAs with capabilities to accommodate the unique needs of this market.
In related news, the National Tax Sheltered Accounts Association and The American Society of Pension Professionals & Actuaries recently announced the formation of an industry task force dedicated to increasing transparency in the 403(b) marketplace.
The focus of the task force is the creation of national fee and services disclosure standards to increase transparency within the 403(b) market. Partners include the National Education Association, the Association of School Business Officials, International, and members of the tax shelters accounts association with diversity of industry experience.
The groups say the taskforce is creating a model disclosure form that will give 403(b) participants—including teachers and other school district staff—the ability to make apples to apples comparisons between their 403(b) retirement plan options. The model disclosure form will provide public school employees with simple and clear information about the services and fees associated with their retirement plan options.