Large nonprofits like hospitals and universities may have ample staff to thoroughly research potential 403(b) providers. They may even have the capability to administer the plan, and monitor the investments.
Small nonprofits, however, may struggle to find time to even look for a provider, much less handle tasks associated with a retirement plan. Nonprofits unsure of just how to go about a search may simply contact one of the larger 403(b) providers. The biggest 403(b) players are presented below:
Who are the largest 403(b) providers?
|### 10 Largest 403(b) Plan Providers by Assets ($Million)|
|2||Fidelity Investments||$147,562||2||Fidelity Investments||$142,391|
|4||Transamerica Retirement Solutions||$45,258||4||Voya Financial||$41,650|
|5||Voya Financial||$39,707||5||Transamerica Retirement Solutions||$41,383|
|6||Lincoln Financial Group||$28,741||6||Lincoln Financial Group||$30,320|
|8||AXA Equitable Life Insurance Company||$18,969||8||AXA||$18,660|
|9||Empower Retirement||$15,803||9||Empower Retirement||$15,957|
|Source: PlanSponsor.com Research|
The year-over-year growth in 403(b) plan assets of these major players is presented below:
|**Rank**||**403(b) Provider**||**2015 Asset Growth**|
|4||Transamerica Retirement Solutions||9.4%|
|6||Lincoln Financial Group||-5.2%|
|8||AXA Equitable Life Insurance Company||1.7%|
|Source: PlanSponsor.com Research. “NA” reflects no prior year Top 10 Comparison|
TIAA is by far the largest 403(b) provider, according to PlanSponsor’s 2016 survey of recordkeepers. Fidelity is a distant second with everyone else even further back. Large, well-known companies like TIAA and Fidelity may seem to be the obvious choice, but these investment giants aren’t always the answer for smaller nonprofits. While they can offer a wide selection of investment options, large financial players more often cater to larger retirement plans.
The New York Times has reported on the difficulties that smaller nonprofits face when sifting through retirement plan options. Insurance companies have been a traditional option for smaller nonprofits, but not necessarily because of their expertise in dealing with small plans. What insurance companies have going for them is lots of sales reps with the ability to seek out potential customers. Often an insurance company will suggest annuity products for their 403(b) plans. While annuities may be a valid option for some plans, they can be expensive, and employers may have difficulty switching to other options down the road.
Confusion surrounding retirement plans, as well as the expenses quoted by large providers to small nonprofits, can pose roadblocks for smaller employers who want to offer a retirement savings option. According to research by TIAA, three-quarters of all nonprofit employees had access to a retirement plan in 2012. But that rather robust figure is skewed by big plans with lots of employees. The same survey found that 34% of those in organizations with fewer than 50 employees did not have access to an employer-sponsored retirement plan.
Most of the 403(b) participants served by industry leader TIAA, are in the largest plans:
|### Number of TIAA 403(b) Participants by Plan Size (2014)|
|**Assets**||**% of Total Participants**|
|$5MM to $25MM||$776,617||18%|
|$25MM to $50MM||$375,283||9%|
|$50MM to $100MM||$420,538||10%|
|$100MM to $500MM||$1,107,249||26%|
|Source: PlanSponsor.com Research.|
So, small nonprofits may find themselves in a similar situation to that of small businesses, which are far less likely to offer a retirement plan than larger companies. According to the Government Accountability Office, only 14% of businesses with 100 or fewer employees offer a retirement plan. And fees can vary widely. Companies with fewer than 50 workers can pay administrative fees that are twice as high as those paid by larger plans.
So what’s a small nonprofit employer to do?
Fortunately for plans with fewer participants, new providers have entered the market with an eye toward automating a number of administrative tasks, and easing the enrollment burden on both employers and employees. A 2016 Wall Street Journal article described how these new players were filling the gap left by traditional defined contribution plan providers who are geared toward larger plans.
Some of these new providers allow employees to set up and monitor their retirement accounts from their mobile devices. The idea is to lower the hurdle for employees to get invested while ensuring that they understand how their retirement plan operates.
The ability to deliver a retirement plan at low cost and handle much of the administration means that more smaller nonprofits can afford a 403(b). According to a New York Times story on the challenges facing smaller nonprofits, an Austin-based education and research organization turned to ForUsAll after finding that “insurance companies and other big 403(b) providers couldn’t be bothered with the likes of her small operation.” According to the organization’s executive director, ‘” If you’re a small nonprofit with very few assets, nobody really cares.”’
Some 403(b) Robo-advisors to check out
As this new breed of providers has made headway in the defined contribution marketplace, they have garnered the interest of the financial media. Below is a list of several companies mentioned in major publications. The publications where they appear are noted next to the company’s name.
Who are the new players in the 401(k) and 403(b) marketplace?
- ForUsAll (The Wall Street Journal, The New York Times and Employee Benefits Adviser)
- Honest Dollar (The Wall Street Journal and The New York Times)
- Betterment for Business (The Wall Street Journal and Employee Benefits Adviser)
- Captain401 (The Wall Street Journal and Employee Benefits Adviser)
- Dream Forward Financial (The Wall Street Journal)
- SaveDay (The Wall Street Journal)
- Ubiquity (The New York Times)
- Capital One Sharebuilder (The New York Times)
- Guideline (Employee Benefits Adviser)
- Bloom (Employee Benefits Adviser)
Now that you’ve got a list of the largest companies along with several new entrants, how do you evaluate what’s right for your nonprofit? A big part of the answer depends on whether you prefer a “Do it for me” 403(b) that’s more turnkey, or a “Do it yourself” 403(b) that may be slightly cheaper, but you have to do much of the work.
Before you declare yourself a DIY type, please make sure your nonprofit is prepared to venture into the world of defined contribution administration and investment. This includes, among other things, understanding how to evaluate investments and abiding by Department of Labor and IRS regulations.
Or you may be a nonprofit that didn’t sign up to handle all the administrative work, but still find yourself doing payroll setup of deferrals and filing the Form 5500. That was the experience of a small Baltimore nonprofit before switching to ForUsAll to handle much of their administrative and investment responsibilities. Their new ForUsAll plan handles enrollment and payroll deductions, and files the notorious Form 5500. The plan automatically enrolls participants at a 6% deferral rate and employees may choose automatic deferral increases of 1% each year. (You can read more about this small nonprofit’s transition to ForUsAll in this PlanSponsor story.)
Finding the best 403(b) Provider for your nonprofit
As a nonprofit, you have a couple of other decisions to make. Do you want to offer an ERISA or non-ERISA plan? A non-ERISA plan can be cheaper, but with that cost savings comes restrictions. For example, non-ERISA 403(b)s can’t make employer contributions.
You also have the option of offering a 401(k), even as a nonprofit organization. While the 403(b) and 401(k) both are defined contribution plans, there are differences between them that may or may not make a difference to you as a plan sponsor. For example, a 403(b) can offer long time employees the ability to contribute an extra $3,000 a year to the plan. A good advisor can help guide you through this decision, and work with you on a plan that is best for your employees. (You may want to check out our blog piece entitled, “Four reasons to hire a 403(b) advisor to help with your retirement plan.)