#United States #Washington #Employee Contributions #403(b) Plans #ICI

New Insights into 403(b) Plans

A recent report from the Investment Company Institute (ICI) and ISS Market Intelligence (MI) sheds light on the significant benefits of 403(b) retirement plans, particularly focusing on how employer contributions and a variety of investment options enhance the retirement security of employees. 403(b) plans, designed for employees in the nonprofit sector and educational institutions, are proving to be valuable tools in helping workers prepare for their financial future.

According to the findings, it was reported that a remarkable 85% of large ERISA 403(b) plans, which cover the majority of participants, received contributions from employers in the year 2022. This trend represents a crucial way in which employees can bolster their retirement savings. Sarah Holden, Senior Director of Retirement and Investor Research at ICI, emphasized the importance of these contributions, stating that they play a pivotal role in motivating employees to engage with their retirement plans and invest for the future.

The report also highlights that a diverse array of investment choices is available for participants in these plans, providing the flexibility to align their investments with personal retirement goals. As of 2022, the average number of core investment options available in these plans reached 27. Most notably, commonly offered options included domestic equity funds, international equity funds, domestic bond funds, and target date funds. The majority of these investments were accessible through mutual funds and variable annuities, with mutual funds alone comprising 67% of total plan assets.

Interestingly, the report indicates a growing popularity of target date funds, which have surged in prevalence among large ERISA 403(b) plans since 2009. In fact, about 90% of such plans included target date funds in their line-ups by 2022, a significant increase from around 50% in 2009. Furthermore, the percentage of plan participants offered these funds rose from 71% to 90% during the same period, with investments in target date funds swelling from 7% to an impressive 33% of total assets.

The data reveals that a significant portion of 403(b) plan participants is involved in nonprofit organizations, with hospitals representing nearly half of these participants holding 38% of total ERISA 403(b) plan assets in 2022. Educational service employees accounted for another 23%, controlling 44% of assets for the same year.

Moreover, index funds have gained notable ground and made up 39% of plan assets in large ERISA 403(b) plans, particularly thriving in larger plans where they alone represented 47% of total assets for those exceeding $1 billion. It's also noteworthy that equity funds led the pack, representing 38% of total assets in these plans,, while balanced funds, primarily comprised of target date funds, made up 34%. Bond funds and fixed annuities accounted for lesser, yet significant, proportions of 6% and 16%, respectively.

This comprehensive analysis of large ERISA 403(b) plans, using data from the Department of Labor's 2022 Form 5500 Research File, highlights the immense value of these retirement options in ensuring financial security for employees in the flourishing nonprofit sector. As noted by Brooks Herman, Managing Director at ISS MI, the extensive range of investments offered truly empowers participants to tailor their strategies based on their unique financial aspirations for retirement, thereby solidifying their confidence in investing for the future.

In conclusion, the findings from the ICI/ISS MI report illustrate both the crucial role of employer contributions and the diverse investment choices available within 403(b) plans. As these plans continue to evolve, they remain essential mechanisms for helping employees secure their financial futures while promoting robust participation in retirement savings.