403(b) Plans Offer Diverse Range of Investment Options

The average large 403(b) plan subject to the Employee Retirement Income Security Act (ERISA) offered 27 core investment options in 2015, according to a new report from the Investment Company Institute (ICI) and BrightScope.

“The “Brightscope/ICI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2015” suggests that nonprofit employers sponsoring 403(b) plans recognize the importance of plan design and include features that will help attract and retain qualified workers,” says Sarah Holden, senior director of retirement and investor research at ICI. “Plan design features, which drive engagement with retirement savings, include automatic enrollment, employer contributions, active and indexed investment options, and the flexibility of a loan feature. With these multiple features, employers are able to customize the design of their 403(b) plans to suit their workforces.”

The study found that in 2015, nearly all large 403(b) plans covered by ERISA included domestic equity funds, international equity funds and domestic bond funds in their offerings. Nearly nine in 10 offered fixed annuities, and more than eight in 10 offered target-date funds (TDFs). Other core investment options included balanced funds, international bond funds and money funds. Ninety-seven percent offered index funds, and 81% offered TDFs.

Eighty-one percent included employer contributions, up from 74% in 2009. “Employer contributions have grown over time and constitute an important share of total ERISA 403(b) plan contributions, totaling $8 billion, or 29% of all contributions,” says Brooks Herman, head of data and research at BrightScope. “Often designed as matching contributions, these employer contributions promote retirement saving among employees and encourage them to build a nest egg for the future.”

ICI and BrightScope also identified that total ERISA 403(b) plan costs in 2015 averaged 71 basis points, down from 82 basis points in 2009.

Fifty-four percent of plan assets were invested in mutual funds, 34% in variable annuities and 22% in fixed annuities.