Expand Your Reach by Working With 403(b) Plans

If you currently work with 401(k) plans, you can leverage your experience to serve 403(b) plan sponsors and their employees. That’s because 403(b) plans have evolved to a point where they're not all that different from 401(k) plans, with the main difference being who can offer them.

A 403(b) plan is a retirement plan for employees of nonprofit organizations. These are hospitals, health care services organizations, public and private colleges, certain governmental entities, churches and church organizations, and employees of 501(c)(3) tax-exempt organizations.

Participation rates in 403(b) plans rose in 2022, while participation rates in 401(k) plans decreased during the same period, according to the Plan Sponsor Council of America’s 2023 403(b) Survey.¹ Expanding the reach of your practice to serve 403(b) plans can uncover many opportunities.

Here are some similarities between 403(b) and 401(k) plans:

• Eligible employees put savings into an employer-sponsored plan on a tax-deferred basis. They may choose between a traditional pre-tax contribution or a Roth contribution.
• Annual IRS deferral limits are the same for both. The increased contribution limits for those 50 and older are the same as well.
• Savings can roll over to another qualified retirement plan if participants change employers.

Under SECURE 2.0, or the Setting Every Community Up for Retirement Enhancement Act of 2022, all new retirement plans established after Dec. 29, 2022 — including 403(b) plans — must include automatic enrollment and automatic escalation features, starting in 2025. According to the PSCA survey, automatic enrollment in nonprofit plans is on the rise. In 2022, nearly 33% of nonprofits automatically enrolled new hires into a plan, up from 25% in 2021.¹

Grow Your Business

Thinking about expanding your market to 403(b) plans? Keep these key topics in mind:

Prospecting — Start by narrowing your prospects to a few groups. Consider state or private colleges and universities, charities, cultural organizations and other associations. Think about aligning your prospecting with your own interests. If you’re an art or history buff, reach out to museums.

Opportunities — In 2023, there were nearly 2 million nonprofits operating in the United States, according to the IRS.² These organizations present an opportunity for you to provide the same value as you do to your current 401(k) market.

Priorities — Higher participation rates and the increase in automatic enrollment show that retirement income solutions and financial wellness have become more important to 403(b) plan sponsors. This means that priorities and goals for 403(b) plan sponsors are not much different from those of 401(k) clients.

ERISA vs. Non-ERISA 403(b) plans — A 403(b) Employee Retirement Income Security Act of 1974 plan is subject to meeting certain requirements, such as:

• Form 5500 filings
• Summary plan descriptions
• Summary annual reports
• ERISA bonding, fee disclosures and fiduciary responsibility
• Nondiscrimination requirements

Plans sponsored by 501(c)(3) organizations are generally subject to ERISA. However, some educational institutions, churches and church organizations, and governmental employers are exempt from ERISA requirements. Consider an organization's ERISA status as you develop your prospecting and marketing strategy.

Did you know The Standard offers 403(b) expertise? If you’re looking to expand your reach by working with 403(b) plans, we can help. Contact your regional vice president for more information.