Large 403(b) Plans Enjoy Fruits of Employer Contributions

Brian Anderson

3 months ago

The vast majority of employees in large 403(b) plans receive employer contributions, giving them a significant boost towards long-term retirement security, finds a new study from the Investment Company Institute (ICI) and ISS Market Intelligence.

The ICI/ISS MI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2022 found that 85% of large ERISA 403(b) plans covering more than three-quarters of large plan participants received employer contributions in 2022.

Employer contributions represent a significant portion of contributions flowing into large 403(b) plans, a trend the study shows has remained relatively steady over the past decade. In 2022, 33% of plans with employer contributions offered automatic contributions, 56% offered simple matches, and 13% included both features. An additional 23% featured tiered matches and other types of employer contributions.

“Employer contributions play an important role in helping employees build toward their retirement saving goals,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research. “These contributions encourage employees to participate in the plan and stay invested for the long term, strengthening their financial security in retirement.”

Many Large 403(b) Plans Make Automatic Employer Contributions
Percentage of large ERISA 403(b) plans with employer contributions by plan assets, 2022

Note: The sample is 1,121 large ERISA 403(b) plans, drawn from the 84.8% of large ERISA 403(b) plans with employer contributions in 2022. See Exhibit 1.8 for additional detail. Source: Investment Company Institute tabulations of US Department of Labor 2022 Form 5500 audited reports.

The study also found that large ERISA 403(b) plans offer employees a wide variety of investment options. In 2022, the average number of core investment options was 27.

The most commonly offered options included domestic equity funds, international equity funds, domestic bond funds, and target date funds. Nearly all plans offered these types of investments, which were held in mutual funds or variable annuities. Mutual funds were the most prevalent, accounting for 67% of total plan assets. Fixed annuities and variable annuities each represented an additional 16%.

“Offering a wide range of investment options gives participants the flexibility to tailor their allocations to their individual retirement goals,” said Brooks Herman, Managing Director at ISS MI. “This variety is a key feature of 403(b) plans, with mutual funds continuing to serve as a reliable and widely used investment vehicle to help build investor confidence.”

Other key findings of the study include:

TDFs have become more common in large 403(b) plans since 2009. In 2009, only about half of large ERISA 403(b) plans included target date funds in their core investment lineups; this had risen to 90% of plans by 2022. Similarly, the percentage of participants who were offered core TDFs increased from 71% of participants to 90% between 2009 and 2022, and over the same period, the percentage of assets invested in TDFs increased from 7% to 33%.
403(b) plans represent an array of nonprofits, often hospitals or educational services. About half of ERISA 403(b) plan participants are in hospital plans, which held 38% of 403(b) plan assets in plan year 2022. Another 23% of 403(b) plan participants were in educational services, holding 44% plan assets.
Index funds are widely available in large 403(b) plans and represented 39% of plan assets in 2022. Index funds held the greatest share of assets in the largest ERISA 403(b) plans: 47% of the assets of plans with more than $1 billion in plan assets were invested in index funds.

Equity funds accounted for the largest share of assets in large 403(b) plans. In 2022, 38% of large 403(b) plan assets were held in equity funds, 34% were held in balanced funds (with most of that being held in target date funds), and 6% were held in bond funds. Fixed annuities accounted for 16% of plan assets.

The ICI/ISS MI Defined Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2022 analyzes ERISA 403(b) plans in the Department of Labor (DOL) 2022 Form 5500 Research File, and more than 6,100 audited ERISA 403(b) plans in ISS Market Intelligence’s MarketPro Retirement powered by BrightScope, which typically have 100 participants or more.