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CCH® PENSION AND BENEFITS — 01/06/09

PSCA Releases Its 2008 Survey On Sec. 403(b) Tax-Sheltered Annuities

from Spencer’s Benefits Reports: The Profit Sharing/401k Council of America (PSCA) has released it 2008 403(b) Plan Survey. The survey reports on the 2007 plan year experience of 385 not-for-profit organizations that maintain IRC Sec. 403(b) tax-sheltered annuities.

Following are highlights of the survey results:

Plan agreement types. According to the survey, 25.2% of the respondents have an annuity group custodial agreement (GCA) and 19.5% of plans have a nonannuity GCA. Plans with large assets ($100 million or more) tend to have nonannuity GCAs (60.0% of plans), while plans with the lowest plan assets ($2 million or less) tend to have annuity GCAs (28.2% of plans) or nonannuity individual custodial agreements (14.1%of plans).

Eligible employees. The survey found that 83.5% of employees are eligible to participate in their organization’s plan. Large organizations (those with more than 1,000 participants) have the highest percent of eligible employees, at 94.1%.

Organization contributions. The majority of organizations (89.4%) contribute to the plan. The most common formula used is a stated employer match only (used by 26.8% of plans), followed by a fixed match only (14.3% of plans) and a guaranteed percentage of participants’ pay only (13.8% of plans). For organizations that match participants’ contributions, the most common matching formula is dollar-for-dollar (used by 45.4% of plans) on the first 3% of pay (15.3% of plans).

Participant contributions. According to the survey, 99.2% of plans permit participant contributions. Pretax contributions are permitted in 84.7% of plans, while Roth and IRC Sec. 401(m) after-tax contributions are permitted in 14.6% of plans.

Participation. The average participation rate in the surveyed Sec. 403(b) plans was 75.8%. Plans with 50-199 participants had the highest participation rate (81.0%) and plans with 1,000 or more participants had the lowest rate (63.4%).

Roth feature. The survey found that 10.9% of plans permit Roth after-tax contributions and 8.9% of participants made Roth contributions when offered the opportunity.

Catch-up contributions. Catch-up contributions for participants age 50 and older were permitted in 90.8% of plans, while. 17.2% of eligible participants made catch-up contributions. Of the organizations that permit catch-up contributions, 21.6% match those contributions.

Investment options. Sec. 403(b) plans offered an average of 20 funds for organization contributions and an average of 22 funds for participant contributions; 30.5% of plans offered 26 or more funds for participant contributions.

Investment policy statements. According to the survey, 46.3% of the respondents have an investment policy statement, while 34.2% of plans were unsure if their plan has such a statement.

Automatic enrollment. The survey found that 16.5% of plans have an automatic enrollment feature. Automatic enrollment was more common in large plans (25.6%) than in small plans (11.1%). The average default deferral percentage in plans with automatic enrollment was 2.8% of pay.

Loans. In 2007, 79.3% of plans allowed participants to borrow against their plan assets; 47.0% allowed loans for any reason, while 32.3% allowed loans only in hardship situations. Furthermore, 68.5% of plans specified a minimum loan amount; the most common minimum was between $500 and $1,000, used by 54.7% of plans.

Investment advice. According to the survey, 55.3% of organizations offered investment advice to participants. The most common type of advice offered was one-on-one counseling in person (offered by 80.7% of organizations).

Vesting. The survey found that 58.1% of plans provided immediate vesting for nonmatching contributions and 48.3% provided immediate vesting for matching contributions. Among the plans that did not provide immediate vesting, graduated vesting was the most common arrangement for matching contributions and cliff vesting was the most common arrangement for nonmatching contributions.

The survey contains more than 60 tables of data on topics such as plan participation rates, organization contributions, asset investment, vesting, loans, Roth features, automatic enrollment, and the impact of the new Sec. 403(b) regulations on plan design. For further information, visit http://www.psca.org.

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