Recordkeepers for 403(b) Market Need Special Capabilities

Among other unique characteristics, the traditional multi-vendor model for 403(b) plans results in information sharing requirements.

Assets in 403(b) plans total more than $1.5 trillion, representing nearly 160,000 plans and nearly 20 million participants, according to the 2025 PLANSPONSOR 403(b) Market Survey.

As with recordkeepers of 401(k) plans, the challenges top of mind for 403(b) vendors are provisions from the SECURE 2.0 Act of 2022, says Justin Londergan, a partner in Ardea Fiduciary Advisors. “There’s a lot of uncertainty about how new provisions are being implemented, retroactive amendment periods and how it’s all supposed to work,” he says.

However, unique characteristics of many 403(b) plans require special capabilities not required of 401(k) plan recordkeepers. According to the survey, the majority of 403(b) plans are sponsored by K-12 school systems, and the majority of plans in general are non-ERISA plans, although ERISA 403(b) plans have more assets.

Unique Characteristics

“Non-ERISA 403(b) plans have fewer requirements than ERISA 403(b) plans and, thus, should be easier to manage from a recordkeeping standpoint,” says Kim Cochrane, director of client services at Hub International Mid Atlantic. “That being said, most non-ERISA 403(b)s are sponsored by K-12 school systems. They are usually choosing a mutual fund company to send their contributions to and are creating a contract directly with that fund company.”

Tim Rouse, executive director of the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, notes that many K-12 school system 403(b) system plans are in states that have “any willing vendor” laws, “so they need to coordinate with a master administrator.”

Master administrator duties include maintaining accurate and up-to-date records of participant accounts and transactions and handling the flow to the plan of contributions from employees and employers, as well as ensuring the plan adheres to all applicable laws and regulations.

Whether ERISA-governed or not, Cochrane notes that many 403(b) plans had previous (legacy) individual accounts for their employees.

“Those accounts are not controlled or moveable by the employer, but must be accounted for on the Form 5500, and all required notices must be given to participants with these accounts,” she says. “This adds additional complexity to a plan, and many recordkeepers will not work on these plans without help from an outside third-party administrator.”

Surprisingly, given the high likelihood of 403(b) plans holding legacy individual annuity contracts and the historical model of multiple providers, the services recordkeepers are least likely to offer are annuity investment management (34%) and common remitter services (44%), the 403(b) Market Survey found. The services recordkeepers are most likely to provide to 403(b) plans are participant education programs (84%), 403(b) plan consulting (78%), participant investment advice/guidance services (75%) and mutual fund investment management (72%).

Cochrane notes that church plans are non-ERISA plans as well and have some unique differences.

“Finding a recordkeeper that can account for parsonage housing allowance distributions and taxation can be tough,” she says.

Looking for Special Capabilities

When looking for a 403(b) provider, Londergan says the first thing 403(b) plan sponsors should look for is the recordkeeper’s awareness of the legacy contract issue and whether it has some sort of solution.

“The vendor has to be adaptable to the complexity of individual annuity contracts, perhaps assisting plan sponsors with educating participants about the benefits of consolidating assets,” he says. “However, recordkeepers must be careful with that. It could be considered a conflict of interest, because it could be perceived as a financial benefit to the vendor receiving assets. The nuance and the delicacy of managing legacy assets is critically important.”

“Plan sponsors should be able to rely upon the recordkeeper to get data directly from prior vendors or to keep them apprised of what information is needed each year so the sponsor can gather the data themselves,” says Cochrane.

Rouse says 403(b) plan sponsors should make sure to choose a recordkeeper that is familiar with these types of plans and their rules: “They will often need to have special capabilities, such as multi-vendor data sharing, if necessary.”

According to the 403(b) Market Survey, 63% of providers participate in information sharing using the SPARK industry format, and 50% do so using some other format, as required by TPAs or plan sponsors (some do both).

Londergan notes that, historically, 403(b) plans “sort of got a pass on fiduciary duties until the 2007 regulations were passed.” Oftentimes in a multiple-provider arrangement, providers managed plan documents. “In my experience, 403(b) plans are susceptible to not adhering to the plan document terms,” he says. “Recordkeepers need to help sponsors navigate adoption agreements.”

Londergan adds that most 403(b) plan sponsors do not have a full-time compliance consultant, so they need a partner to help them, along with their adviser, think about what features are best for their plans.

403(b) plan sponsors should also be very thoughtful about fees, investment options, investment availability and opportunities for participant engagement, he says.

—Rebecca Moore