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Practice Management

Tech Talk: 403(b) Plans and Modeling Tools

Q. Many 403(b) plan providers offer participant tools to help assess risk tolerance and investment preferences, based on their 401(k) plan service models. Some tools go as far as to suggest specific investment allocations or model portfolios, and offer options to elect periodic rebalancing to keep allocations in line with original targets. Is this a problem?

A. This raises the issue of an asset allocation program being considered by the Securities and Exchange Commission (SEC) as a mutual fund which needs to be registered. The SEC published a rule, called Rule 3a-4, to address it. Pure participant modeling tools are not typically viewed as discretionary services, as the adviser has no authority. So this should not be a problem when:

  • the participant is merely given information about the different asset allocation models;
  • the participant gives the provider periodic rebalancing instructions;
  • the participant can leave the model at any time; and
  • there is no unitized value.