Earlier this year, several universities were sued over the way they run their 403(b) plans. That litigation serves as a reminder to those who offer and administer 403(b) plans to make sure they are properly executing their fiduciary responsibilities. A recent report suggests ways to do that.
In “403b retirement plan compliance: safeguard your hospital, health system against risks,” Marina Edwards and Michael Horton of Willis Towers Watson argue that there may be more lawsuits to come. “Whether this is because 403(b) plan practices are not aligned to similar 401(k) plan practices or because it is lucrative to take plan sponsors to court, further activity against plan sponsors of 403(b) plans seems likely,” they write.
As a result, Edwards and Horton suggest that fiduciaries of 403(b) plans “would be well served by reviewing their governance structure, and current and desired states, and making sure that markets are tested on a regular basis to ensure participant fees are market-competitive and reasonable.”
They suggest the following steps.
Review the governance structure. Clarify who serves as a fiduciary of the 403(b). Review the plan governance structure and what is delegated to the plan committee.
Inventory the plan. Remember that a 403(b) fiduciary is required to understand:
Regularly conduct investment structure reviews and manager searches. Remember that fiduciaries must make sure participants are charged reasonable fees and have access to quality investment options, and that fiduciary committees should regularly monitor the investment structure and managers.
Seek bids for recordkeeping services. Benchmark recordkeeping costs against other providers — they suggest at least every two to three years — and seek bids every five to six years. This, they argue, will help ensure that the value of the services the recordkeeper is providing is comparable to those offered by other similar plans and vendors.
Study fee structure. Develop a fee policy statement that sets forth why and on what basis recordkeeping and investment expenses are allocated to participants, and review all fee disclosures and fees charged to the 403(b) plan.
Regularly monitor and conduct due diligence. Regularly monitor 403(b) plan transactions for compliance, and provide regular fiduciary training that highlights the risks of being a fiduciary and avoiding the potential problems of being one.
Model 401(k) approaches. Edwards and Horton note that to better protect fiduciaries and participants, many 403(b) plan sponsors apply approaches that large 401(k) plans take, such as delegating oversight to committees, diversifying funds and investment opportunities, automatic features, benchmarking and review of fees.
Edwards and Horton remind that it is an ongoing responsibility to provide good fiduciary oversight, and suggest that plan sponsors “act now to refresh their focus on their fiduciary responsibilities to the DC plans and ensure the proper processes and checklists are in place.”
In “403b retirement plan compliance: safeguard your hospital, health system against risks,” Marina Edwards and Michael Horton of Willis Towers Watson argue that there may be more lawsuits to come. “Whether this is because 403(b) plan practices are not aligned to similar 401(k) plan practices or because it is lucrative to take plan sponsors to court, further activity against plan sponsors of 403(b) plans seems likely,” they write.
As a result, Edwards and Horton suggest that fiduciaries of 403(b) plans “would be well served by reviewing their governance structure, and current and desired states, and making sure that markets are tested on a regular basis to ensure participant fees are market-competitive and reasonable.”
They suggest the following steps.
Review the governance structure. Clarify who serves as a fiduciary of the 403(b). Review the plan governance structure and what is delegated to the plan committee.
Inventory the plan. Remember that a 403(b) fiduciary is required to understand:
- the 403(b) program’s philosophy;
- investment options;
- investment fees; and
- recordkeepers’ service fees.
Regularly conduct investment structure reviews and manager searches. Remember that fiduciaries must make sure participants are charged reasonable fees and have access to quality investment options, and that fiduciary committees should regularly monitor the investment structure and managers.
Seek bids for recordkeeping services. Benchmark recordkeeping costs against other providers — they suggest at least every two to three years — and seek bids every five to six years. This, they argue, will help ensure that the value of the services the recordkeeper is providing is comparable to those offered by other similar plans and vendors.
Study fee structure. Develop a fee policy statement that sets forth why and on what basis recordkeeping and investment expenses are allocated to participants, and review all fee disclosures and fees charged to the 403(b) plan.
Regularly monitor and conduct due diligence. Regularly monitor 403(b) plan transactions for compliance, and provide regular fiduciary training that highlights the risks of being a fiduciary and avoiding the potential problems of being one.
Model 401(k) approaches. Edwards and Horton note that to better protect fiduciaries and participants, many 403(b) plan sponsors apply approaches that large 401(k) plans take, such as delegating oversight to committees, diversifying funds and investment opportunities, automatic features, benchmarking and review of fees.
Edwards and Horton remind that it is an ongoing responsibility to provide good fiduciary oversight, and suggest that plan sponsors “act now to refresh their focus on their fiduciary responsibilities to the DC plans and ensure the proper processes and checklists are in place.”
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