In Brad Holterhaus’ blog post 403(b) Plan Sponsors: Is Your Plan “Fine”?, he described how many plan sponsors simply say their plan is “fine” when they don’t really know. And — more often than not — the plan is not “fine”. Brad listed several areas in which plan sponsors seem to fall short, either from a benchmarking standpoint or in terms of best practices.
Evidence that things really aren’t “fine”
As I read his post, it highlighted for me the results of the recent Plan Sponsor Council of America (PSCA) snapshot survey, Fiduciary Responsibilities in 403(b) Plans.1 There are some curious results, which certainly raise questions as to whether or not the plans are “fine”.
For example, one question asks who is responsible for review and evaluation of investment funds:
- Across all plan sizes, 30 percent indicated that the Plan Provider is responsible.
- Nearly nine percent said it’s no one.
If you look only at the small plans (fewer than 50 participants):
- 34.7 percent say the Plan Provider is responsible.
- 16.3 percent said no one.
The statistic around “no one” is concerning. This is certainly something that plan advisors and consultants should discuss with plan sponsors.
Is the fox guarding the henhouse?
Also, at first glance a large percentage of plans believe their Plan Provider is reviewing and evaluating investments — which is alarming. Is it possible that over 30 percent of 403(b) plans have the fox guarding the henhouse?
The truth is that we don’t really know. The data was self-reported by plan representatives. They were allowed to check more than one box. It could simply be that some plan representatives were thinking about the basic vetting process that a provider will do just to create their platform menu.
Crossing the fiduciary line
While we don’t know exactly what the plan representatives were thinking when they gave the Plan Provider response, it’s clear that the question was supposed to be answered from a fiduciary point of view. Therefore, it’s clear that a significant number of the respondents don’t understand the fiduciary line. This is again, a great opportunity for advisors to step in and help the plans both with education and with fulfilling their fiduciary obligations.
With all the attention being paid these days to fiduciary duty and definitions, it’s important that 403(b) plan sponsors get their arms around the definitions and their fiduciary duties and not just assume their plans are “fine”. Advisors are certainly a great resource to help with that.
A different definition of “fine”
According to my Webster’s New Collegiate Dictionary (I still have books in my office), “fine” can mean “a sum imposed as punishment for an offense”. That is much more likely to be the definition used by regulators if they find problems. We all need to work together with 403(b) plan sponsors and get them using fiduciary best practices before they realize that “fine” might not have the definition they think it has.
1PSCA 2015 403(b) Snapshot Survey — Fiduciary Responsibilites in 403 (b) Plans, December 2015.
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