How many plan sponsors simply say their plan is “fine” when they don’t really know? There are some curious results from the recent Plan Sponsor Council of America snapshot survey, Fiduciary Responsibilities in 403(b) Plans, 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% indicate the plan provider is responsible.

Nearly 9% say it’s no one.

If you look only at the small plans (fewer than 50 participants):

  • 35% say the plan provider is responsible.
  • 16% say no one.

The statistic around “no one” is concerning. This is certainly something that plan advisers and consultants should discuss with plan sponsors.

At first glance, a large percentage of plans believe their plan provider is reviewing and evaluating investments. This is alarming. Is it possible that more than 30% of 403(b) plans have the fox guarding the henhouse?

The truth is 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 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.

Quote
"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."

Therefore, we can conclude that a significant number of the respondents don’t understand the fiduciary line. Again, this is a great opportunity for advisers to step in and help the plans with both education and 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.” Advisers are certainly a great resource to help with that.

According to my Webster’s New Collegiate Dictionary (yes, I still have books in my office), “fine” can mean “a sum imposed as punishment for an offense.” This definition is the one that’s much more likely to be 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 “fine” might not have the definition they think it has.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor® Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

Plan Sponsor Council of America is not an affiliate of any company of the Principal Financial Group.


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Aaron Friedman

Aaron Friedman

Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader.