I recently bought a new TV. I replaced my 36-inch tube TV simply because everything these days is broadcast in widescreen format and I was tired of not seeing the whole play when watching the big game. This isn’t too remarkable, except for the fact that I’m not a fast adopter of technology. I had a lot of research to do.

Thankfully, there’s a plethora of independent information at our disposal to help us make a big purchase decision, such as Consumer Reports, Angie’s List, online reviews, etc. I’d bet most people consult at least one of these sources when making a big purchase.

What strikes me as odd is that this kind of intense research isn’t always happening with plan sponsors and their retirement plans — a much bigger purchase.

Are educators forgetting to do their homework?

There is a great deal of literature out there these days about retirement plan governance and best practices, including topics such as:

  • Investment and education policy statements;
  • Due diligence processes to ensure compliance with policies;
  • The need for plan documents that reflect the terms specified by the plan sponsor, and administration that’s consistent with the terms.

Despite the vast amount of information out there, it seems one sector of plan sponsors isn’t using it: higher education.
When asked about their plan governance, an inordinate number of higher education plan sponsors shrug it off and simply say their service provider takes care of that. That isn’t governance. That’s the fox guarding the hen house. A provider can put procedures in place to help, but as fiduciaries, plan sponsors are ultimately responsible for plan governance.

The only explanation I can come up with for this misconception is that institutions of higher education have not traditionally used advisers.

Advisors: take notice of this opportunity

Higher education institutions subject to ERISA, especially private institutions, need help. It’s time they ditch the old way of doing things and look for new ways to learn about fiduciary duties and what a well-run, responsible plan truly looks like.

This is an opportunity for advisers to help with the basics. Plan sponsors that have done their research and are working with advisers are finding there are lots of places for improvement when it comes to plan governance, including investments, education and plan operations.

If you don’t do appropriate due diligence on a TV purchase, you might lose a few hundred bucks. The stakes are much higher in retirement plans and a second chance may not always be possible.

Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for over 20 years and has been in the retirement plan business since 1986. A version of this blog originally ran on The Principal blog. Follow Aaron on Twitter @1AaronFriedman1.

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. © 2014 Principal Financial Services, Inc.

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