Insights | Published in November 2016

Not the Same … Not Even Close

This group of plans received a label it does not merit.

By Alison Cooke Mintzer | November 2016
PS_Story_Portrait_AliRecently there was an article in The New York Times titled “Think Your Retirement Plan Is Bad? Talk to a Teacher.” The weekend it appeared, it was consistently at the top of the most popular articles on the Times’ website, and I read it, as did many others, with interest.
It focused on a specific market segment of 403(b) plans, those of K-12 public schools. These are not the university plans that are the focus of the lawsuits I wrote about in this column last month, nor are they the many health care and nonprofit plans that have become largely similar to 401(k)s. The article referred to a unique set of defined contribution (DC) plans in existence longer than 401(k) plans and not governed by the Employee Retirement Income Security Act (ERISA), meaning they don’t have the same fiduciary standards or plan sponsor responsibilities.
When plan sponsors hear about 403(b) plans with annuity contracts, thousands of investment options and hundreds of providers, it’s about those K-12 plans, in which individual participants have directed their deferrals and savings into providers they picked, often after the sales rep visited the workplace. As the Times’ article pointed out, these sales calls often led them to purchase retail-type products with large sales charges, and/or annuity products with long and potentially confusing contracts and what was later found to be requirements to keep their money there for good.
The article was a reminder that the 403(b) plan marketplace has many mini-segments, and some of those were changed significantly by the Internal Revenue Service (IRS) regulations released in 2009. However, in the rush to label 403(b) plans as the “cousins” of the 401(k) or link them into broader defined contribution plan coverage, this group of plans received a label it does not merit.
It’s good to discuss the plans and try to determine what can be done to help lower fees and simplify the programs—and perhaps bring the plan designs more in line with ERISA 403(b) and 401(k) plans. But of course, as I think of our readers—of the plan sponsors trying to offer these plans—I’m a bit conflicted about how much K-12 plan sponsors should be expected to buck the traditional offerings. In some ways, it’s understandable that regulators would give some administrative leeway to governmental plans such as K-12 schools, as they may lack the staff and budget other plan sponsors have for plan administration. But many small companies that sponsor 401(k)s do so with a small staff, as well, and they are subject to ERISA.
In speaking to our resident 403(b) expert, Rebecca Moore, managing editor of and the longtime editor of our 403(b) e-newsletter (b)lines, about the article, she reminded me there are groups, such as one in Illinois, that proactively have worked to create a better plan design and administration system for 403(b) K-12 plan sponsors.
But how much is it the role of the plan sponsors to have to go out and search for something new and different—when they might be unaware of the non-legacy plan design options—and when is it the role of the providers to know there’s a better solution?
Perhaps it’s time for the government to think about expanding certain rules to apply to all defined contribution plans. While I don’t want to wade into a conversation about states’ rights vs. federal rights, it does seem there may be value in creating programs that have some equality across plan types and employer types. In fact, as I write this, the National Tax-deferred Savings Association (NTSA) released a statement saying it formally supports a fiduciary standard for all not-for-profit organizations, as well as the extension of the updated fiduciary rule to governmental 403(b) plans and participants.
Perhaps the attention drawn to the public K-12 plans by way of the article will help people recognize how many different types of retirement programs are out there. What that will do, I don’t know, but I think awareness helps.
However, I wish the author had rethought the approach to the headline, specifically the first part: “Think Your Retirement Plan Is Bad?” What is driving the assumption that most Americans think their retirement plan is that bad? Or are headlines like that just perpetuating the idea that your corporate retirement plan is somehow evil?
Such assumptions completely ignore the good done by all of you, the plan sponsors, who spend countless amounts of time and effort thinking about your plan design and making sure you create a strong benefit offering for your participants.
I hope someday it isn’t just publications such as ours that recognize all you do, but your participants and the mainstream media, too. Then, maybe, people from across the industry and participants can come together to drive change where it is needed—such as in that K-12 segment.