Many 403(b) Plan Sponsors Not Keeping Up with Fiduciary Duties

Many small 403(b) plan sponsors, especially, could use some help, a survey finds.

Of non-profit organizations that sponsor 403(b) retirement plans, 60% are reviewing and evaluating the investment options in their plans themselves, according to the latest 403(b) Snapshot Survey from the Plan Sponsor Council of America (PSCA) and sponsored by the Principal Financial Group.

That number falls to just 40% for sponsors of small plans (1 to 49 participants).

However, 64% of large plans (1,000 or more participants) are receiving assistance from investment consultants, compared to 41% of plans of all sizes. This percentage drops off sharply for small plans, with just 18% engaging a consultant to help review and evaluate plan investments. Additionally, more than 30% of all respondents state their plan service provider reviews their mutual funds, and nearly 9% say no one does. That total jumps to 16% among small plans.

While the overall findings are encouraging, Hattie Greenan, PSCA’s director of research and communications, says “small not-for-profits look like they could use some support, with fewer than half evaluating funds themselves and very few using an investment consultant.”  

The survey also found a high percentage of plans not conducting requests for proposals (RFPs) to help ensure their plan fees are reasonable. Forty-two percent of plans do not conduct periodic RFPs. Among the smallest plans, the percentage increases to 64%.

“This data point, along with many others in the survey, illustrates how small plans are underserved by financial advisers and could benefit greatly from their expertise,” says Aaron Friedman, national tax-exempt practice leader at The Principal.

NEXT: Fund benchmarking, investment education and advice

A majority of plans (86%) indicate they benchmark their funds. The most popular elements used in benchmarking include performance (84%), fees (69%) and risk (64%).

More than 40% of plans have not replaced any funds in the last two years, including two-thirds of small organizations.

According to the survey, plan sponsors rely heavily on their providers to deliver investment information to participants. More than half of sponsors indicate their plan provider helps participants make investment decisions, and 30% use an investment consultant to do so.

Fifty-five percent of 403(b) plan sponsors make a financial planner available to participants, and 49% make advice available.

PSCA’s 2015 403(b) Snapshot Survey reflects responses from 426 not-for-profit organizations that currently sponsor a 403(b) plan. Seventeen percent of respondents sponsor 403(b) plans that are not subject to Employee Retirement Income Security Act (ERISA) fiduciary duties.

More details of the findings are at http://www.psca.org/403b_snapshot_2015.

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