With the issuance of final Internal Revenue Code §403(b) regulations in 2007 and expanded Department of Labor (DOL) annual reporting requirements, nonprofit plan sponsors are required to exercise more oversight and control over their 403(b) plans than ever before.
Great-West Financial has assembled a checklist of suggested “best practices” to assist you in fulfilling your fiduciary responsibilities and helping participants achieve a higher level of retirement readiness. Only you, as the plan’s fiduciary, can determine the best options and practices for your plan. You may wish to consult your tax and/or legal counsel.
Here are some practices you might consider:
Identify all employees and third parties who work on the plan. Identify which are fiduciaries and provide training to ensure they understand their basic responsibilities:
o Adhere to the exclusive benefit rule to avoid conflicts of interest. Make all plan decisions in the best interest of participants. Ensure fees are reasonable.
o Satisfy the prudent person standard. Develop prudent processes for operating the plan.
o Comply with plan documents. They’re your manual for administering the plan.
o Establish prudent processes for the selection and diversification of investments.
o Prudently select and monitor your service providers and the fees charged.
Hold regular meetings to review plan administration:
o Keep the written plan document in compliance with all applicable laws and regulations.
o Read your document thoroughly and often and understand each provision.
o Pay particular attention to requirements specific to 403(b) plans, such as universal availability and age 50 catch-up provisions.
o Review plan policies, procedures and forms to ensure compliance to plan terms.
o If you have multiple providers, your fiduciary duties and potential risks are multiplied, so meet regularly with each one to monitor their services and fees.
Consider implementing plan design features to increase participant retirement readiness:
o Add automatic enrollment or increase the initial deferral rate.
o Add automatic deferral increases annually.
o Add or revamp employer contributions to foster increased elective deferrals.
o Consider whether offering Roth contributions and the new in-plan Roth rollovers would benefit your participants.
o Limit the number of plan loans that can be outstanding.
o Re-enroll all participants into a Qualified Default Investment Alternative.
o Add a guaranteed lifetime income distribution option.
Provide additional participant communications and guidance:
o If your plan is subject to the Employee Retirement Income Security Act (ERISA), comply with all communications requirements, including the DOL’s fee disclosure requirements. These can also serve as a best practice if your plan is exempt from ERISA.
o Provide access to robust websites with retirement readiness calculators and other tools.
o Consider reducing your fiduciary liability for participant investment decisions by following the communication requirements in ERISA §404(c).
o Consider offering investment advice or managed accounts through your plan.
Develop and maintain prudent investment policies:
o Regularly review your Investment Policy Statement (IPS) or develop one to define your criteria and processes for the selection, monitoring and de-selection of investments.
o If you have multiple providers, apply the IPS to each investment lineup.
o If you have legacy carriers, ensure that proper information sharing agreements are in place to facilitate completion of Form 5500.
o Achieve greater control and flexibility, improve participation, simplify participant communication and education, significantly reduce participant costs and lessen your potential fiduciary risk by scaling down to a single recordkeeper.
o Review all legacy 403(b) contracts and investments to identify those that are portable or may be liquidated.
o Keep good records of all plan-related decisions.
o Highlight the prudent decision-making processes you used when selecting and monitoring investments and service providers and making changes.
Resolve to maximize the value of your 403(b) plan in 2014. Best practices like these can help ensure your plan is compliant with all applicable laws and regulations, that you fulfill your fiduciary responsibilities to the plan and its participants, and that your participants get the resources necessary to make informed savings and investment decisions.
Barbara Lewis, Vice President, National Accounts for Defined Contribution Markets at Great-West FinancialNOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.