403(b) Sponsors Not Off the Fiduciary Hook

April 4, 2005 (PLANSPONSOR.com) - Many 403(b) plan sponsors mistakenly think they aren't subject to Employee Retirement Income and Security Act (ERISA) requirements - an oversight that leaves them open to significant fines and penalties.

That was a key conclusion of a new white paper prepared by ERISA expert attorney Fred Reish, partner and managing director of the law firm of Reish Luftman Reicher & Cohen and released Monday by the Principal Financial Group.

“The greatest risk for 403(b) decisionmakers is if they do not realize that they are fiduciaries. The greatest danger is that they will do nothing to fulfill their legal responsibilities to manage their plan and its investments,” said Reish, in a news release. “The easiest breach for a lawyer to prove is the failure to consider the needs of the plan and the participants.”

Reish and Aaron Friedman, Principal national practice leader-non-profit consulting, recommend employer sponsors of 403(b) plans to look for a service provider that will:

  • assemble a broad lineup of investment options that satisfy generally accepted investment selection criteria.
  • provide managed investment options to offer to participants (for example, lifestyle or lifecycle investment options).
  • provide information to assist fiduciaries in monitoring the performance of the investment options against commonly accepted benchmarks.
  • provide assistance with federal government-required tests and reports, including monitoring contribution limits and preparing Form 5500 Annual Reports.

Reish’s white paper, along with a fiduciary guide produced by The Principal, educate employer sponsors of 403(b) plans and intermediaries about key fiduciary concerns, including selection and monitoring of plan investment options, evaluation of plan expenses and reporting requirements.

“We see that many not-for-profit organizations need help understanding 403(b) and the applicability of ERISA. In reality, ERISA probably does apply and is actually beneficial to the plan. It provides an appropriate framework for running a responsible plan,” said Friedman, in the news release. “Employers must be diligent in their selection of plan service providers. As a leader in the retirement plan industry, we often have 403(b) plan sponsors come to us for help who were not advised appropriately by prior service providers.”