403(b) Summit: 403(b) Move to ERISA-like Structure not a Bad Thing

April 22, 2008 (PLANSPONSOR.com) - Amelia Island, FL - A written plan document, coordination of distribution and transfer activity, contribution limits and remittance timing: under the new IRS regulations 403(b) plan structure and administration will look much like that of their Employee Retirement Income Security Act (ERISA)-governed 401(k) counterparts. Will this work for the 403(b) plan model?

On a positive note, Stephen P. DesRochers, Wealth Management Advisor, Merrill Lynch Private Client Group, suggested to attendees of PLANSPONSOR’s first 403(b) Summit in Amelia Island, Florida, that this “ERISA-fication” of 403(b) plans will provide an opportunity for sponsors to provide a good benefit to employees to help them retire. Emile Schoffelen, CEO, Cammack LaRhette Consulting, added that sponsors will need the services of experts to facilitate the process of transforming their 403(b) programs, and “the faster sponsors can get over any anger or fear they are feeling about the new rules, the faster these facilitators can help.”

David Levine, Attorney, Groom Law Group, Chartered, said ERISA-fication is an expansion of sponsors’ liability and involves figuring out inconsistencies in their programs’ processes and evaluating providers. Levine agreed sponsors will need help; however, he noted: “It is possible to address these issues without it being the end of the world.” Providers offer approaches so that plan sponsors won’t “break the bank” by going to legal counsel or an adviser, he added.

Paul Hebert, Area VP, Compliance, Gallagher Retirement Services, continued the positive tone started by DesRochers by saying the ERISA-fication of 403(b) plans will educate and help tax-exempt employers move from their current plan model to something more manageable.


ERISA panel members said 403(b) plan sponsors should look to the standard of prudence. Hebert told 403(b) sponsors that “just because you’re not subject to ERISA doesn’t mean you don’t have this higher standard.” He added that sponsor decisions will still be judged by what is reasonable and whether a prudent man would have done the same, just as ERISA-governed plans are. Sponsors should use this prudent man standard to give themselves some protection.

Levine agreed that ERISA is a good “gold standard” of prudence, but sponsors also need to look to state laws on contracts and investments because, if a plan is not governed by ERISA, these laws govern. He added that prudence in maximizing the plan benefit to participants includes controlling plan fees and costs.

Adding to the point that 403(b) sponsors will need help in the process of complying with new regulations and ongoing, Schoffelen noted that, although advisers or consultants cannot take away the fiduciary responsibility assigned to sponsors, they can share the responsibility. Levine added that a good consultant knows all processes and can help keep a plan in compliance.

DesRochers pointed out that advisers have been working with providers to ERISA plans and can be a liaison to these providers for non-ERISA plans. Advisers can also help 403(b) sponsors establish processes and documentation sponsors can use to defend these processes, as well as take on tasks for sponsors such as participant education, he said.

Schoffelen agreed it is a good idea to bring in an adviser for certain tasks because 403(b) sponsors will need help most 401(k) sponsors do not need. He noted, for example that participant education and enrollment meetings will have to take place in multiple locations for public school employers and may need to take place at multiple times for employers such as hospitals who have workers for different shifts.