403(b) Summit: IRS Reg Compliance – What Some Schools Have Done

April 22, 2008 (PLANSPONSOR.com) - Amelia Island, FL - On day two of PLANSPONSOR's 403(b) Summit in Amelia Island, Florida, attendees listened as representatives from K-12 school districts shared how they have restructured their 403(b) programs to make them more manageable while still serving participants' needs.

Georgette Hampton, Manager, Compensation and Benefits, SMART Business Advisory and Consulting, who used to be with the Chicago Public Schools, explained that the main objective of any employer should be to improve the opportunity for employees to save and reach their retirement goals. The first thing the Chicago Public Schools did in 1996 was to hire a consultant to aid it in restructuring the program to be more 403(k)-like.

In 1997, the Chicago Public Schools evaluated their program and found that vendors and product offerings no longer reflected the marketplace and the program’s fee structure was high, Hampton said. A request for proposal to a number of vendors resulted in a broadened product offering within the program, lowered fees, and administrative oversight.

Hampton explained their program evaluation included a survey of participants to find out what they wanted and what they liked about the current program and a meeting with union leadership to solicit input on the current plan.

A 2001 program evaluation resulted in a written plan document, Hampton said. The Chicago system further moved to restructure its program by conducting a request for proposal for investment management, plan administration, and recordkeeping. The resulting selection of vendors resulted in improved participant service, including communication and education materials and onsite plan representatives, Hampton told Summit attendees. She added that the Chicago system conducts ongoing periodic participant surveys.

Helpful Hints

John M. Kevin, III, Investment Officer with the Montgomery County (Maryland) Public Schools system advised plan sponsors to enter the restructuring process as educated consumers. He also said information gathering during the initial program evaluation process is not so simple, and sponsors must get information on what the 403(b) program holds from the existing vendors.

Kevin warned plan sponsors that vendors that may be losing business will be quick to get influences out to unions and boards of education, so plan sponsors must try to get their reasoning for the changes in front these entities early in the process. He also noted the restructuring process will involve changing from individual contracts to group contracts to negotiate aggregate pricing.

Kevin said public schools have traditionally provided minimal education to employees regarding their retirement plan. He suggested sponsors look to vendors who provide an abundance of education materials. Vendors can also fill other gaps in administration, such as act as a contribution conduit and address employees in multiple locations.

A handout provided to Summit attendees by Forrest Jack Lance, General Counsel, Rockdale County (Georgia) School District, offered a dozen steps for school districts to fulfill their responsibilities in restructuring their 403(b) programs:

  • Establish a search committee,
  • Engage a competent consultant,
  • Create an effective Request for Proposal (RFP),
  • Critically analyze RFP responses,
  • Engage in a qualitative review of the finalists,
  • Negotiate transparent contracts,
  • Document the plan appropriately,
  • Require employee education,
  • Create and educate a plan committee,
  • Adopt an Investment Policy Statement (IPS),
  • Require quarterly and annual reports, and
  • Monitor the plan's services and investments ongoing.