403(b) Summit: New 403(b) Guidelines Require a Strategy

Vince Rainforth, VP, Tax Exempt Market, Principal Financial Group, told attendees of a panel discussion at PLANSPONSOR’s first 403(b) Summit in Amelia Island, Florida, that individuals who choose plan investments and make plan decisions are plan fiduciaries. They should be educated about what it means to be a fiduciary and should be informed of the prudent man rule.

Panel member Palmer Whitney, National Managing Director for Non-Profit Markets, U.S., MassMutual, explained that the committee for hospitals and charitable organizations will include an executive, a representative from HR, benefits managers, controllers, and perhaps an outside director. For schools, the committee will likely include the chairman of the board of education or university president, a representative from HR, and different department heads, he said.

Once the committee is established, Rainforth said, its first step should be to examine the existing 403(b) program to see what, if anything, is already in compliance with the new regs and what needs to be changed. Michael Morris, Director, Institutional Consulting at RSA, added that the committee should be about best practices. The committee should first define what the program should look like, establish processes for administration and monitoring, and then begin the search for vendors, he said.

Morris also suggested the committee establish an Investment Policy Statement (IPS). The IPS will include what types of investments should be chosen and guidelines for benchmarking and ongoing evaluation of the investments. The IPS can also tell the committee when and how to fire an investment provider and establish guidelines for notifying participants of investment decisions, according to Morris. He said the commit should put as much into the IPS as possible to mitigate liability.

Hiring an adviser is another suggestion Morris had for plan and investment committees. He said an adviser can help benchmark providers and get the best prices, benchmark the 403(b) program itself, and provide education to the sponsor and participants.

All the suggestions by panel members will help create consensus among plan decisionmakers, but sponsors may find some objections by plan participants. Rainforth suggested sponsors meet with employees and ask them for their top four reasons they want the program to stay the same, predicting no one will be able to list four. He also told sponsors they should explain that participants will now get a higher standard of plan monitoring and participant level recordkeeping for their accounts.