That is particularly true now that 403(b) sponsors will be required to exercise the same due diligence about their investment options as their 401(k) cousins have always had to do, panelists said at an investment options discussion at PLANSPONSOR’s 403(b) Summit in Amelia Island, Florida, April 9 and 10. While Thomas P. Cote, CEO of Total Solution Financial Partners, said the fiduciary comparisons between 403(b) and 401(k) sponsors were difficult ones to draw because there is no comparable 404(c) in the 403(b) world, Thomas D. Ming, President, Tower Rock Advisors, Inc., argued 403(b) sponsors could still use 401(k) rules as “direction” to govern their own actions.
The task of regaining control over a program’s investment options is made all the more daunting by the number of 403(b) plans with long lists of existing vendors that still have ahead of them a plan design determination about the length of the future vendor list. “I have to believe that reputable vendors are going to be willing to talk to you about how you can deal with this problem in your capacity as a fiduciary,” said Cote.
As did several other discussion panel members at the Summit, Barbara Delaney, President and Founder of FFoA, an NRP member firm, warned sponsors to watch out for particular problems with existing service contracts – particularly those between the vendor and the participant.
Several plan sponsors at the at the 403(b) summit complained vendors were refusing to tell plans anything about such vendor-participant arrangements – even the dollar value of the assets involved – since the plans were not a legal party to them. “You can’t get out of these contracts; they’re horrendous,” said Delaney, President, FFoA, a member firm of National Retirement Partners. “We’re relying on the DoL (Department of Labor) to pressure these vendors to let people out of the contracts.”
Once a plan decides on the number of vendors, panelists told the attendees, then comes the just-as-challenging process of selecting individual investment options. In that vein, Ming said the 403(b) world is likely to see the same strong industry reaction to target-date funds and managed accounts that the 401(k) world has seen.
“That’s what you have to look at,” said Delaney. “Are the participants getting the best options out there?”