Michael A. Webb, vice president, Cammack Retirement Group, answers:
Excellent question! The answer can differ dramatically depending on the type of 403(b) plan sponsor.
For example, in some states, K-12 school districts would either be expressly prohibited from conducting their own fiduciary due diligence by state statute, or fiduciary best practices would be moot since the state has an “any willing provider” statute where certain investment providers must be offered regardless of any fiduciary analysis.
In addition, the Department of Labor (DOL) effectively discourages elective deferral-only plans of private tax-exempts whose intent is to avoid Employee Retirement Security Act (ERISA) coverage under the DOL safe harbor (29 C.F.R. § 2510.3-2(f)) from adopting ERISA-like best practices, since there would be too much employer involvement to stay within the safe harbor. (Of course, we note that it is very hard to stay within the DOL safe harbor anyway.)
This leaves religious organizations, K-12 districts in states where fiduciary best practices would be permitted, and public colleges and universities. For religious organizations, some may decide to adopt ERISA-like best practices and operate their plans in a prudent fashion, regardless of the lack of a federal mandate to do so. Alternatively, they may look at state ERISA-like laws for governmental plans (which many states have, though often they expressly carve out 403(b) and 457(b) plans) or even to state trust law fiduciary duties (which is also the core of ERISA).
As for the applicable K-12 districts, the answer is some may elect to follow ERISA voluntarily, some may have local governing laws concerning duties (including ERISA-like laws for public plans in some states), and some may not have laws on this at all. To the extent there is no conflict with local laws, ERISA can provide useful guidance as the “gold standard” of fiduciary behavior. However, because compliance with ERISA can be complex, staff resource issues may arise.
Finally, public colleges and universities are in a situation similar to that of public K-12 school districts. The difference here is they may have the resources to address applicable fiduciary issues that K-12 school districts lack.
Any institution that is not subject to ERISA should seek the advice of benefit counsel well-versed in such matters before contemplating the implementation of any best practices, outside of those necessary for compliance with the Internal Revenue Code, to which all plans are subject to some degree.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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