Does 403(b) Data Sharing Really Aid ERISA Compliance?

September 28, 2012 ( - Imagine a world where business competitors cooperate to provide consumers with the best possible goods and services.

Ideally both consumers and businesses would benefit.  In reality, alliances of competitors with similar products, services, and value propositions rarely work. For one thing there is the concern that these systems are often open to abuses, like price collusion, which enrich suppliers at greater cost to consumers.  Hence, we have strong antitrust laws.  

The bigger challenge in a profit-motivated economy is imagining a business being satisfied with its share of the “cooperative” when profits could be enhanced by competing.   After all, competition is what drives capitalism. This competition represents a special challenge for the 403(b) world.    

The final 403(b) regulations place significant new reporting and fiduciary responsibilities on sponsors.  For 403(b) plans with assets held by more than one provider, coordination of data held by competing firms is necessary in order to comply.  Even single-provider plans usually have legacy assets with prior providers.  The plan sponsor bears the heavy burden of trying coordinate collection of needed information from competing providers.     

Recognizing the magnitude of this challenge, the Society for Professional Administrators and Record Keepers (SPARK) developed a standardized format to share data between a provider and a plan sponsor.  Since plan sponsors aren’t equipped to handle this much data, it became a standard to be applied among providers—providers that are competitors.   

Great ideal, but can it really work in practice?  No.   What incentive does a provider have to share client information with competitors when competitors could use that information to go after the clients?

To protect client information, various providers have built alternative platforms that share only limited data.  However this generates only incomplete and inconsistent information.  It is incomplete because a typical alternative platform only provides information on loans and hardship distributions.  Multiple-provider compliance is far more complex than simply tracking loans and hardships.    

It is inconsistent because many providers who support their own platform do not cooperate with others.  Those that do may not share data in a way that is consistent with other providers.  Some update their data daily, others monthly, quarterly or less often.  Some don’t provide data to any platforms.  Without complete and consistent information, a data platform is of questionable value.   

In the best-case scenario, even a platform with current and timely information from every provider is still only useful for tracking loans and hardship distributions.    

Of course plan sponsors won’t learn about these limitations from those promoting use of these limited platforms.  They promise to collect data and handle “everything” for the plan sponsor.  Compliance is complex.  It is easy for plan sponsors to accept a salesperson’s assurance not to worry.  Unfortunately, that is a good way to get a plan in trouble.    

Here is where advisers can play a significant role by asking the tough questions:  

  1. How do you ensure accurate and complete data?   
  2. Who bears the liability for administration based on inaccurate or incomplete data? 
  3. How are small amount force-outs and automatic IRA rollovers handled?  Plans must take all assets into account to avoid inappropriately forcing out partial account balances. 
  4. With certain exceptions, Form 5500 must reflect all plan assets to avoid penalties.  Since platforms do not collect Form 5500 data, who is responsible for accurate preparation?   
  5. How is the financial information being made auditable?  A platform populated by several parties without consistency and internal control is not an auditable process and is considered a material weakness by auditors.  Executives of plan sponsors subject to Sarbanes Oxley should not sign off on financial statements without internal control processes in place to ensure integrity. 
  6. Platforms do not address the new disclosure requirements under ERISA 408(b)(2) and 404(a)(5).  How will this be handled?   

There is a solution.  Third-party administrators (TPAs) are uniquely positioned to address the compliance needs of 403(b) plans with multiple providers.  Across the industry, demand for TPA services from 403(b) plans has exploded from 2% of 403(b)s using TPAs before the regulations to 40% now, according to 2010 data from The Spectrem Group.    

TPAs provide a neutral bridge between competitors. TPAs maintain relationships with most, if not all, providers. As an independent agent for the plan, a TPA can assure each provider that competitors will not have access to their data. A TPA collects current, accurate and complete data from providers as needed. This facilitates administration of a compliant program with access to all the required data.  A TPA can also implement auditable governance procedures, taking responsibility for proper procedures and reporting based on provider data.       

TPAs may seem like an added cost, but advisers and 403(b) plan sponsors we work with believe the fees are reasonable in light of the unique value-added service TPAs alone can provide and the assurance that their multiple-provider plan is compliant and operating correctly.      


Jeffrey A. Bauer, QPA, CPC, is President and sole Principal of The ANGELL Pension Group, Inc. He has more than 20 years of extensive experience in the fields of qualified retirement plans, nonqualified retirement programs and welfare benefit administration.  He is a Qualified Pension Administrator, Certified Pension Consultant and a Member of the American Society of Pension Actuaries.     

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.