Fred Reish Reviews Fiduciary Issues for 403(b)s

November 3, 2009 ( - At a working lunch sponsored by Cammack LaRhette Consulting, Fred Reish of the law firm Reish & Reicher said the focus in the 403(b) plan space is shifting to the results the plans are producing.

In addition to the responsibility for investments, Reish says fiduciaries should be looking at:

  • The quality of participant investing,
  • The plan’s level of participation,
  • Participants’ level of deferrals,
  • Provider expenses and revenue sharing,
  • The level of benefits being produced, and
  • The distribution of benefits to retirees.

When it comes to investments, fiduciaries of plans governed by the Employee Retirement Income Security Act (ERISA) are held to the standard of a prudent investor, but they are not required to be experts on all types of investments. However, Reish pointed out that both the Department of Labor and federal courts have said that where fiduciaries lack the knowledge, they need to hire an independent expert.

In addition, when selecting investments, the needs and abilities of plan participants should be considered. A federal court said, “Failure to investigate the needs of a plan or to ascertain the particular requirements or restrictions of a plan, and failure to invest in accordance with the best interest of plan participants… constitutes a breach of fiduciary duties imposed by ERISA,” according to Reish.

Reish says sponsors also should be aware of the disclosures required to be provided to plan fiduciaries and participants and should consider the impact on the plan of what they learn from the disclosures. Sponsors should ask if plan expenses are reasonable, if provider and consultant compensations are reasonable, and how any revealed conflicts of interest may affect the plan and participants.

While there is a concern for selecting plan investments that preserve participant benefits prior to retirement without giving up potential stock market gains, sponsors and other plan fiduciaries should consider the actual distribution of benefits following retirement, Reish suggests. Participants need a solution for guaranteed income and sponsors should decide if they want to provide a solution within the plan or not.

Reish discussed the option of having a guaranteed minimum withdrawal benefit (GMWB), which is not an annuity, but guarantees income. When selecting a guaranteed income option for participants, fiduciaries must consider the cost of the guarantee, the quality of the underlying investments, the ability to roll over for retirees, and the financial viability of the provider of the solution.

Reish expressed assurance that the investment and insurance industries will continue to develop innovative products to enhance retirement income.