THOUGHT LEADERSHIP

Best Practices

Evaluating the success of your 403(b) plan
Eric Wietsma

Retirement plan oversight is a challenging task for any plan sponsor. For 403(b) plan sponsors, many of whom use multiple vendors, the responsibility may be especially challenging from an administrative side. For all plan fiduciaries, regardless of the retirement plan type or size, one critical function is to benchmark the retirement plan periodically. Benchmarking can take many different forms but, no matter how it is performed, all benchmarking has the same end goal—to help plan sponsors understand what people in their like industry and plan size are doing and ensure their retirement program offering is competitive. Recently, PLANSPONSOR and Eric Wietsma, Senior Vice President of Sales and Workplace Education for MassMutual’s Retirement Services Division, discussed best practices in benchmarking for 403(b) plan sponsors.

 

PS: The industry has been spending a lot of time talking about benchmarking plans recently. What do you recommend to plan sponsors when they ask how frequently they should be reviewing their providers?

Wietsma: If, as a plan sponsor, you haven’t gone through a normal due diligence process with a knowledgeable adviser or consultant who is well-equipped to walk you through benchmarking of your plan—meaning what your plan currently offers versus what is available today in the 403(b) market—that is something that absolutely needs to happen. Typically, such a review should happen every three years. Even after a plan achieves a modernized state, at the very least, plan sponsors should have a request for information through a third-party adviser or consultant to benchmark plan fees and plan funds to ensure fiduciary status is in good shape. One advantage I see for nonprofits is that, in general, nonprofit retirement plan sponsors are extremely committed to employees and participants, and there are huge opportunities for sponsors to ensure that all of the employees are participating in the retirement plan benefit.

PS: Now that we’ve established how frequently plans should be reviewed, let’s talk about what plan sponsors should be reviewing. What should they be benchmarking?

Wietsma: When I look at the research statistics1—specifically around the micro market—the answer is approximately 40% are evaluating their DC provider annually. It seems there might be some misinterpretation of what a formal evaluation looks like, so let’s cover that.

Annually evaluating your plan from the product side is not really a fiduciary evaluation. That’s really just an evaluation of the product you’re currently offering. So, in discussing types of evaluations of providers and the solutions, we’re really talking much more about a true fiduciary process. It would happen every three years and is typically done by a competent third party that is not associated directly with a product. Probably the single most important thing I would stress
to every plan sponsor—it is really ­critical that the process be documented, and that you can prove to the Department of Labor and to your participants that a thorough due ­diligence process was conducted at least once every three ­years.

Another distinction I would make is regarding the recordkeeper. The evaluation is more than just the recordkeeper. The due diligence process and subsequent documentation should demonstrate that you’re evaluating the recordkeeping, the plan sponsor services, and the participant’s services. The good news is that, due to current disclosure requirements, it should be much easier for you, the sponsor, to obtain real data specific to your plan.

On the investment side, I would say it’s absolutely critical that you are at least reviewing investments quarterly and then conducting a thorough third-party deep dive into the investment options you’re offering participants at least annually.

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