November 18, 2019Institutional Investment ConsultingRetirement Plans

Over the past few years and accelerating over the past few weeks, there has been a significant increase in 403(b) retirement plan litigation and enhanced government scrutiny over 403(b) plans in general.

Since 2016 over 25 private universities have faced lawsuits from groups of 403(b) plan participants totaling over $35 million in legal settlements alone, not including fees for both internal and external resources to manage and litigate the complaints.

Within the last couple of weeks, the Securities and Exchange Commission has started to look into the inefficiency within 403(b) K-12 education retirement plans. 

The Securities and Exchange Commission is  “launching a broad investigation of compensation and sales practices in defined-contribution plans for school districts, an atypical move that targets a segment of the market frequently lambasted for high fees and deceptive practices” (Investment

“the SEC refers to its investigation as a "non-public, fact-finding inquiry."  (Investment

How does a Plan Sponsor ease the Anxiety of potential 403(b) audits and litigation?

Like building a house, the most important item for structural strength and longevity is the foundation, it is exactly the same for a 403(b) Retirement Plan.

A Fiduciary Foundation begins with:

Reviewing Plan Documents        

  • Reviewing, updating, and establishing Plan documents provides a blueprint for the Plan rules, investment guidelines, and oversight responsibility.

Reviewing Recordkeeper Capabilities

  • Benchmarking Plan Recordkeeper products, services, and technology on a scheduled timeframe will provided plan participants market-competitive plan solutions.

Reasonable Plan Expenses and Transparency

  • Plan expenses are unique to each employer depending on Plan recordkeeping and Participant service needs. Although many plan designs utilize a single recordkeeper solution, reasonable expense solutions do not necessarily mean a single recordkeeper solution. The majority of 403(b) plans are “Voluntary” employee participation, typically, there is not an employer contribution or matching contribution incenting participant plan participation, like 401(k) retirement plan participants experience.
  • Technology today allows for Plan Sponsors to meet multiple needs for the plan participants utilizing multiple recordkeepers at a reasonable expense.  This provides participants a choice of Company, Product, and Services at an expense level which makes sense for the participant.

High Quality Investment Opportunities

  • An Investment Policy Statement will outline the plan investment guidelines and policies in the investment products available in the plan.
  • Utilizing an independent 3rd party investment consultant to provide investment oversight and recommendations in a fiduciary capacity is a best practice which delivers a reporting process which is consistent with the Investment Policy Statement.

Participant Experience

  • Core to the success of any 403(b) Retirement Plan is ultimately the Plan Participant experience. 
  • Ease of participant access to Plan information, financial education and investment advice, and premier recordkeeping services, will create a positive participant experience, encourage participant engagement, and improve participant retirement outcomes.
  • The Plan Participant is the beneficiary of a strong Plan Fiduciary Foundation, and a satisfied plan participant will mitigate participant complaints and potential for litigation.

So, whether your 403(b) Retirement Plan simply needs a new coat of paint or a complete re-model, if you begin with a solid fiduciary foundation, a potential audit or litigation process is easily addressed and your level of anxiety allows you to sleep well at night.