Do You Offer A 403(b) Retirement Plan?

You May Want To Consider “Fiduciary Outsourcing”

Many nonprofit organizations provide 403(b) retirement plans to employees, a valuable benefit. But sponsorship of such plans entails the assumption of substantial responsibilities to administer them properly—far from a simple task.

The Plan Document which establishes a 403(b) is typically more than 100 pages long, and goes into great detail about the proper handling of each small aspect of the plan. At the end of this article is a list of 50 distinct mandated tasks which must be addressed, in many cases on specific timetables. Clearly, significant attention and resources must be devoted to this effort.
Issues of potential legal liability must also be considered. The Plan Document must specify one or more “Named Fiduciaries” responsible for managing the plan. For self-administered plans (which are typical) those are usually financial or operating officers or other staff members. Participants in retirement plans are able to file lawsuits if they believe mismanagement has occurred, and audits by the Department of Labor can result in similar actions. Not only can the penalties assessed in such litigation be extremely substantial, but the Named Fiduciaries can be personally liable in many cases! For this reason, fiduciary insurance policies are available.

One solution to this set of issues is to engage an independent Plan Administrator to take on much of the workload and legal responsibility related to the retirement plan. (Note that an Administrator is not an investment advisor--but can help to select one.)

Consideration must be accorded the fact that partly offsetting that benefit is its cost. For example, typical annual fees for fiduciary advisors, who are responsible for investment management, are about .05% of the value of a plan’s invested assets, representing a small but not insignificant reduction in the amount of the portfolio’s cash flow that is available for distribution to participants and beneficiaries.

Here is a list of the chores undertaken by one independent Retirement Plan Administrator:

    1. Overall operational compliance
    2. Document compliance, mandatory interim restatements, compliance
    3. Form 5500
    4. Annual plan audit
    5. New hire processing
    6. ERISA bond
    7. ACA (Automatic Enrollment Administration)
    8. ACI (Automatic Contribution Increases) administration
    9. Default investment administration
    10. Determination of vesting and amount of distribution
    11. ERISA Section 105e
    12. Employee benefit statements
    13. Prudent selection and monitoring of service providers
    14. Benefit determination and disputes
    15. Administration of beneficiary rules
    16. Worker classification
    17. Nondiscrimination testing
    18. Summary Annual Report (SAR)
    19. Definition of compensation
    20. Allocation of unallocated monies by plan year-end
    21. IRC Section 72(p) loan administration
    22. Contribution calculations and limitations
    23. Protected benefits
    24. Acceptance or rejection of rollovers or transfers
    25. Annual notices
    26. Segregation of assets by source
    27. Coverage testing and corrections
    28. Involuntary distributions
    29. Episodic notices
    30. Distributions
    31. Hardship withdrawals
    32. Qualified Domestic Relations Orders (QDRO)
    33. Lost/missing participants and unclaimed benefits
    34. Grandfathered plan provisions
    35. Plan termination and partial termination
    36. Spousal consents
    37. Survivor benefits (QJSA and QPSA)
    38. Summary Plan Descriptions and Summaries of Material Modifications (SPD and SMM)
    39. Timely remission of deferrals and loan repayments
    40. Timeliness of other required contributions
    41. Diversification requirements for plans with employer securities
    42. Blackout procedures
    43. Defined benefit plan duties
    44. Participant fee disclosure (404a-5)
    45. Fiduciary fee disclosure (408b-2)
    46. Records retention under ERISA Sections 107 and 209
    47. Responding to participant inquires
    48. Top-heavy minimum benefit
    49. Overpayments
    50. Personal liability under ERISA 409

This information was assembled by Jon Goldfarb from an NPCC forum presented by Tom Flemming of Empower, Neal Weaver of Leafhouse, and Michael Wyant of Pentegra. Last Updated: November 27, 2017