Key 403(b) Issues Continued..

As we mentioned in our prior post, 403(b)’s have their own distinct challenges. It is imperative for those Plan Sponsors to understand their roles and to create good governance practices. These can included:

  • Having a well thought out Investment Policy Statement
  • Following that Investment Policy Statement
  • Benchmarking the plan recordkeeper(s) and investments
  • Making sure plan document provisions are followed
  • Regularly meeting and documenting the items covered

The major disconnect we see with some 403(b) sponsors comes from how the plan is operated and what possible upgrades they can make with their recordkeeper. With the help of a retirement plan specialist, Plan Sponsors can clean up their plans and right size the relationship for the current participants in the plan. With many legacy providers it is not uncommon to see more terminated participants in the plan than active participants.

Much of this comes from the nature of 403(b) contracts and that they rarely can be moved en masse like you would have when switching from one 401(k) platform to another. This potential inability of the Plan Sponsor to guide these assets to more favorably priced arrangements also can effect the pricing that new platform providers are willing to extend. This can create significant effort by the HR team to reach out to former participants, many who they may not even be in contact with. During our next post we will discuss some of the ways to potentially work around these issues.