August 11, 2016
403(b) Plans are now Under Fire

Examining the Issues


The U.S. Department of Labor ("DOL") has repeatedly notified retirement plan executives that fees paid by plan participants for investment and administration services must be reasonable.  Until this week, the commercial sector's 401(k) plan community has born the brunt of lawsuits that allege a violation of the DOL's rule.

The first legal complaints against nonprofit organizations that sponsor 403(b) plans, which operate under the same fiduciary rules as 401(k) plans, were just filed.  The complaints against the defendants, which include Yale University, Massachusetts Institute of Technology, and New York University, are based on the same issues as the complaints haunting organizations in the commercial sector...excessive fees for plan services.

Put to the Test

Contrary to popular belief, the DOL does not hold vendors of retirement plan services accountable for the fees they charge to a plan's participants.  Instead, the plans' executives and managers (the buyers) who negotiate with those vendors are solely and legally responsible for the actual dollar charges that the participants pay.

The DOL has made many attempts to inform buyers that vendors have an information advantage over plan sponsors when it comes to plan pricing.
(Read: 5 Causes of Excessive Retirement Plan Fees).

Lawsuits like those just filed against Yale, MIT, and NYU allege that the buyers for the respective retirement plans breached their fiduciary duty by negotiating arrangements with vendors that exceeded reasonable limits, and then failed to modify prudently the service providers' fees periodically.  In keeping with the lack of legal accountability for the amount of fees they are paid, the vendors are noticeably omitted from the lawsuits.


An Opportunity for Buyers of Retirement Plan Services

Compliance with the DOL's fee rule is rooted in the disciplines of fiduciary duty that are embodied in the Employee Retirement Income Security Act ("ERISA").  The rule's provisions are found in ERISA section 408(b)(2).  It's important to note that the DOL's enforcement division does not require buyers to hire only the lowest cost service providers.  Rather, the DOL expects buyers to evaluate the quality of investment, administration, and compliance services delivered by vendors, negotiate fees accordingly, and adjust the fees ongoing as appropriate.

The employees of Yale, MIT, and NYU are suing their ERISA plans' fiduciaries because they think the fees charged to those plans lack the kind of careful evaluation that the fee rule requires.  They allege that the failure to do so has resulted in a costly impact on their retirement savings accounts.  The implications of the lawsuits across the entire nonprofit community are sure to be disturbing for boards of directors, committees, and plan administrators.

An Action Plan 

The steps needed to meet ERISA's fee related requirements became dramatically more complex after Regulation 408(b)(2) was changed in 2012.  The Regulation offers a vital "safe harbor" from breach of fiduciary duty, but obtaining it is not automatic nor can it be earned if the evaluation is performed by an incumbent vendor.


The Roland|Criss ERISA Fee Assessment is a process by which we examine key vendor management practices, vendor agreements, and vendor effectiveness.  The assessment report is a legally defensible opinion about the reasonableness of an ERISA plan's fees.


The Roland|Criss opinion moves beyond mere fee bench-marking, which many vendors have promoted as a quick fix but has proven to be an inadequate measure of the reasonableness of fees.  We pioneered the Vendor Value Index ("VVI"), which is the first viable metric in the industry to measure the value that employees receive for the fees they pay their retirement plans' service providers.

Get assured.  Let us help you confirm the reasonableness of your plan's fees.

Contact us today
 
Roland Criss

Vendor Value Index and VVI are trademarks of Roland|Criss Fiduciary Services

About Roland|Criss

Roland|Criss provides assurance programs to retirement plan sponsors.  We do not sell investment products or advice nor do we sell administration services.  We provide our clients an option to delegate their Plan Administrator status to a professional firm that specializes in that role.  Vendors of investment and administration services do not qualify for that role under ERISA's conflict of interest rules.  We ensure safety for executives that oversee retirement plans.  

 

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