David Hinderstein, President, Strategic Retirement Group Inc., an NRP member firm, told attendees at the PLANADVISER National Conference that many tax-exempt entities did not have the administrative set up in place to handle the new requirements of the 403(b) regulations, and due to budget cuts following the downturn, sponsors are faced with the question of how to pay for what they need in order to comply. Jewell Lim Esposito, Esq., Partner, Constangy, Brooks & Smith, said many sponsors have not complied with the regulations; in fact, many have not even gotten their written plan document in place.
Vince Rainforth, VP, Business Development-Tax Exempt Market at Principal Financial Group, points out that the regulations forced many plan sponsors to decide whether they would be governed by the Employee Retirement Income Security Act (ERISA), and some found out they already were, but didn’t know it. Many of the new administrative duties required by the regulations can default sponsors into ERISA status. Therefore, sponsors are looking for help.
Rainforth added that 403(b) sponsors are dealing with increasing costs because of administrative expenses they didn’t have before.
Ryan Gardner, Principal, Fiduciary Investment Advisors, said advisers need to educate sponsors not only on the new regulations, but on processes and options for administration. In addition, sponsors should be educated on fees: what fees there are, what is reasonable, and how they are paid.
Advisers should understand that 403(b) sponsors want an adviser that is compatible with their mission, so advisers should understand the market group they are serving: K-12, non-profit, higher education, or church-related organization, according to Hinderstein. Also, within these markets could be groups that will have a strong influence on any plan decisions, whether employee unions in the K-12 market, or university officers in the higher education market.
David Ray, Vice President, Strategic Sales, TIAA-CREF, added that familiarity with the employee demographics of the market will give an adviser more credibility.
In addition, according to Esposito, if an adviser wants to be in the 403(b) space, he or she must be prepared to also deal with a companion 457(b) plan or 457(f) plan. Finally, Rainforth said sponsors should understand the history of the 403(b) plan space; for example, K-12s have a history of multiple providers, and many plans provided participants taking loans with coupon books and didn’t track repayment. For this reason, there could be a great number of legacy vendors to deal with and a number of outstanding loans that have never been repaid.