Michael Levin, area vice president at Gallagher Retirement Services, told attendees at the 2012 PLANSPONSOR National Conference that 403(b) sponsors can use 401(k) plan strategies for improving plans and participant outcomes. To encourage participation for example, 403(b) sponsors should consider adding automatic enrollment and automatic deferral escalation. They can also add a contribution match program or change the match formula to encourage higher savings by participants.
Levin suggests sponsors adopt an education policy statement that lists ways they plan to communicate to participants about saving and their 403(b) plans. It notes how to measure the impact of education efforts. Levin says the statement should include some guidelines for communicating to different employee demographics, but should not be too specific.
Chris Cannova, director of compensation and benefits at the Archdiocese of Chicago, says his plan uses auto enrollment and auto deferral increase. In addition, the Archdiocese holds regular employee meetings and is now doing a pre-retirement seminar for employees, which covers the 403(b) plan, the Archdiocese’s frozen defined benefit (DB) plan and Social Security benefits for employees.
Cannova says his next step is to use targeted employee communications such as those that focus on different age groups.
When considering a plan’s investment menu, Attila Toth, partner and co-founder of Portfolio Evaluations, suggests simplification. He told conference attendees his firm encourages consolidation of vendors and a three-tiered investment menu that includes target-date funds, low-cost indexed mutual funds from which participants can choose, and an option that includes domestic equity, international funds and fixed income offerings.
Attila also suggests 403(b) sponsors review quarterly performance reports and keep an eye on fees for their plan’s investments. Plans should have an investment policy statement (IPS) that includes language about monitoring old plan investments as well as current ones. And Attila says there should also be an investment charter describing each investment committee member’s duties for the committee.
Cannova said the Archdiocese created an investment committee using the assistance of its adviser and legal counsel. He noted that sponsors want the best people for the committee, but may not include certain people for which they do not want to create more fiduciary liability.
While plans that are governed by the Employee Retirement Income Security Act (ERISA) have fiduciary obligations, Levin notes that non-ERISA plans are subject to the Prudent Investor Act in most states. Plan sponsors not only have obligations concerning plan investments, but concerning prudent processes in general. He warned attendees not to think they can outsource their fiduciary liability.
ERISA or not, all 403(b) plans must comply with the regulations passed in 2007 concerning monitoring statutory and plan limits for contributions, hardships and loans. Cannova says the key is to know your own plan terms for loan and distribution restrictions. Sponsors should also keep in touch with old plan vendors to make sure limits are not surpassed.