Originally published on Benefits Pro

By Joe Rankin, Plante Moran

The 403(b) retirement plans used by many nonprofits have been in the news lately for reasons likely to give plan sponsors headaches: the potential impact of fiduciary policy changes, bad press, and litigation.

Nonprofits that provide 403(b) plans often underestimate the level of oversight required to meet fiduciary standards under the Employee Retirement Income and Security Act (ERISA) should see these developments as a wake up call.

Such plans – popular among educational institutions, nonprofits, and hospitals, among others – held about $900 billion in collective assets at the end of 2015.

In August, Jerry Schlichter of St. Louis-based law firm Schlichter, Bogard & Denton became the first lawyer to file suits against universities for allegedly causing participants in 403(b) retirement-savings plans to pay outsized fees, targeting a who’s who of U.S. higher education, including Yale University, Duke University, Massachusetts Institute of Technology, New York University and Johns Hopkins University.

Those suits followed a rash of litigation in recent years against major corporations claiming they charged excessive fees on 401(k) retirement plans.

The suits allege universities breached their responsibilities under the ERISA by using retail mutual funds in retirement plans instead of lower-cost institutional versions of the same investments. Many universities historically failed to look closely at fees and procedures because 403(b) plans were covered by a hodgepodge of rules until 2009, when they had to comply with ERISA.

Nonprofit leaders should hear alarm bells at this kind of litigation. The attorneys are seeking cases against targets both big and small, and in some cases, ERISA rules can mean personal legal exposure.

Beyond litigation, 403(b) plans have been in the news, with plenty of talk since the presidential election about President  Trump’s desire to overhaul various regulations, including the Labor Department’s new fiduciary rule.

The new rule is set to be the most significant change to the brokerage business in a generation. It is a mandate that would hold investment brokers to a higher standard than had ever before been applied to the industry.

The fact that the new fiduciary rule was written shows the extent of concern about shortfalls in protections for investors trying to plan for retirement.

Under a new administration  those guidelines could be shelved. However, whether or not Washington policymakers change their minds, 403(b) sponsors will continue to face significant ERISA and non-ERISA fiduciary standards and challenges for 403(b) plan sponsors.

The quality of investment advice on 403(b) plans has also been in the news lately, following a New York Times article from November titled, “Think Your Retirement Plan Is Bad? Talk to a Teacher.”  The Times revealed how some 403(b) plans of public schools have annuity contracts, thousands of investment options and hundreds of providers.

The basic fiduciary responsibility for retirement plans are to know what services are being provided to the plan and to ensure that all fees paid from the plan are reasonable and competitive. All too often when nonprofits select a vendor to administer a 403(b) plan, fees are the only thing reviewed. However, the ability of the vendor to deliver the requested services is actually the most important consideration.

For large plans, getting the right vendor can save plan participants hundreds of thousands of dollars annually by reducing high investment and administrative fees, charges and back-loaded fees, not to mention improving the administration and services provided to the plan. Indeed, done correctly, switching to a new vendor can pay for itself in less than one month.

The process of choosing and integrating the right service providers can take six months to a year and requires planning, patience, and endurance. However, when the process results in a better plan for participants and in cost savings, it’s worth the hard work.

Plan sponsors considering such a change should follow a detailed roadmap that starts by defining the needs of the plan and its participants and then sending out a request for proposals to qualified providers.

Proposals should then be scored against agreed-upon criteria before any presentations are held to ensure that the finalists reflect the best plans and not simply the best sales pitches. On-site finalist presentations should focus on details with service and conversion teams (not discussions with the sales team) and should include a discussion of fees only after the plan sponsor is convinced services can be delivered.

As plan sponsors wait to find out what the new administration does with the DOL rules and who the next targets are for fiduciary litigation, smart 403(b) plan sponsors will realize that the ongoing vetting of fees and services through a vendor selection process should not be determined by what happens in Washington or in the courts.