Jump to content
Guest Sierra

Plan Sponsor (employer)

Recommended Posts

Guest Sierra

Joel:

 

In June 2007 Fidelity published "Common Misperceptions Regarding New 403(b) Changes" ( 430623) which documented a survey taken of non profit and public schools of common myths about the impact of the changes to 403b regulations and included the following statement:

 

"Perception: New regulations will burden plan sponsors with more fiduciary responsibilities."

 

"Reality: Plan sponsors will have the added responsibility of selecting vendors and documenting these vendors in their plan documents. However, this new responsibility is different from the standard of care required of a fiduciary"

 

 

Firstly, based on your track record I believe you are at best misinformed or at worst lying to us. Secondly, I'll discount it to the same degree you discounted all of the professional summaries I have posted.

 

Have you insisted like you have with me and BenefitsGeek that Fidelity furnish you with legal citations? Or is that standard reserved just for me and BenefitsGeek? You practice a doulble standard and that is why you are unethical in this matter.

 

Joel

 

 

 

 

Joel:

 

In June 2007 Fidelity published "Common Misperceptions Regarding New 403(b) Changes" ( 430623) which documented a survey taken of non profit and public schools of common myths about the impact of the changes to 403b regulations and included the following statement:

 

"Perception: New regulations will burden plan sponsors with more fiduciary responsibilities."

 

"Reality: Plan sponsors will have the added responsibility of selecting vendors and documenting these vendors in their plan documents. However, this new responsibility is different from the standard of care required of a fiduciary"

 

 

Firstly, based on your track record I believe you are at best misinformed or at worst lying to us. Secondly, I'll discount it to the same degree you discounted all of the professional summaries I have posted.

 

Have you insisted like you have with me and BenefitsGeek that Fidelity furnish you with legal citations? Or is that standard reserved just for me and BenefitsGeek? You practice a doulble standard and that is why you are unethical in this matter.

 

Joel

 

 

Please furnish us with a link to the Fidelity report on this matter.

 

Joel

 

Share this post


Link to post
Share on other sites
Guest Sierra

Joel:

 

Aren't you a little tacky and testy today.

 

the link is [/u]www.fidelity.com/workplace/taxExempt/pending403b-misperceptions.html

 

I hope this helps.

 

Intruder:

 

I could not download the link. Please post it up.

 

I found the following in my travels from Fidelity Investments:

 

http://www.mysavingsatwork.com/atwork/1183...83381787895.htm

 

I posted up one Q.&A below. Notice the use of the term "fiduciary perspective"

 

Could it be that one hand at Fidelity doesn't know what the other hand is doing? What say you?

 

Joel

=====================================================================

Q. What brought about the new changes? Why are they happening?

 

A. This year marks the first comprehensive regulatory changes to 403(b) plans in more than 40 years. The IRS has updated many of the current regulations that have historically made 403(b) accounts more difficult to manage from a tax and fiduciary perspective. In public statements, officials from the Department of the Treasury said these new regulations were drafted to enable plan sponsors to take a more active role in administering their plans, by making it necessary for plan sponsors to manage and report on the status of their 403(b) accounts, enabling participants to save for retirement in a more structured and simplified manner.

 

 

Share this post


Link to post
Share on other sites

There have been a lot of excellent points raised in this discussion, and the issue may be more a practical matter than a legal one.

 

Though, as I previosuly pointed out, the new regs. do not use the term fiduciary at all; however, some the responsibilities that the IRS is stating is that of the employer (or an third party that it desginates), such as adminstering plan investments in accordance with applicable law and and the plan document, are generally thought of as fiduciary duties. So it is one of those situations where the IRS is not saying that an SD literally needs to be a fiduciary, but is ascribing duties to the SD (or its designee) that are generally considered to be fiduciary duties.

 

One other point, although the UPIA (which is usually the relveant state law in non-ERISA plans) does indeed apply to trusts (and there is not trust in a 403(b) as we know, except for certain church plans), reputable firms with signficant expertise in this area, such as the Center for Fidudicary Studies, have stated that the UPIA should be the default fiduciary standard when any other standard, such as ERISA or MPERS, does not apply, and they specfically cite non-ERISA plans. I beleive that these are possibly the reasons why an extremely reputable law firm such as Reish and Luftman has indicated that SDs do have fiduciary responsibility, even though a literal intepretation of the law might not lead to that conclusion.

 

State Attorneys general have investigated entities that the law would seemingly state are not fiduciaries (e.g. where SD plans are involved, and there is no trust) for alleged breaches of fiduciary duty under state law, so maybe much of the published guidance (and there is a significant amount) that is indiating fiduciary responsibility for SDs as a practical matter is erring on the side of caution.

 

Feel free to critique my comments as harshly as you see fit; this is a complicated area, and I feel that through criticism I learn a great deal.

 

Thanks for continuing such a robust discussion in my absence.

Share this post


Link to post
Share on other sites

Thank you for your sophisticaed and reasoned observations which will require thought before responding. One premiminary observation I have is how the UPIA can be a deemed to be a default option in a 403b plan when it specifically provides that its application is voluntary, e.g., CA probate code 16045-54, in that the parties can agree to limit or eliminate application of the UPIA to a trust. Would the UPIA apply if the plan expressly provides that the UPIA is not to apply?

Share this post


Link to post
Share on other sites

I beleive that, in a state where adherence to UPIA is voluntary, if the written plan were to state that UPIA were not to apply, then it would not apply. However, if state law REQUIRED adherence to some sort of fiduciary standard (UPIA or other) the pertinent issue would then be if the 403(b) program were excluded from state law fiduciary provisions due to the fact that it is not a trust. I'm not an expert of the laws of all 50 states, but I suspect that this might be somewhat of a grey area that has probably had few tests in the state courts; I generally see references to state fiduciary law when state AGs conduct investigatios, but many of those cases are settled, so it is difficult to draw conclusions.

 

If I was a plan sponsor whose plan contained imprudent investments who viewed plan participants as potential litigants, such ambiguity might be cause for concern. Since the IRS has already made it more difficult for SDs with a plethora of service providers to maintain their arrangement due to employer (or third party desginee) level coordination requirement for loan maximums, etc., some SDs may simply eliminate providers with less prudent choices, (or may remove providers based on those who can work with their third party designee--e.g. TPA--which might be more troubling from a particpant perspective since the more prudent investment choices might be removed), as a practical matter, regardles of the application of fiduciary requirements. However, I have also seen points of view indicating that SDs may do nothing, simply due to the fact that they do not have the time or resources to address the issue (I would be especially interested in hearing your opinion--or anyone elses-- as to this school of thought!)

 

Note that I am only discussing SDs and nonelecting church plans here; it is quite possible that the "UPIA does not apply" language would be an excercise of employer discretion which might casue a voluntary-only arrangement of a nonchurch/nongovernment tax-exempt to fail to satify the DOL safe harbor for avoidance of ERISA. The DOL stated that a written plan would not subject such an arrangement to ERISA, but plan language that implied employer discretion might be problematic.

 

All in all, it looks like it will be an interesting 2008! Will SDs limit providers? If so, will they limit providers to low-cost choices? Or more expensive providers, since they are the ones who will be able to work with the third party designees/TPAs? Or will that status quo remain? Stay tuned!

 

 

Share this post


Link to post
Share on other sites

1. I am still waiting for you or one of the others to show me any state law that imposes a fiduicary requirement on a 403b plan sponsor not subject to ERISA who remits contributions to 403b providers which the employee voluntarily elects to contribute to. The UPIA does not apply because there is no investment of the funds by the employer. Under your logic an employer who remits employee IRA contributions made by payroll deduction to funds selected by the employee would be fiduciary under the UPIA for investment losses because of investment decisions made by the participant which is contrary to state law.

 

2. I dont know what case you are referring to but the cases brought by AGs involve entities that were being paid to offer a 403b provider. If the employer is not recieving any payment other than amounts necessary to pay for the costs of the plan what is the fiduciary issue to be investigated? Most states already have laws which prohibit govt employers/employees from collecting fees from providers in excess of amounts needed to defray plan costs.

 

3. I dont understand how adopting a UPIA does not apply provison would result in a NP salary reduction only plan becoming subject to ERISA as an exercise of employer discretion since DOL reg 2510-3.2(f) explicitly allows the employer who exercises discretion to limit the number of providers which can be offered to employees to be exempt from being deemed a fiduciary under ERISA. Under your logic any attempt by the employer to limit liabilty under the 403b arrangment, e.g. by asking for indemnification from a provider, would be considered an act of discretion which wold make many NP salary reduction plans subject to ERISA which not a requirement under the DOL regs.

 

4. What do you define as an imprudent invesment?

 

5. Many SD do not limit providers because they cannot use SD funds to pay for plan administration and cannot charge employees for the costs so they accept providers who are willing to provide free administrative services. The result of the IRS regulations is that in many SD it will result in fewer choices and require that employees pay for plan administration costs required to comply with the regulations.

Share this post


Link to post
Share on other sites

Can't say that I disgree with your points, but I would add that I feel that there is a difference between a payroll deduction IRA and an 403(b) plan since the IRS now says there is; imposing a written plan requirement and requiring the level of employer involvement required in the final regs., I beleive implies a hire standard of care than your run-on-the-mill voluntary benefit.

 

As for the ultimate question of whether school districts have any responsibility for plan investments, I cannot point to a law that definately states that they do, but with many reputable organizations (e.g. Reish and Luftman, Center for Fiduciary Studies, etc.) indicating that they do. I'm not convinced that, in an era where there are congressional hearings over retirement plan fees and where 401(k) plan sponsors are being sued over alleged ERISA breaches that are seemingly not present at all in ERISA, that these organizations are all incorrect in what might be a practical, as opposed to a legal postion.

 

If the SD is required by the regs. to become more involved in their plan (or hire a third-party desginee to do so) regardless of whether fiduciary law applies (due to the coordination of loan rules, distribution rules, etc.), and probably will reduce the number of investment providers, would it not make sense merely from an employee relations perspective NOT to limit the offerings to providers that would offer imprudent investments (which, by the way, I would define as ones that would not satisfy a fiduciary standard of care under applicable law) with unreasonable costs? In an environment where there has been increased particpant litigation over the quality of investment choices and the level of fees, I believe the answer is yes. But, of course, I've been wrong before!

Share this post


Link to post
Share on other sites
Guest Sierra

BenefitsGeek: I assure you, you are right. Let a 403b shark bring suit against a SD for barring the sale of high cost commissioned based products to their employees and they will be laughed out of Court (state and or federal).

Share this post


Link to post
Share on other sites
Guest Sierra

BenefitsGeek: I assure you, you are right. Let a 403b shark bring suit against a SD for barring the sale of high cost commissioned based products to their employees and they will be laughed out of Court (state and or federal).

Additionally, nothing could be more important from a fiduciary's point of view than being a watchdog over the expenses that the employee must pay.

Share this post


Link to post
Share on other sites

Can't say that I disgree with your points, but I would add that I feel that there is a difference between a payroll deduction IRA and an 403(b) plan since the IRS now says there is; imposing a written plan requirement and requiring the level of employer involvement required in the final regs., I beleive implies a hire standard of care than your run-on-the-mill voluntary benefit.

 

As for the ultimate question of whether school districts have any responsibility for plan investments, I cannot point to a law that definately states that they do, but with many reputable organizations (e.g. Reish and Luftman, Center for Fiduciary Studies, etc.) indicating that they do. I'm not convinced that, in an era where there are congressional hearings over retirement plan fees and where 401(k) plan sponsors are being sued over alleged ERISA breaches that are seemingly not present at all in ERISA, that these organizations are all incorrect in what might be a practical, as opposed to a legal postion.

 

If the SD is required by the regs. to become more involved in their plan (or hire a third-party desginee to do so) regardless of whether fiduciary law applies (due to the coordination of loan rules, distribution rules, etc.), and probably will reduce the number of investment providers, would it not make sense merely from an employee relations perspective NOT to limit the offerings to providers that would offer imprudent investments (which, by the way, I would define as ones that would not satisfy a fiduciary standard of care under applicable law) with unreasonable costs? In an environment where there has been increased particpant litigation over the quality of investment choices and the level of fees, I believe the answer is yes. But, of course, I've been wrong before!

 

 

What provision of the IRS 403b regs imposes fiduciary requirements on an employer who remits voluntary employee contributions to a 403b plan? The common denominator is that neither the rules for IRAs under IRC 408 and IRS IRA regs and IRC 403b and the IRS 403b regs impose any fiduciary duty on the plan sponsor and both are exempt from ERISA.

 

What is the level of employer involvement in the IRS regs that mandates such a responsibility in a 403b plan if the contributions are voluntary and the employee makes the investment choice. Please provide a cite. I dont know of any legal principle or state law that would make the employer a fiduciary under those circumstances since the employer does not have discretion over the investment of the funds. The lack of employer fiduciary responsibility is consistent with the UPIA which only applies to a trustee who has discretion over the investment of the funds and state case law which holds that an IRA custodian has no fiduciary liability under state law because he does not have discretion over investment of funds chosen by the employee.

 

In reponse to your reliance on statement made by reliable organizations regarding fiduciary liabilty for employers in 403b plans, years ago many scholors and practitioners concluded that cash balance plans violated the federal age discrimination law and published scholary law review articles demonstrating the legal provisions for their conclusions. As of today the fed appeals courts in three circuits have held that there is no ADEA violation in CB plans and no appeals ct has held that CB plans violate the ADEA. So why should we rely on on practitioners off the cuff speculation regarding fiduciary liability of SD in 403b plans as being an indicaton of employer liability withouut any confirmation from the courts?

Share this post


Link to post
Share on other sites

I was only stating that you cannot equate the standard of care that is required of an employer for a 403(b) plan with the standard of care required for a payroll deduction IRA, since the IRS does not equate it; via these 403(b) regs, they are clearly stating that the employer (or its designee) has many responsibilities; there are no similar regs. for payroll deduction IRAs. Regardless of the fiduciary argument, more employer responsibiltiy = more potential employer liability in my book, whether as a fiduciary or not.

Share this post


Link to post
Share on other sites

But there are no the fiduciary obligations that Joel continully asserts are now required for 403b plans. The obligations that are required of the employer under the 403b regs are the same obligations that have existed for over 20 yrs such as universial availability, 402g compliance, 415 limits, etc which must be stated in a written document.

Share this post


Link to post
Share on other sites

I have read through all the responses here, and there seems to be one heck of a hang up on a word here.

 

No, the IRS regulations do not state that a plan sponsor, SD, has fiduciary responsibility.

 

However, the new regs do state that the sponsors have increased responsibility.

 

The reason that this argument will never end is that there are different definitions of the term "fiduciary" here. From what I gather, intruder is looking for a stated ERISA fiduciary duty...for which there is none.

 

And Sierra and BenefitsGeek are arguing that the new responsibilities suggest/culminate in a fudiciary responsibility, which is also true.

 

Everyone needs to just agree to disagree. Unless there is an agreement on the definition of fiducuary.

 

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...