Retirement Plan Litigation Spreads to 403(b) Plans

Litigation alleging breach of fiduciary that has beset large 401(k) plans for the last decade has now spread to the not-for-profit world as numerous large higher educational institutions sponsoring 403(b) plans have been sued recently for fiduciary breach. Often misunderstood, or not understood, is that the fiduciary duty of 403(b) plan sponsors is to make sure that their fees are reasonable and that their investments are prudent for 403(b) plans.

Primary points of contention in the recent 403(b) lawsuits allege that the plans:

  •  have multiple record-keepers;
  •  have duplicative, excessive and high-cost investment choices;
  • have no process to monitor fund, recordkeeping and administrative expenses;
  • pay recordkeeping fees that are asset-based rather than a per participant rate;
  • fail to have a Stable Value Fund and instead provide a money market account; and
  • offer only actively managed funds to the exclusion of low-cost passively managed index funds.

 Although both the 401(k) and the 403(b) litigation has involved mostly billion dollar plans, there is a fair and genuine concern that this litigation will spread to plans with fewer assets as many of these plans have similar issues with less plan sponsor  structure  and processes currently in place to meet plan fiduciary duties to monitor the reasonableness of plan fees and the prudence of plan investment options.

We recommend that plan sponsors independently review their overall fiduciary oversight and processes including, but not limited to, plan governance, investment and administrative policy statements, and in-practice implementation and documentation of such policies.  Schneider Downs can assist with these endeavors by providing fiduciary checkups and recommending best practices, including assisting with the implementation of such practices. Contact your Schneider Downs representative for further information.


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