DC plan consultants and other DC industry members acknowledge that 403(b) plan executives have often shot themselves in the foot by failing to always follow best practices. However, they say sponsors have been thwarted in some cases by laws, customs and contracts that have made it difficult to quickly simplify plans and reduce costs.
There are “concerns with contractual structures underlying 403(b) plans that prevent fiduciaries from exercising their fiduciary duty,” said Aaron Friedman, national tax-exempt practice leader at Principal Financial Group, Des Moines, Iowa. Like others interviewed for this article, he didn't comment on specific lawsuits.
“Many contracts still contain archaic provisions that assign all contractual rights to participants, even in ERISA plans where the fiduciary is supposed to control actions on behalf of participants and beneficiaries,” Mr. Friedman said. “It is these limitations that need to be solved prior to being able to look at finding cost efficiencies.”
Still, sponsors can take — or should have taken — steps to improve their plans regardless of certain constraints, consultants say.
“They should make changes before the lawsuits force them to do so,” said Barbara Healy, a Scottsdale, Ariz.-based consultant for SST Benefits Consulting. “They could have used the least-expensive shares. They could have reduced the number of investment options. They could have reduced the number of record keepers.”
Ms. Credico said plan executives should review their governance structure; re-examine investment options “to make sure they are reasonable and effective;” get a better idea of expenses in general and annuities in particular; and regularly benchmark and document fees.
“Consolidate record keepers and investments, and document why you did it or didn't do it,” Ms. Credico said.
Among the Schlichter firm lawsuits, for example, Johns Hopkins University, Baltimore, had five record keepers during the time period cited in the participants' complaint; Duke University, Durham, N.C., had four; and Vanderbilt University, Nashville, Tenn., had four.
The Schlichter law firm also sued on behalf of participants in 403(b) plans offered by Northwestern University, Evanston, Ill.; Yale University, New Haven, Conn.; New York University; Emory University, Atlanta; University of Pennsylvania, Philadelphia; Columbia University, New York; Cornell University, Ithaca, N.Y.; and University of Southern California, Los Angeles.
The law firm Sanford Heisler LLP has also filed a recent lawsuit against two 403(b) plans at Columbia University, New York.
“We are reviewing the complaint and intend to defend the university vigorously,” Beth Fortune, vice chancellor for public affairs at Vanderbilt University, wrote in an e-mail. Her comments echoed many universities' representatives who vowed to fight the lawsuits.
“The university employs a rigorous process to review all aspects of the investment options offered to its faculty and staff to ensure they are administered with the highest degree of care and prudence,” wrote Ron Ozio, director of media relations for University of Pennsylvania.
Several other university representatives defended their practices without commenting on their legal response. “Johns Hopkins University offers its employees a generous and carefully managed program of benefits, including for retirement,” wrote spokesman Dennis O'Shea. “We are in the process of reviewing the lawsuits that were filed against Johns Hopkins and other universities.”