A new Connecticut law will increase transparency on fees and potential conflicts of interests covering non-ERISA 403(b) plans, putting them closer in responsibility to their ERISA peers.
Industry experts say the Connecticut law — signed late last month by Gov. Dannel Malloy covering plans in K-12 school districts — appears to be the first in the country to require non-ERISA 403(b) plans and vendors to abide by rules similar to those of ERISA plans. The law, they add, could prompt action by other states.
"The K-12 plans need lots of improvements," said Dan Otter, co-founder and owner of 403(b) Wise, a website that tracks developments and provides information about 403(b) plans, including discussions of legislation and regulation throughout the country.
"The big difference is the much higher level of fiduciary standards for ERISA plans," said Mr. Otter, associate dean of the School of Continuing Studies at the University of Redlands, Redlands, Calif. Regarding the Connecticut law, Mr. Otter said: "I love it."
The Connecticut legislation was proposed by state Rep. Matthew Lesser, who said he was prompted to examine non-ERISA 403(b) plans after reading articles that described plan vendor practices and teachers' experiences.
"We heard concerns from teachers in Connecticut who invested in products that they regretted because they weren't aware of the fees and charges," said Mr. Lesser. The law takes effect Oct. 1 but gives plans until Jan. 1, 2019, to comply.
The law requires that a "political subdivision" — such as a school district in a town or city — that offers a 403(b) plan must disclose the fee ratio and return, net of fees, for each investment to each participant.
The law also requires that plans disclose "fees paid to any person who, for compensation, engages in the business of providing investment advice to participants in the retirement plan either directly or indirectly through publications or writings." It also requires that disclosure be made to participants when enrolling in plans and at least annually thereafter.
A major difference between ERISA and non-ERISA plans is that non-ERISA plans are exempt from filing a Form 5500 with the Department of Labor. Non-ERISA plans also aren't subject to the DOL's fiduciary rule or the DOL's fee transparency regulations.