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403(b) fiduciaries making investment, governance improvements, survey finds

Fiduciaries of 403(b) plans have made improvements in investment selection and plan governance during the past two years, but there is still room for greater gains, according to a survey released Thursday by Plan Sponsor Council of America and Principal Financial Group.

Among these plans, 47.6% said they made investment changes in the past two years such as trimming investment lineups, moving to institutional shares from retail shares, eliminating proprietary funds offered by their service provider, and dropping poor-performing investments, the survey said.

The survey said 17.2% of respondents made governance changes in the past two years such as creating an investment policy statement, reducing the number of service providers or record keepers, hiring an adviser to act as a fiduciary and switching from a non-fiduciary adviser to a fiduciary adviser.

Aaron Friedman, Principal's non-profit national practice leader, said in an interview that he was pleased to see the biggest reason cited by plan executives for making any plan changes was what the survey cited as "ordinary changes in the course of the plan's governance." This was mentioned by 53.6% of respondents. "That's a positive sign," Mr. Friedman said.

Litigation played a role in plans' actions — a reason cited by 17.5% of all plans and by 40% of the largest plans in the survey. "That's not surprising," he said of the larger plans. "They're the ones getting sued."

Other prominent reasons for plans making changes were recommendations by advisers (48.8%), risk-mitigation efforts (32.5%) and enhancement of governance practices (28.9%).

Mr. Friedman cautioned that sponsors still must improve their fiduciary knowledge, referencing the survey's finding that 37.8% of all sponsors — including 34% of the largest plans — believe that their service provider acts as a fiduciary. Services providers "are not generally fiduciaries," Mr. Friedman said.

Among all plans, 12.8% of respondents said they aren't sure whether entities other than the sponsor act as a fiduciary and 15.9% said there were no other fiduciaries. "They're really sticking their necks out," Mr. Friedman said in reference to the respondents who answered "none."

The annual survey, which was conducted in October, featured 300 responses from plan officials, most of whom represent smaller plans ranging from higher education to hospitals to research organizations. Among respondents, 20.4% were from plans with assets of $50 million or more; the rest were from smaller plans.