If you are the sponsor of a 403(b) retirement plan, you may be asking if it is possible for your organization to be sued over your retirement plan fees. Historically, lawsuits have primarily been filed against for-profit companies sponsoring 401(k) plans. But litigation from 2016 suggests not-for-profit organizations are being scrutinized for their retirement plan fees, as well. The law firm Schlichter, Bogard, & Denton targeted numerous high-profile universities, including Yale University, the University of Pennsylvania, New York University, and the Massachusetts Institute of Technology on behalf of retirement plan participants who alleged their recordkeeping and investment costs were too high. Plaintiffs also alleged that there were too many investment options offered in the 403(b) plans, which created confusion, with many underperforming peer benchmarks.

Any not-for-profit organization that sponsors a 403(b) retirement plan subject to the Employee Retirement Income Security Act of 1974 (ERISA) holds a fiduciary responsibility to operate the plan solely in the best interest of participants. 1 This generally involves reviewing the total costs of the program to ensure reasonableness, benchmarking investments against peers, minimizing the number of recordkeepers, and providing a diversified array of investment options available to all participants. Organizations are able to minimize some of their fiduciary responsibility through the use of third-party providers, but it is important to note that they aren't able to eliminate all responsibilities.

In light of these lawsuits and the recent continuation of certain cases, not-for-profit organizations may want to take a close look at their 403(b) programs, and if necessary, make some changes to help minimize fiduciary risk. Some of the risks can be alleviated by simply documenting the good efforts made to investigate the retirement plan's investments and fees. The following tips may help you prevent a costly lawsuit.

Lawsuit Topic


Retail Share Class Investments

Retail investment options tend to be pricy. Your organization should use the lowest cost institutional share class available to its retirement plan investments.

High Revenue-Sharing Fees

Some funds may perform well, but participants don't receive the full benefit because of administrative fees involved. Opt for institutional share class investments or use a fee levelization system to minimize cost.

Multiple Recordkeepers

Too many recordkeepers are like too many cooks in the kitchen. Consolidate to a single recordkeeper to keep administrative fees down and plan management more efficient.

Too Many Fund Options

An abundance of fund options drives up price and creates complexity for plan participants. Keep it simple. Perform fund consolidation and construct efficient investment menus.

Proprietary & Restrictive Investments

There may be benefits to using proprietary options, but you need to do a pro/con analysis to be sure it’s worth the investment. Consider nonproprietary funds as well.

Active Investment Options

Not every plan participant wants to be an investment manager. Offer a diversified investment line-up with actively and passively managed choices. Give consideration to offering target date funds. 

Asset-Based Recordkeeping Fees

Asset-based recordkeeping fees may be extremely costly. Perform periodic assessments of plan fee structure and consider the benefits of using per-participant fees.

Hidden Fees

Failing to fully disclose participant fees is a fast way to make for unhappy plan participants. Ensure your plan is in compliance with ERISA 404(a)(5) and 408(b)(2) fee disclosure rules.

Review with Care

For assistance in assessing the state of your 403(b) plan, enlist the help of an experienced retirement plan consultant. A consultant may be able to quickly assess where your plan could be improved to best serve the needs of your plan participants. For more information, please contact us.

Brad Sieniawski is the vice president and national not-for-profit practice lead for CBIZ Retirement Plan Services.

Footnote 1 Plans not subject to ERISA regulation may be subject to state fiduciary laws which may invoke similar duties. 

CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, third party administration, actuarial and other retirement plan services. Investments and investment advisory services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.

Published on April 23, 2018