If your non-profit organization is offering employees a 403(b) plan, then your team has an important savings tool at their disposal. Keeping a retirement plan like a 403(b) running smoothly can be a lot of work, and many non-profits turn to a 403(b) advisor for help.
It’s easy to assume that a 403(b) is simply the non-profit version of a 401(k) – a vehicle that allows employees to invest in a tax-deferred account during their working years. While the 403(b) and the 401(k) are similar, there are some important differences. And because non-profits have been able to offer either a 401(k) or a 403(b) since 1996, understanding the differences can help you determine if a 403(b) is the best fit for your organization.
Why hire an advisor to your 403(b) plan?
From a plan sponsor’s perspective, a 403(b) may offer less administrative hassle than a 401(k), and as a result, might be a less expensive alternative. For example, churches with 403(b) plans are not subject to non-discrimination testing, nor are government employers in many cases. Other private non-profits can be subject to the ACP non-discrimination test when employers make contributions. However, 403(b) plans are not required to undergo the ADP and top-heavy tests that 401(k)s must perform.
While the rules regarding a 403(b) plan may be less complicated than a traditional 401(k), staying on top of the regulatory changes can be challenging, even for the biggest non-profit.
And that brings us to the first of the four reasons that you may want to consider hiring an advisor.
Four reasons to hire an advisor to help manage your 403(b) plan
- Reduce administrative headaches and lower your workload. Even if your non-profit is large, you may not be able to dedicate staff to oversee your organization’s plan. Even non-ERISA plans can have a lot of moving parts, and checking off your 403(b) “to-do” list may seem like a never-ending task. If you are a non-profit operating an ERISA plan, who handles the Form 5500, whether it’s the abbreviated version or the whole package? If your 403(b) is increasing the number of hats you are wearing, you may want to consider adding a 403(b) advisor.
- Understand and reduce your fiduciary liability. If your plan is an ERISA plan, the plan sponsor has several key fiduciary responsibilities. These include reviewing and evaluating investment funds, ensuring the plan remains in compliance with non-discrimination testing and providing investment education to employees. That’s a heavy load even for a large employer with a dedicated HR department. Fortunately, a 403(b) advisor can take on many of the fiduciary responsibilities associated with non-profits retirement plans. While not every advisor will do it, an advisor who provides 3(16) fiduciary services, for example, can handle key administrative tasks, and remove the fiduciary responsibility associated with them. When it comes to non-ERISA plans, there are still fiduciary duties but these can vary based on state laws.
- Lower your costs. Yes, it is entirely possible that you could add an advisor to your non-profit’s retirement plan and lower your costs. Some studies indicate that non-profits spend too much on investment fees at the expense of plan participants. Aon Hewitt has even put a number on estimated waste in the management of 403(b) plans: $10 billion a year. Experienced advisors bring negotiating power to the relationship that you have with your recordkeeper. In addition, an advisor can help you find a low-cost fund lineup. Keeping fund expense ratios low is critical to offering a plan that can help your employees build retirement savings. If you are working with an advisor, make sure you understand how they are being compensated, and ask if they are getting any commissions on the funds that they are recommending to your staff.
- Delegate the search for low-cost investment options. Unless you have hired a 3(38) advisor, one of the biggest hats you are wearing is that of investment manager. ERISA requires fiduciaries to prudently select and monitor 403(b) plan investments. With all of your other duties, are you able to continually monitor the funds to make sure that they remain appropriate? Do you have a set of criteria for putting funds onto a watch list, and are you regularly reviewing your funds’ performance? Are the fund expenses reasonable, or are lower cost similar funds available from your current provider – and do you have a rationale for not choosing those lower cost options?
If you hire an investment advisor to come up with a suitable mutual fund line-up, that advisor may be acting as a 3(21) fiduciary. If so, you are still the plan’s investment fiduciary, and liable for investment decisions. If you want to delegate the work and accountability for selecting the plan’s investments, make sure to hire a 3(38) fiduciary.