Data and Research

403(b)s Rethinking Adviser Choices Due to DOL Fiduciary Rule

A new survey by the PSCA also found that more than half of 403(b) plan sponsors expect to make no change in light of the fiduciary rule scheduled to go in effect this April.

By Javier Simon editors@strategic-i.com | December 14, 2016

Even though 70% of 403(b) plan sponsors are aware of the Department of Labor’s Conflict of Interest rule, which takes effect in April 2017, less than half of small sponsors are aware of this major regulatory shift in the industry, according to a survey by the Plan Sponsor Council of America (PSCA).

In addition, more than half of respondents (59%) plan to make no change in light of the new rule, which extends fiduciary responsibility as defined by Employee Retirement Income Security Act (ERISA) to virtually anyone providing advice to a retirement plan.

The survey also highlighted strategies some plan sponsors are taking to comply with the DOL rule including hiring a fiduciary adviser or switching to one (24%), changing investment lineup (19%), and reevaluating plan governance structure (15%).

“Though the impending Department of Labor fiduciary regulatory package has certainly raised awareness of fiduciary responsibilities, plan sponsors who are unsure of their role—especially those small organizations—should review their plan governance processes with their service providers and advisers,” suggests Hattie Greenan, PSCA’s director of research and communications.

In addition, the study found that 40% of all plan sponsors feel their plan service providers act in a fiduciary capacity, while 50% say their plan adviser is not a fiduciary.

And even though the Trump administration with an outspoken regulatory critic as DOL secretary casts some uncertainty on the future of the fiduciary rule, many industry experts argue any pushback will likely not take place by the time the rule is implemented. They urge plan sponsors and advisers to proceed with strategies for compliance.

“This environment strongly suggests that all plan sponsors work with advisers to understand the various fiduciary roles and how responsibilities are fulfilled,” says Aaron Friedman, tax-exempt national practice leader at Principal Financial Group. “It will be a collaborative industry effort among advisers, plan sponsors and service providers.”

The 403(b) Snapshot Survey by the PSCA was sponsored by the Principal Financial Group. It reflects responses from 281 not-for-profit organizations that currently sponsor a 403(b) plan. For more research, analysis and insights from Principal, visit the Principal Knowledge Center.