Financial Planning Stuff You Need to Know

If you are contributing or sponsor a 403(b) there are some changes coming that you should know about. Beginning in 2009 403(b) plans will have to look much more like 401(k) plans behind the scenes.  This means:

• 403(b) plans will have a fiduciary responsibility to their participants like 401(k) plans.
• They will have to have a Plan Document and Investment Policy Statement like 401(k) plans.

How does that affect you?

If you are a plan sponsor you will be required to:

• Ensure that your plan’s costs are reasonable (some high cost annuity plans have expenses in excess of 2% per year that is really high!)
• Have a written Investment Policy Statement that outlines how the investment choices in the plan are made and how you ensure your costs are reasonable.
• Take fiduciary responsibility for the plan. That means that you are on the hook!  One way you can show you are taking fiduciary responsibility is to contract with a Registered Investment Advisor to advise you on the plan’s investment choices, and provide education to your employees.  If you choose to work with an adviser make sure that your advisor is independent does not receive compensation from any investments that he or she recommends.  You can find one at www.napfa.org

If you are a plan participant:

• You will be able to hold your employers accountable if you have a bad plan.  I define a bad plan is one with ongoing asset based expenses in excess of 1.5% per year. A really bad plan would be one with ongoing asset based expenses in excess of 2% per year.  These expenses include mutual fund expenses, wrap fees, annuity fees, commissions and any other fees that are based on the assets in the plan.  If enough people complain your employer may change the investment choices and fee structure of your plan to lower cost options.
• You will be able to complain to the Department of Labor if you feel that your employer is not meeting it’[s fiduciary duty to keep plan costs reasonable.
• You will still have the right to choose a mutual fund company outside of the choices provided by your employer but that mutual fund company will have to be approved by your employer.

What can you do now?

• If you are a sponsor read the IRS model plan language at http://www.403bwise.com/pdf/model_plan_irs.pdf
• Find out the cost of your current plan.  You can request a list of Questions to Ask about 403(b) Plan Costs by contacting me through the Contact page of the Long & Associates LLC website.
• Start planning for the changes now. You may want to engage the services of an advisor and record keeper who works with 403(b) plans to review your current investment options, and begin drafting a new plan document and Investment Policy Statement.
• Keep up on the changes as the regulations are written at www.403bwise.com