For 403(b) plan sponsors — a defined contribution plan for nonprofit organizations — the mere definition of fiduciary may be confusing.

Many mistakenly believe that if they are not named a fiduciary, then they have no fiduciary responsibility. However, a fiduciary is based on the functions performed for the plan.

What’s more, nonprofits may think their retirement plan does not need to comply with the Employment Retirement Income Security Act (ERISA), but 403(b) plans need to comply with fiduciary obligations and requirements. ERISA sets the guidelines for fiduciary responsibility.

Nonprofits are considered a fiduciary when they select and monitor plan investments; a plan provider or recordkeeper doesn’t limit their fiduciary responsibilities.

Steps to take for best fiduciary protection

Even though nonprofit organizations may have a small staff and different financial considerations than a typical for-profit company, their responsibilities in their retirement plans are generally just as stringent.

Sponsors of retirement plans are generally subject to ERISA, whether they’re defined benefit, a 401(k) or a 403(b). To optimize fiduciary for a defined contribution plan like a 401(b), here are six critical steps to follow:

1. Document actions and the process for making decisions on behalf of plan participants, and periodically review documentation processes.

2. Act in the best interest of your plan’s participants and beneficiaries.

3. Follow ERISA guidelines on structuring the 403(b) plan.

4. Create written plan governance policies and follow them.

5. Provide annual fiduciary training for retirement plan committee members.

6. Pay attention to and follow state laws that apply to the plan.

How to stay in step with ERISA

Once the above steps are in place, it’s important to maintain ERISA compliance by doing the following:

• Engage an independent fiduciary advisor to monitor the plan’s investments.
• Check if the plan fees are reasonable by benchmarking them periodically against similar plans.
• Check — and doublecheck — if there any conflicts of interest between plan vendors and the nonprofit.
• If the plan offers proprietary funds only, benchmark against funds from other vendors.
• Audit and review the entire plan: The U.S. Department of Labor (DOL) wants plans reviewed regularly and are updated as needed to serve the best interest of employees.

Understand that you don’t need the highest fund returns or the lowest expenses to meet the fiduciary responsibility. Also, certain activities are not subject to ERISA, including establishing the plan, initially determining eligibility and plan termination.

Education is the plan sponsor’s responsibility

The 403(b) plan sponsor needs to educate participants in how the retirement plan works. And there are several considerations that plan sponsors need to account for in plan education.

First, plan sponsors need to be aware that their employee base will have different needs of their retirement plan, and different levels of sophistication. The financial needs, interests and risk tolerance will differ between someone who’s nearing retirement versus one just embarking upon their career.

Different employees will respond to different communication and educational tools as well. This includes online calculators, town-hall meetings, webinars and one-on-one meetings with an advisor.

Finally, an often-overlooked aspect of education is making sure they understand the investment choices within their plan, as it can be difficult to understand the differences between different investment structures.

Contact us to learn how HUB International’s dedicated team of employee benefits advisors can help your organization.

This content is for general information only and is not intended to provide investment, tax or legal advice or recommendations for any particular situation or type of retirement plan. Please consult with a financial, tax or legal advisor on your own particular circumstances.

HUB Retirement and Private Wealth representatives may be either HUB employees or independent contractors and may be Registered Representatives of and offer Securities and Advisory services through various Broker Dealers and Registered Investment Advisers; which may or may not be affiliated with HUB International. Insurance services are offered through HUB International and several other appropriately licensed and registered HUB affiliates. Consult your HUB representative for additional information about the provision of specific securities, investment advisory, and insurance services.