Retirement Plans
What a nonprofit board owes its 403(b) participants
The short answer
A nonprofit board that sponsors a 403(b) plan holds fiduciary duties to participants: prudent selection and monitoring of investments and providers, reasonable fees, and documented process. Legacy annuity contracts and unmonitored multi-vendor arrangements are the two most common problems.
Nonprofit boards spend their meetings on mission and budget. The retirement plan appears once a year, if that, usually as a line item nobody questions. Meanwhile the board is a plan fiduciary, and the duty runs to employees who are counting on the plan.
The obligations are not exotic. They are just rarely explained to the people who hold them.
The duties, stated plainly
- Act for the exclusive benefit of participants, not the organization's convenience or a vendor relationship.
- Select and monitor investments through a prudent, repeatable process you can evidence.
- Make sure fees are reasonable for the services the plan receives.
- Follow the plan document, and fix it when practice has drifted from what it says.
- Monitor anyone you delegated to, including the advisor and the recordkeeper.
Where nonprofit plans commonly drift
Legacy annuity contracts
Many 403(b) plans were built on individual annuity contracts sold to employees one at a time, sometimes decades ago. These often carry surrender charges, restricted investment menus, and costs well above current alternatives. They also tend to be difficult to move, which is how they survive review after review.
Difficult to move is not a reason to stop looking. The fiduciary question is whether you have examined the arrangement and reached a documented, reasoned conclusion.
Multiple vendors, no oversight
A plan that accumulated three or four providers over the years gives participants an incoherent menu and gives the board no consolidated view of cost. Nobody chose this structure. It accreted.
No committee and no minutes
Fiduciary compliance is proven with documentation. Where there is no committee, no charter, no investment policy statement, and no minutes, a board that has in fact been careful has no way to demonstrate it.
A reasonable first year
Form a committee with a short written charter naming who serves and what they review. Adopt an investment policy statement. Inventory every vendor and contract, including the legacy ones. Get an all-in cost figure. Benchmark it against comparable plans. Record what you decided and why.
None of that requires a large organization. It requires somebody to own it, which is usually where we come in.
This article is general information and is not investment, tax, or legal advice, and it is not a recommendation of any security, strategy, or product. Rules and limits referenced here change, and outcomes depend on facts specific to you. Talk to your own tax and legal advisors before acting. Advisory services are offered through Farther Finance Advisors, LLC, an SEC-registered Investment Advisor. See our disclosures for the full text.
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