Employee Waiver for 403(b) no-load investments

[Guest JimD-EBR]

A school district is considering allowing employees to act as their own investment advisor and invest their 403(b) deferrals in no-load funds, outside of the approved service provider listing. Does anyone have such a waiver that they would be willing to share?

Thanks!

[GBurns]

Doesn't the employer getting involved in determining choice of or limiting investment providers etc create an ERISA governed situation?

If so, have they been complying?

[Guest mjb]

Public schools are exempt from ERISA.

[QDROphile]

What is being waived?

[GBurns]

The OP did not state that the school district was a public school district.

[Guest JimD-EBR]

This is a public school district. The majority of employees that participate in their 403(b) work through investment advisors. However, some employees want the work directly with no-load fund companies, without an advisor. The district is looking for a form that would indemnify them from any investment responsibility.

[GBurns]

Isn't such wording already part of either the SRA or other documents that the employee had to sign when enrolling with each provider product?

[Guest mjb]

Who does the SD want to receive the indemnification from and what does it want to be protected against if the employees are self directing the investments. If the SD sends the funds to Vanguard pursuant to the employees direction why would vanguard have to provide indemnification to the SD since it did not solicit the purchase? Do you mean a waiver from the employee? You may need to check state law to see what is a permissible waiver.

[Guest LVanSteeter]

From what I have seen in the past, the school districts want the investment company to provide a blanket indemnification, including but not limited to 402g limits, minimum required distributions, etc.

Basically, the districts want anyone but themselves to be liable for even the most basic parts of having a plan.

[Guest mjb]

they wont get it from vanguard.

[joel]

A school district is considering allowing employees to act as their own investment advisor and invest their 403(b) deferrals in no-load funds, outside of the approved service provider listing. Does anyone have such a waiver that they would be willing to share?

Thanks!

In my view the plan sponsor is breaching its fiduciary duty NOT to have no-load funds on its platform. Having said that please let's not confuse paying a commission to ACQUIRE an investment with the receipt of investment advice. Nothing could be further from the TRUTH. The commissioned or loaded mutual fund is dispensing investment advice to the same degree as the no-load mutual fund. In the first instance the customer is paying a commission to acquire shares while in the second instance the customer is dealing with the mutual fund directly.

[GBurns]

In your experience, where do you usually see the language that the OP is seeking?

I have been out of that market for quite a while but I recall that it occurred in more than 1 place, the SRA, the payroll agreement, the enrollment/participation form and the blanket Hold Harmless.

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The Hold Harmless is usually required by the SD as a condition of getting the payroll slot. Without a payroll slot there would be no salary reduction hence no payment of premium etc. except for transfers between providers, of course.

[Guest mjb]

Joel: No load funds are not going to compete with commission ins co./load funds for employee deferrals because they won't spend the money for the marketing expenses which are required to compete with the commisson cos./load funds for participant's business. No load funds need volume to recover the costs of administering participant's accounts. Asking a no load fund to sign an indemnification agreement with the School district for this kind of business is a non starter. Small school districts are serviced by the commission /load companies because only these co. will spend the money on marketing to bring in the business.

[joel]

Joel: No load funds are not going to compete with commission ins co./load funds for employee deferrals because they won't spend the money for the marketing expenses which are required to compete with the commisson cos./load funds for participant's business. No load funds need volume to recover the costs of administering participant's accounts. Asking a no load fund to sign an indemnification agreement with the School district for this kind of business is a non starter. Small school districts are serviced by the commission /load companies because only these co. will spend the money on marketing to bring in the business.

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You are absolutely right and make an excellent case for cannig the 403b in favor of having the various school districts in the 50 states participate in the 50 statewide 457/401(k) plans.

Joel