why would I be forced to a single vendor?

[Effen]

First, I am not a 403(b) person, but a friend of mine asked me why his mission (church plan?) recently told him that all new contributions would go to a new 403(b) vendor and that he could no longer use the vendor he was currently using. Apparently old money was allowed to stay, but new money needed to go to the new vendor. The remaining single vendor was available under the multi-vendor arrangement.

When he questioned them, they responded that a new Federal law is forcing them to use a single vendor.

I poked around and didn't see any requirements to use a single vendor. Is there some reason why they would have forced this?

Also, the new vendor doesn't offer any target retirement age funds, but it did offer "active management". Don't 403(b)s have issues with default options? As we see 401(k)'s nudged into offering target funds, aren't 403(b)s being nudged as well? The plan does have a match, so it would seem that a default fund would be necessary.

Any comment would be helpful.

[J Simmons]

The 2007 regs for 403b plans do not require the employer to choose a single vendor for new contributions, but some employers choose that route. The single vendor promises "free" administration in exchange for being the exclusive investment vendor on all new contributions. The employer might want to check its liability potential under state law for hidden fees and other issues related to net investment underperformance before it undertakes a single vendor approach. If it's a church plan, it is exempt from ERISA concerns in this regard.

403(b)s that are subject to ERISA could avail themselves of the QDIA rules regarding fiduciary liability issues. The QDIA principles could be used as 'good form' for possibly minimizing the employer's liability (if any) under state law for limiting investment options.

[Kevin C]

Target date funds are not the only acceptable QDIA's. You can also use a balanced fund with an appropriate risk level for participants in the plan as a whole or a managed account option that meets certain criteria.

[Effen]

Thank you both for responding.

I realize that the QDIA don't require a target date fund, but they seem to be popping up in many 401(k)s due in large part to the QDIA Regs. My question really was, why aren't they popping up in 403(b)s, or are they?

[Kevin C]

We don't have target date funds in any of our 403(b)'s. All of our 403(b) clients use custodial accounts, so they are limited to mutual funds for investments. Our target date funds are collective investment funds (fund of funds), so they are not allowed as investments in 403(b) custodial accounts.