Non-ERISA 403(b) plans
Arguably, the plan participants most exposed to inappropriate product placement are those in public school plans. Yet, these participants are excluded from much of the fiduciary rule’s protections, except where an adviser makes the recommendation to rollover those funds to an IRA. This is the same for state university 403(b) plans, as well as non-ERISA 403(b) plans for private tax exempt orgs-including “non-electing” church 403(b) plans (churches can elect to be covered by ERISA). Why? Because these plans are not subject to ERISA, and 403(b) plans are excluded from Code Section 4975 (which is the prohibited transaction section under the Tax Code which makes the DOL rules apply to non-ERISA IRAs). This non-application really does have the potential to have a number of ancillary effects on those products, which constitute a significant percentage of the marketplace. I would also think it would serve as further incentive for the DOL to limit the application of the 403(b) “safe harbor” rules which are otherwise used to prevent ERISA’s application to certain 403(b) plans.
My only critique is that Bob believes the Rule applies to rollover advice from a 403(b) and in a previous webcast Attorney Fred Reish said he doesn't believe it does. This will have to be sorted out.
Scott Dauenhauer, CFP, MPAS, AIF
