Case Study: Higher Education Institution
Situation:
For many years, a respected higher education institution relied on one of its key executives, we will call him “Bill,” to fulfill the primary fiduciary role of overseeing the 403(b) plan. Bill wore many hats in his leadership role, attempting to keep the institution’s retirement plan in compliance with ERISA, while also balancing countless other daily responsibilities.
Bill was overwhelmed by the task of managing multiple vendors who provided services to the plan. Without understanding how to properly vett these service providers, he unknowingly signed a contract with a vendor who promised critical plan services that it ultimately did not deliver.
Bill, in his flurry of other management activities, had no time to check contracts annually to ensure their validity, as is required by ERISA – so this vendor was able to abuse its service agreement (and attendant fees) for three years. As Bill operated independently without the engagement of the Board of Directors on fiduciary issues, he was uninformed about his fiduciary responsibilities and, thus, ineffective in complying with ERISA mandates. Due to Bill’s inadvertent mishandling of the 403(b) plan’s vendors, the plan’s participants suffered, and the institution itself was placed at risk.
Approach:
The institution’s CPA auditing firm recognized these plan oversight errors, and warned that it was compelled to report on the institution’s deficient fiduciary management system. Roland|Criss was asked to help sort out the issues and construct a go-forward plan. Partnering with the institutuion’s executive team, Roland|Criss examined the 403(b) plan’s risk management effectiveness within each of ERISA’s key areas of fiduciary responsibility, including:
- Managing relationships with the plan’s vendors and regularly reviewing their contracts
- Evaluating the value of the vendors’ services against the cost of those services
- Providing well-executed participant communication programs
- Ensuring compliance with provisions in ERISA that release the institution’s directors and executives from investment liability
- Assumption of the Plan Administrator role as defined in ERISA Section 3(16).
Because the institution did not have a system in place for managing its 403(b) plan and vendors, Bill:
- signed a vendor contract for services that he did not fully understand, and
- did not have a process for monitoring the value of that contract on a regular basis.
Roland|Criss helped the institution’s leadership understand its deficiencies in key fiduciary areas, and then implemented a best-practice fiduciary management system that would safeguard the plan from similar risk in the future.
Result:
The primary need of the institution was to have a dependable fiduciary supply chain process in place that would recognize faulty vendor contracts, avoid excessive vendor fees, and protect the institution from legal liability.
Roland|Criss identified the inappropriate practices of the vendor Bill had hired – who had been overpaid by approximately 50% each year and charging for services that were never delivered. Roland|Criss identified and arranged for a new vendor to serve the plan, who was accredited in their area of expertise, provided regular documentation of their practices, and would be a true partner to the institution going forward. Roland|Criss also helped the leadership to adopt a risk management process that aligned with best practices and maintained the plan’s governance compliance under ERISA.
