SEC also wants to see how administrators counsel participants on investing, as well as explanations for any gifts administrators may have gotten from companies selling investments. (Photo: Diego M. Radzinschi/ALM)
Companies that administer teacher and government worker retirement plans are on the receiving end of letters from the SEC about an investigation that will look into, among other things, high-cost investment products.
That's according to a report in The Wall Street Journal, which cites an SEC document saying that the agency "is conducting an investigation" to see whether "violations of the federal securities laws have occurred."
At issue is not only the prevalence of high-ticket products but also how administrators police themselves in the event of conflicts of interest, as well as "documents pertaining to any compensation the administrators have received since Jan. 1, 2017 for referring investors to specific investment options or companies," according to the report.
It's no small matter, since 403(b) plans alone accounted for more than $1 trillion in assets in 2017, the most recent year for which data are available.
Michael Pieciak, commissioner of financial regulation for Vermont, is cited saying that earlier in the year, SEC Chairman Jay Clayton voiced concern about how high-cost investments dominated the choices available in teachers' retirement accounts.
According to the report, the triggering element of the investigation is not known, nor is the number of 403(b) and 457 plan administrators on the receiving end of those SEC letters. There's room for question, however, since although 403(b) and 457 plans stand in the place of 401(k)s for these workers, there's no protection imposed by federal pension laws.
Such plans are instead covered by state laws that do usually require government entities to operate in the best interest of their employees. Neither enforcement nor penalties are as stringent as federal measures, according to Bob Toth, an attorney in Fort Wayne, Indiana, who specializes in employee benefits law and is cited in the report.
However, according to Toth, many administrators of 403(b) and 457 plans do fall under the SEC's purview if also registered as broker-dealers or registered investment advisors. In addition, the SEC also has jurisdiction over individual registered representatives of such companies—and since some of them also work for 403(b) and 457 plan administrators not otherwise subject to the SEC, their presence opens the door to agency concerns.
The report adds that the SEC also want to see "information and documents" on how administrators counsel participants on investing, as well as explanations for any gifts administrators may have gotten from companies selling investments. It also wants to inspect "organizational charts that show companies that own or have ties or partnership with 403(b) or 457 plan administrators," the report said.
Recently the New York Department of Financial Services opened a probe of insurance industry practices in the 403(b) market, wanting to know how life insurers market retirement-income products to teachers to see whether such products are appropriate and whether the costs of such products are reasonable.
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
