403(b) retirement plans are generally provided for government and public university employees. While like 401(k) plans in some ways, these retirement plans are designed specifically for tax-exempt entities. 457 plans are often offered to government workers and nonprofit groups, and they and allow bigger catch-up contributions than their counterparts.

Recently, 403(b) plans have come under fire from lawsuits challenging the investment options and fee agreements for these plans. These plans, and the agreements to operate them, have often been in existence for decades, meaning that controversial decisions regarding the plans can go back many years and impact a significant number of plan participants.

Request for Information from the Securities Exchange Commission

The SEC sent letters to a number of companies administering 403(b) and 457 plans as the first step in investigating those plans for violations of securities laws. The probe is a result of the New York Department of Financial Services looking into 403(b) plans that are taking advantage of teachers and selling them high-cost, inappropriate investments.

The letters request plan administrators provide the SEC with details on plan decision-making processes and procedures. Specifically, the SEC is looking into how plans are offered to teachers and government workers, who choose the plan investments, and how the plan polices itself.

As part of this request, the SEC is looking into compensation given to plan administrators in exchange for referring plans to specific service providers or funds, gifts plan administrators have received from those companies, information on how investment counseling is provided, and organizational charts.

Impacts for Plan Administrators

At this point, it is unknown how many plans are impacted by the SEC investigation, but administrators of these types of plans can look to this investigation to better understand what the SEC is concerned about and take steps to improve their related plan policies and procedures. While it is likely that this round of information request will lead to action and even litigation by the SEC, the extent and impacts of this are not yet known.