Neese: ‘You Make the Difference’
At a Jan. 25 session of the 2018 NTSA Summit in Houston, NTSA Executive Director Brent Neese outlined the top 10 issues currently affecting state advocacy and the 403(b) market, and called for active engagement by NTSA members. “You make the difference,” he told attendees.
Neese’s top 10 issues, in descending order:
10: Asset Size and Growth.
The assets contained in 403(b) plans exceed $1 trillion, according to the Investment Company Institute. Neese added that 457(b) plans are the fastest growing of all the different kinds of defined contribution plans, with a recent growth rate of 80%. In second place are 401(k)s, at 75%; 403(b)s are in third place at 42%.
9: Excessive Fee Litigation.
Litigation continues to expand to new fronts, said Neese, noting that more than 70 such lawsuits have been set in motion. Not only that, he said, they also involve use of general account products. Lawsuits are challenging the use of proprietary investment options, he says, as well as the use of retail mutual funds rather than collective investment funds or separately managed accounts. Neese added that one should not expect this to go away anytime soon, warning, “There will be a substantial increase in liability for financial advisors.”
8: Transitions of DC Accounts.
Institutions of higher education and health care institutions are continuing to move from 403(b)s to 401(k)s. Neese called this “the default option” and said that it is “a trend that will continue.”
7: Regulatory and Legislative Changes.
Neese observed that there are many measures, some proposed and some enacted, that would have an impact on retirement plans. President Trump signed the Tax Cuts & Jobs Act into law on Dec. 22; other such measures that have not been enacted but may be in the hopper include the Retirement Enhancement and Savings Act, the Retirement Plan Simplification and Enhancement Act and the Automatic Retirement Plan Act.
6: Charter Schools.
These schools continue to proliferate, Neese noted, and are the “fastest growing segment in K-12 education.”
5: Automatic Enrollment.
Auto enrollment is “on the rise” for non-ERISA plans, Neese noted, telling attendees: “It’s very important that we as a community lead” regarding best practices for opportunities in this area.
4: State Standards of Care and Fee Disclosure.
Neese cited activity in Nevada, New York, Connecticut and New Jersey regarding state standards. He said that a new proposal in New York “goes much further than the DOL” regarding fiduciary standards, and that there are bills before the legislatures in New York and New Jersey concerning disclosure. “This is just the beginning,” said Neese, adding that it is “a key issue for 2018.”
3: State Multiple Employer Plans.
Neese noted that 37 states offer 403(b) and 457 plans to public employees, and that “we’ve seen this trend continue.” He said that “NTSA has engaged with state staff” on this, and that “where we have seen states introduce 403(b) plans, the participation rates have been low.”
2: Rising Cost of Retirement and Health Benefits.
Wages and salaries comprise a decreasing percentage of total compensation, Neese said, as the costs entailed with health insurance and defined benefit plans have increased.
1: Pension Reform Continues.
In the last decade, said Neese, 46 states passed some form of pension reform. They have gone from DB plans, mandatory participation, COLAs and the employer bearing all the risk, to 403(b) plans being supplementary accounts to an environment in which employees bear more responsibility and liability risk and COLAs are modified or eliminated.
A Call for Action
“The one thing that stands out loud and clear is that teachers need more help — more leadership — from us than ever before,” Neese told attendees. The NTSA is “actively engaged in protecting local choice” regarding legislation and activity in the states, he said, adding that “protecting access, protecting the advice,” is crucial amid state efforts to impose standards on advisors.