SEC Investigating Administration of 403(b)s, 457s

The Securities and Exchange Commission (SEC) has launched an investigation into whether federal securities laws have been violated by companies that administer teachers’ retirement plans.

According to The Wall Street Journal, the SEC has sent letters to companies that administer the plans seeking information that will help the agency determine whether violations have occurred. The Journal reports that the SEC wants detailed information on how those administrators select investment options and how they handle situations in which there may be a conflict of interest. Robert Toth, principal in the Law Office of Robert J. Toth, Jr., LLC , reports that the SEC sent at least two letters to TPAs on Sept. 4, 2019.

The Journal also notes that the SEC is interested in:

• the compensation the administrators have received since Jan. 1, 2017 as a result of referring investors to specific investment options or companies, and documents related to that compensation;
• “information and documents” concerning how investors receive investment counseling;
• explanations concerning gifts administrators received from investment vendors; and
• organizational charts showing companies that own, are connected to, or are partners with plan administrators.

What it Means

So why is the SEC taking this action? Toth offers some insight, remarking, "Remember, the SEC sees the 403(b) participant as the shareholder, unlike 401(k) plans where the trustee is viewed as the shareholder." He says that what's significant about this investigation is that the SEC "went after producing TPAs, which is really unusual, and opens a lot of doors for them; it also sweeps in ERISA 403(b)s, not just K-12."

And Toth adds that the SEC action "very possibly" has broader implications. "They are looking at a non-financial service company service provider — and the SEC shares data with the DOL per their Memorandum of Understanding of a few years back," Toth said.