The Wise Cracks Blog by Dan Otter

+

Education
Advocacy

The 403(b) is the Upside Down

Thanks to The New York Times superb five-part series on public 403(b) plans, our little corner of the retirement plan world is getting attention. A lot. Writers Tara Siegel Bernard and Ron Lieber have laid bare the flaws and abuses in public 403(b) plans. 

Judging by the hundreds of comments to the series, many are shocked and angry. They should be. Teachers, church employees and nonprofit workers are flat out being ripped off. They are often paying more than 2 percent in fees for “investments” with onerous surrender charges that are pitched by sales agents who have no fiduciary obligation. Rarely do these employees have direct access to low-cost mutual funds. Worse, sales agents often set up lunches and “info” sessions in staff lounges and places where employees gather. 

Not Like the 401(k)

This is in stark contrast to 401(k) plans where typically a menu of decent to good mutual funds is available. Employees of say, Google, are not swarmed by sales agents during their lunch breaks. Not all 401(k) plans are great but overwhelmingly they are much, much better than public 403(b) plans. The primary reason is that the 403(b) falls outside of the Employee Retirement Income Security Act of 1974 (ERISA) which sets minimum standards for savings plans offered by private sector employers. A secondary reason is that employers either don't know enough about the 403(b) or don't know what to do. 

Stranger Thing

In short, the 403(b) is truly the Upside Down. Fans of the phenomenal Netflix series Stranger Things know exactly what I am talking about. The Upside Down, as described by the site Fandom, is...

“the parallel dimension inhabited by the Monster. It is a dark reflection of the dimension inhabited by humans, containing the same locations and infrastructure, only it is dark and cold, covered in ropy, root-like veins and a kind of web, with spores floating in the air.”

There are three ways we can make the 403(b) Monster more 401(k)-like:

  1. Lobby to have the 403(b) included in ERISA.
  2. Encourage employers to take control of their 403(b) plans. There is no reason school districts can’t start offering direct access to Fidelity, TIAA, T. Rowe Price, and Vanguard. That is unless they are in California, where insurance code 770.3  actually prevents school districts from putting their 403(b) plan out to bid. Groups like the NTSA (formally knows as ASPPA/NTSAA) threatened action against the Los Angeles Unified School District when it was rumored to be looking to reduce its 20 plus vendors to a handful of quality, low cost companies.
  3. If all else fails, grab a box of Eggo waffles and call Eleven!