403(b) Reform: 403(b)ill of Rights
We the people of the 403(b) plan, in order to form a more perfect retirement vehicle, establish justice, insure investing tranquility, provide for the common fairness, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the 403(b) Investors of the United States of America.
Amendment 1. Right to Quality Low-Cost Investment Choices
Colleges and Universities and other non-profit places of employment must offer a variety of quality 403(b) investment choices to all of their workers. Investment options must include, but not be limited to, low-cost (fees less than 0.3%) no-load mutual funds spread among a broad range of asset classes and include Target Date Retirement Funds.
Amendment 2. Fiduciary Pledge
Anyone selling 403(b) product must sign a Fiduciary Pledge requiring them to put their client's interests above their own. Here's a link to the 403(b)wise Advisor Fiduciary Pledge.
Amendment 3. Union Ethics
Unions must cease accepting "donations" or any other financial support from financial institutions that sell 403(b) products to their members. Furthermore, Unions should take an active roll in demanding better 403(b) plans.
Amendment 4. Full Performance and Fee Disclosure
Vendors must supply a clear breakdown of all fees (including M&E charges, loads, exit charges, operating costs, maintenance fees, and 12b-1 fees), surrender penalties, and performance data. At a minimum, five-, ten- and 20-year performance numbers must be included. Comparisons to benchmark indexes must also be included.
Amendment 5. Right to Objective Financial Education
Employers must provide objective plan information to employees. They should make unbiased 403(b) information readily available to employees via handouts and/or web-based information.
Amendment 6. End to Unreasonably Long Vendor List
Plans should contain a manageable number of quality vendors. Regular audits should be conducted to achieve this goal. Furthermore, employers should employ the Request for Proposal (RFP) process to ensure vendor quality.
Amendment 7. Knowledgeable Benefits Administrators
Benefits administrators must possess 403(b) training and knowledge. Moreover, they must be permitted the freedom to assist employees without fear of legal reprisal.
Amendment 8. End Agent Trawling at Schools
Sales agents must not be allowed to provide "free" lunches and "info" seminars at schools. See What's That Fishy Smell in the Teachers' Lounge?
Amendment 9. End to the Term TSA
The 403(b) plan should be known as just that: the 403(b) plan. Calling it a TSA or a TDA is confusing and leads participants to believe they can only invest in annuity products. All IRS and payroll documents should reflect this change.
Amendment 10. Add a 457(b) Plan
Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) school employees who have a 403(b) and 457(b) plan available can now contribute the maximum ($18,000 for 2015) to each plan for a total contribution of $36,000 in 2015. Participants eligible for "catch-up" provisions can contribute even more.
That is it. Ten simple ideas that are hardly revolutionary.
What might school districts and other non-profit employers hope to gain by implementing this 403(b)ill of Rights? How about more happy, loyal, dedicated employees.
What if all 403(b)-eligible employers started viewing the 403(b) as an employee benefit? What if they started using their plans as recruiting tools to attract potential employees? Now that would be revolutionary.
It is our goal that this document find its way into every school district, school union, and other non-profit places of employment in the land. Use it to fight for the basic investing freedoms 403(b) participants deserve. Use it to unshackle the tyranny of high-fee investment products. Use it to educate the uneducated. Make this the 403(b) document heard around the world.
Like the Constitution itself, we consider the 403(b)ill of Rights a work in progress. Articles and amendments could and should be added as necessary. Our battle cry? We have only just begun to fight!
Higher Ed Stories
Inga Chira is a professor and a CFP®. Here is her perspective on the 403(b) vs. 457(b) question.