How do you know if you have a bad 403(b) plan?
Unfortunately, many educators have bad choices regarding 403(b) defined contribution plans. These are plans to set aside money in each paycheck that goes into an investment account and grows tax-free. Your school district might match your contributions if you don't participate in a pension plan.
Unlike the private sector companies and their use of the 401(k) plan, which is equivalent to the 403(b) with a significant exception; private 401(k) plans are governed by ERISA, which is a law that protects plan members from getting high-cost investment products and not acting in their employees best interest. Since 403(b) plans are government, they are exempt from ERISA. Without ERISA protection, employees cannot take any legal recourse against their employer for poor 403(b) plan choices.
Because of this, many school systems have an abundance of plan choices. This gives educators lots of options, but often they don't always make the right decision on what plan to get. In addition, educators are very busy with their classrooms and lives, so it isn't easy to be experts and choose the best 403(b) plan.
Instead, they tend to be sold by insurance agents expensive annuity protects such as variable and indexed annuities. These products are sold as not losing any money, but to get this guarantee, there have hefty fees and surrender charges. As a result, the low-cost plans don't have commissions and don't have the sales agents pressing educators to buy these products are not as known unless the educators take it upon themselves to do the research.
Although many of the 403(b) choices are getting better. This is due to nonprofits such as 403bwise.org advocating for low-cost plan options. Furthermore, some insurance companies see the writing on the wall and are beginning to offer low-cost alternatives. But according to the latest research, most of the 403(b) plans received failing grades.
But 403bwise.org has identified green plans as recommendations for your school district. So check that your plan is in the Green Zone! If it is not in the Green Zone, you might want to switch plans. If the choices are awful, you might want to consider other options, such as opening a Roth IRA and saving money for retirement in this account. With a Roth IRA, you can choose one of the low-cost providers.
Reach out to me below, and we can evaluate the choices for your 403(b) plan and see if the plan fits within your financial goals.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid federal tax penalties. Individuals are encouraged to seek advice from their tax or legal counsel. In addition, individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.