Districts that offer 403(b) plans to employees are required to establish plan documents that include a list of approved 403(b) vendors. These approved vendors will offer a range of investment options to you. So you'll have a number of decisions to make when you establish your 403(b):
- Which vendor to choose, if you have more than one to choose from.
- What type(s) of investments to include in your 403(b) investment portfolio (mutual funds and/or annuities).
- The specific mutual funds and/or annuities to invest in.
Types of Investment Products
Typically, a 403(b) plan allows you to purchase two types of investment products: mutual funds and annuities (including fixed, variable and equity-indexed annuities). The fees will vary depending on which of these options you choose and also – if you select a variable annuity or mutual funds – on which investment choices you make within those products. In general, annuities offer more features – many of which you may not need – and charge more fees than mutual funds do.
A mutual fund is an investment that pools money from many participants and invests in stocks, bonds, short-term money-market instruments, or some combination of the three. In a 403(b) plan, mutual funds are purchased through a custodial account.
An annuity is a contract with an insurance company, and generally includes a death benefit. Three varieties are available through your 403(b) plan:
- A fixed annuity pays a guaranteed rate of return for a specified period, and also has a minimum rate. The insurance company guarantees your rate will not fall below the minimum rate when the current rate expires.
- A variable annuity offers a range of investment options, called subaccounts, which are similar to mutual funds. The value varies depending on the performance of the underlying investments.
- The return of an equity-indexed annuity is based on changes in an equity index such as the S&P 500 Index. The insurer also guarantees a minimum return if the contract is held to maturity.
To find out about the options available through your district, contact your district. To find the investment options available to you, visit www.403bcompare.com.