The Advisor - November 2010

IMPORTANT NEWS FOR YOUR FINANCIAL AND PERSONAL FUTURE

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Don’t Be Confused by District 403(b) Representatives!

New Notice Requirements Could Mean a New Sales Pitch

One of the new IRS rules for 403(b) plans is that your district is required to provide meaningful notice of universal availability.What does that mean? The 403(b)plan must be offered to everyone who is eligible, not just selected individuals (universal availability). And, the district must communicate: 1) that the plan is available to all, 2) when you can enter into a salary reduction agreement, and 3) how many times and when during the year you can alter your salary reduction agreement (meaningful notice).

Many districts attempt to satisfy the meaningful notice requirement by having their third-party administrator (TPA) meet with employees to talk about the 403(b)plan. These representatives may also discuss some of the specific vendors and products available in the plan. This may seem like a good idea, but be wary.

Sometimes the TPA is affiliated with a specific 403(b) vendor. This can lead to confusion because some educators may assume that, if a representative has been sent by their district, the district has vetted and endorsed the vendor or vendors he or she is associated with. Some districts do not follow any due diligence process in reviewing or selecting the 403(b) vendors.As a result, the district’s 403(b) plan might include vendors that charge high fees,including commissions to sales agents that affect the value of your funds overtime.

Due to budget cuts, many districts are using TPAs that charge low or no fees to the district but are affiliated with one or more 403(b) vendors. Because the district uses these TPAs to provide the IRS notification requirements, their preferred access to educators gives them a unique sales advantage. They can use that advantage to push participation in affiliated vendor plans, which sometimes have high fees. And, who pays those fees? You do, if you participate in those plans.

As a participant, you need to take responsibility for evaluating the options in your district’s 403(b) plan. CTAinvest.org can provide resources to help you.