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 over
time.
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.