The Advisor - May 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) plansis that your district is required to providemeaningful notice of universal availability.What does that mean? The 403(b)plan must be offered to everyone whois eligible, not just selected individuals(universal availability). And, the districtmust communicate: 1) that the plan isavailable to all, 2) when you can enter intoa salary reduction agreement, and 3) howmany times and when during the year youcan alter your salary reduction agreement(meaningful notice). 

Many districts attempt to satisfy themeaningful notice requirement by havingtheir third-party administrator (TPA) meetwith employees to talk about the 403(b)plan. These representatives may alsodiscuss some of the specific vendors andproducts available in the plan. This mayseem like a good idea, but be wary. 

Sometimes the TPA is affiliated with aspecific 403(b) vendor. This can lead toconfusion because some educators mayassume that, if a representative has beensent by their district, the district has vettedand endorsed the vendor or vendors heor she is associated with. Some districtsdo not follow any due diligence process inreviewing or selecting the 403(b) vendors.As a result, the district’s 403(b) plan mightinclude vendors that charge high fees,including commissions to sales agentsthat affect the value of your funds overtime. 

Due to budget cuts, many districts areusing TPAs that charge low or no feesto the district but are affiliated with oneor more 403(b) vendors. Because thedistrict uses these TPAs to provide theIRS notification requirements, theirpreferred access to educators gives thema unique sales advantage. They can usethat advantage to push participation inaffiliated vendor plans, which sometimeshave high fees. And, who pays thosefees? You do, if you participate in thoseplans. 

As a participant, you need to takeresponsibility for evaluating the options inyour district’s 403(b) plan. CTAinvest.orgcan provide resources to help you.