Don't Be Confused By District 403(b) Representatives
One of the rules of 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) send representatives to schools to talk about the 403(b) plan. These representatives may also discuss some of the vendors and products available in the plan, and sometimes the TPA is affiliated with a 403(b) vendor. This has led to confusion among many educators, who assume that if a representative has been sent by their district, the district has vetted and endorsed the vendors.
That may not be the case!
Some districts do not follow any due diligence process in reviewing or selecting the 403(b) vendors that are part of the district’s 403(b) plan. As a result, the district's 403(b) plan might include vendors that charge high fees, including commissions to sales agents that impact the value of your funds over time. As a participant, you need to take responsibility for evaluating the 403(b) options in your district's 403(b) plan.
For help in understanding the different types of investments available in 403(b) plans and choosing those appropriate for you, visit CTAinvest.org, CTA's investment education website. The site offers a wealth of retirement planning and investment education and information, and no log-in is required. You can also order print versions or download pdfs of two helpful publications, "Closing the Gap: Supplementing Your Pension with a 403(b) or 457 Plan" and "Selecting a 403(b)/457 Advisor & Understanding Plan Fees." Both these publications were developed by CTA to help educators make informed choices for their retirement investments. Or, contact CTA Business Initiatives at firstname.lastname@example.org to request a copy.
Don't be sold – be informed. Visit CTAinvest.org.
CTA Enhances Its Investment Education Site
In its continuing effort to help educators make the most of their 403(b) and 457 plans, CTA has made significant enhancements to its investment education Web Site, CTAinvest.org. It's also easier to use, with no login required!
The site now has even more tools and resources, including:
This section steps educators through how to get started with their 403(b) or 457 plan.
Topics include Why Participate in Your 403(b)/457 Plan, Comparing 403(b) and 457 Plans, Choosing a 403(b) or 457 Product, A Look at Target-Date Funds and A Look at Fixed Annuities.
Ask the Advisor
Members can post general questions about financial issues. A team of financial experts will respond and post the answers for all to view.
This downloadable list helps members keep track of important financial duties. They can even sign up for e-mail reminders!
These brief, fun quizzes help participants find where there may be gaps in their financial planning knowledge.
In addition to the new features, CTAinvest.org has valuable calculators, webinars and articles about retirement saving, investing and other financial topics. Members can also order the 403(b)/457 plan guide, "Closing the Gap" to learn more about voluntary retirement plans, and our newest guide, "Selecting a 403(b)/457 Plan Advisor & Understanding Plan Fees."
Help your members find the investment education they need by adding a link to CTAinvest.org to your site.
Target-Date Funds – What's the Buzz?
Selecting the investment options within your 403(b) or 457 plan can be challenging. If you are investing in a variable annuity or a 403(b)(7) mutual fund custodial account, you will need to determine what type of investments to choose, such as stocks or bonds, and select the allocation for each fund. To help educators with the investment choices, many 403(b) and 457 plans offer target-date funds.
Target-date funds contain a mix of investments such as bonds and stocks, and the fund manager automatically adjusts their allocations based on the target date. You simply select a fund with a date that matches your anticipated retirement date. For example, a "2040 fund" may start out with an allocation that is weighted more heavily toward stocks, with a smaller allocation to bonds. As the target date nears, the portfolio may gradually make a transition to a more conservative portfolio with fewer stocks, and more bonds and cash equivalents.
For educators, target-date funds may be a convenient option for managing your nest egg. As with other 403(b) investments, a target-date fund will include fees that should be disclosed to you and does not guarantee that you will have all the money you need to retire by the target date.
Check out CTAinvest.org for more information on target-date funds, and 403(b) and 45
Tax Time Can Be Fun With a 403(b) or 457 Plan
If you are not participating in a 403(b) or 457 Plan, you are missing a great opportunity to save for retirement on a pre-tax basis. By investing in a 403(b) or 457 Plan you can save on taxes two ways – pre-tax contributions and tax-deferred earnings. That means your contributions are deducted before taxes are withheld and the earnings in your account grows tax free until you begin withdrawing your savings.
The money you contribute to your 403(b) or 457 Plan is subtracted from your paycheck before federal and state income taxes are deducted. Here’s an example: Suppose your semi-monthly gross pay is $2,100, you are in the 25% federal tax bracket and 8.25% California income tax bracket, and contribute $100 a month to your 403(b) or 457 Plan. Your take-home pay will actually be only about $67 less.*
Here’s how this works:
Not only does a 403(b) or 457 Plan provide unique tax advantages, but it can help you fill the gap between your expected CalSTRS or CalPERS retirement benefit, and the income you will need to live a financially secure, dignified retirement. For help, go to CTAinvest.org for calculators, 403(b) planners and tips for working with a financial planner.
*This is a simplified example that does not take into account other pay deductions. **Taxes will be due upon withdrawal at ordinary income tax rates. Premature withdrawals may be subject to a 10% penalty (does not apply to 457 Plans).
2010 Annual Plan Contribution Limits Remain Unchanged for 403(b) and 457 Plans
Are you currently contributing to a 403(b) or 457 plan? The 2010 IRS annual contribution limit for elective deferrals to these plans has remained unchanged from the 2009 limit of $16,500. The catch-up contribution amount ($5,500) for participants age 50 and older is also unchanged.
If you are not contributing to a 403(b) or 457 plan, think again! As a career educator, you can expect to receive approximately 63% of your pre-retirement income through your CalSTRS defined benefit pension.* If you are a CalPERS member, the average monthly service retirement for school miscellaneous members is $1,134.**
Neither benefit is likely to support your lifestyle or cover retiree medical expenses. In fact, many financial advisors suggest that you'll need 100% of your pre-retirement income in order to maintain your standard of living and cover health care costs in retirement. You can work toward that goal by participating in a 403(b) or 457 plan, which allows you to save for retirement with pre-tax dollars.
You can learn more about saving for retirement by visiting CTAinvest.org , CTA's new investment education Web site. It includes calculators and tips that can help you decide what type of 403(b) or 457 investment is right for you and how to evaluate your current investment. Additionally, CTA has a consumer guide on 403(b) and 457 Plans, which you can access online at CTAinvest.org. You may also email email@example.com or call 650-552-5200 to request a free copy.
CTAinvest.org Is Up and Running
Educators who want to take more control over their financial futures now have a new tool at their disposal. CTA's financial education Web site, ctainvest.org, launched in late August. This financial resource, developed exclusively for California educators, provides information about voluntary retirement savings plans and education on financial and investing topics. Educators can find the answers to questions such as: "Will I have enough money to support my retirement lifestyle?" "What types of investments should I consider?" and "How does my 403(b) plan work?"
"We've created this resource for educators to help them make informed choices about retirement planning and investing," says David A. Sanchez, CTA president. "We know that our members are eager to learn more about what is available to them, and this site provides a wealth of information in one convenient package.
The CTAinvest.org Web site features:
- Financial articles on a range of topics, including CalSTRS and CalPERS basics, 403(b) and 457 plan basics, investing strategies, saving for education, insurance, estate planning and much more.
- 10 calculators licensed through Standard & Poor's that can help educators estimate everything from retirement income needs to college savings to the potential benefits of refinancing.
- Webinars, also licensed through Standard & Poor's, that take a step-by-step approach to explaining asset allocation, investment risk, managing debt and credit, and understanding mutual funds.
- Case studies, which are real-life stories from educators navigating the waters of retirement planning and investing.
Visit CTAinvest.org today
CTA developed this site for California educators. So visit CTAinvest.org soon to learn more about taking control over your financial future.