403(b) changes may make saving easier |
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Employers will oversee accounts
The new 403(b) regulations should help investors to become more knowledgeable about their accounts, potentially making them far more lucrative.
When the laws take effect Jan. 1, 2009, employers who sponsor 403(b) plans will have to assume more responsibility for overseeing the accounts.
Most notably, for the first time ever, employers have to provide their workers with written documentation that makes it easy for individuals to see and understand how various investment choices differ within a 403(b) plan.
This will spell out such vital information as, say, investment options and performance history among those choices, as well as fees and expenses charged by various vendors. Knowing this information should help participants choose the vendors who are more likely to provide solid returns with lower fees and expenses.
Because employers won't likely want to keep track of so many financial providers, they're expected to pare down their lists to one or two vendors, rather than a dozen or more as is the case now, Boggs says.
"Because they now have to have a written plan about what's available, the impetus will be on employers to pick the best vendors," says Boggs.
Changes bode well for employees
That means mutual fund companies may find a bigger role running 403(b) plans, although "annuity companies have deep pockets and they'll fight for their market share," Boggs says.
Insurance behemoths TIAA-CREF and AIG Valic, and
the mutual fund company Fidelity Investments, control roughly two-thirds
of the $652 billion invested in 403(b) plans, Spectrem
Group reports. Beyond that, there are many smaller firms competing
for business in these retirement accounts.
That's a big change from how plans are currently run. Today, employers don't have to get directly involved in managing 403(b) plans, so financial institutions directly market their investment choices and services to employees. That means workers have to determine which providers offer the best investments.
That's not always easy.
"Some districts have upward of 40 or 50 vendors," Boggs says.
That means workers must sift through a veritable truckload of financial and investment data before saving.
Until the new regulations kick in, employees who want to better manage their 403(b) plans can use Web sites such as
403bCompare.com, which enables individuals to easily compare fees, returns and other
data about various 403(b) vendors. For more tips on better managing your plan see Bankrate's story on
"How to avoid 403(b) pitfalls."
One drawback: End of 90-24 transfers
Although experts generally welcome the 403(b) changes, there is one significant drawback to the new rules. In the past, some teachers simply transferred their 403(b) assets out of a school-run plan and into a plan run by a mutual fund company. For example, teacher Jeffrey Venables transferred his assets into a plan managed by Vanguard.
But the move, called a 90-24 transfer, is no longer allowed under the new regulations. Those transfers were barred effective September.
"I've been putting money into the insurance company's 403(b) plan (offered through the school district) with intent of transferring savings into the Vanguard account each year," says Venables, a chemistry teacher in a South Carolina school district. "But then I heard I won't be able to do that in the future, so I transferred all the money that was left and I'm not going to contribute any more to the 403(b) plan."
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