Fees take huge toll on 403(b) plans
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Stephen Schullo, an elementary school teacher in the Los Angeles Unified School District, found out about surrender charges the hard way. In the mid-1990s he discovered the fees and charges he was paying insurers as he tried to move his 403(b) assets to a mutual fund instead.

"At first I was told I couldn't do it. Then I was told I could. Then I was told about surrender charges," says Schullo. "Then it still took about six months to get the money out. The whole time insurance companies were sending me warning letters. When I finally got the money, I had to pay about $6,000 in surrender charges. It was horrific."

But Schullo paid the tab, figuring he was then young enough to "make up the difference" by moving his money into a lower-cost 403(b)(7), basically a 403(b) that's run by mutual fund firms, not insurers. He also formed 403(b) Aware, an advocacy group that's worked to get better 403(b) investments in his school district and to educate teachers about them.

He isn't upbeat about the future, however. The charges he paid, and the trials he went through to move his money "are still going on today. We've all been through the same sequence."

Invest in a 403(b): lock your money up for good?
Bruce McNutt, a math teacher in Wayne, N.J., was so incensed with the way fees ate into his 403(b) that he asked his school district to include Vanguard, the mutual fund giant, in the retirement program. When he was rebuffed, McNutt started hosting presentations in lunchrooms and teachers' lounges throughout his district, showing colleagues how fees affect their 403(b) savings.

"I'd go through a prospectus and pull up the numbers and say 'let's say you go to Company A. The M&E fee is 1.25 percent. And you pay that every year," says McNutt. "Then I'd explain management fees, which vary. I'd tell them 'take a copy of this presentation and ask your 403(b) rep what you're paying. Don't take my word for it.' One lady, she'd been teaching for 30 years, was so furious. She called her insurance guy and he wouldn't answer half her questions."

Eventually, McNutt got 50 other colleagues to lobby for Vanguard, which was finally added to the district's list of 403(b) plan providers in September 2006.

"You see a little kid getting beaten up; do you walk by or help the kid? In my mind, I have saved teachers of Wayne millions in retirement," says McNutt.

But victory still has its limitations. McNutt also is waiting until he no longer has to pay surrender charges to move his initial 403(b) savings to Vanguard.

Next up: "How to avoid 403(b) pitfalls"