Individual vs. Group 403(b) Contracts
August 3, 2026
Public school employers across the country are working to take control of their 403(b) plans to reform them and make them a true benefit offering. These reforms consist of consolidating with a single record keeper or with just a handful of vendors that have adjusted their product offerings. This process leads to significantly lower fees, better investment options, and better outcomes for participants.
The administrators tasked with these reforms are quickly learning the difference between Individual contracts and Group contracts. On the surface, the differences may seem small. In practice, it can significantly affect an employer's administrative burden, an employee’s retirement outcomes, and the degree of control a district has over its 403(b) plan.
An Individual 403(b) contract is a direct agreement between the employee and the vendor. The school employer plays a limited role, essentially acting as a conduit for payroll deductions. Each employee negotiates (or more often, simply accepts) terms directly with the vendor’s representative. The school employer does not monitor or provide oversight over the product, its representatives, or the underlying saving and investment options. The employer has control over an individual contract to the extent that it must approve certain transactions, such as loans, hardships, and withdrawals. Importantly, while only the employer can approve withdrawal transactions, they cannot force withdrawals (such as exchanges or transfers to a new recordkeeper).
Most school employer 403(b) plans consist of individual contracts. Due to this historical quirk of the 403(b), even school districts with large 403(b) assets do not have significant leverage when negotiating a contract for a single vendor, as they cannot direct the movement of the plan’s assets. Only individuals can direct the movement of their 403(b) account.
A Group 403(b) contract, by contrast, is an agreement between the school employer and the recordkeeper (vendor). In a group contract, the employer selects the contract terms, investment options, and fee structures on behalf of all participating employees. Employees enroll under the umbrella of that single contract. The employer controls the movement of assets and can transfer participant accounts from one recordkeeper to another without the employee's permission. This control gives the employer significantly more leverage in negotiating fees and services for the plan.
Individual contracts have been the default in K-12 for decades. They’ve formed the basis for the inefficient multi-vendor system that permeated government K-12 403(b) plans for decades. In the past, the employer acted almost as a pass-through entity; they simply forwarded contributions to wherever their employees wanted them to go. School employers were extremely hands-off, leading to the sale of unvetted, low-quality products to employees that were generally not in the employees' best interests. This began to change in 2009, when the IRS required school employers to become more involved in the 403(b) plan offered to employees.
While individual contracts seemed like a hands-off way to manage a 403(b) plan, they have proven to be a compliance nightmare. The overwhelming majority of government school employers do not have the expertise to keep a 403(b) plan in compliance; they bring in a third party to manage all vendors and their contracts. This adds yet another layer of fees and complexity for both the employer and the employee.
IRS regulations require the school employer to maintain oversight of its 403(b) plan regardless of contract type. That means monitoring vendor activity, ensuring transactions are compliant, maintaining a written plan document, and tracking employee loan and distribution activity — even for contracts the employer had no hand in negotiating. In other words, employers bear a significant compliance burden without the control needed to manage it.
It turns out that the “hands off” approach to managing multiple vendors through individual contracts hasn’t reduced the school employer’s workload. Business officials have begun to realize this over the past decade.
While change has been slow, it has been occurring. A decade ago, we could list the number of single-vendor government K-12 403(b) plans on two hands. Today, that number is in the hundreds, and every year more and more school employers choose to go either single-vendor or bidded multi-vendor (we’ll get to this).
Group contracts allow the employer to take on meaningful control and, with it, the tools to exercise that control effectively
When the school employer is a party to the contract, it decides which investment options are offered, how fees are structured, and when it makes sense to change recordkeepers. This structure can provide the leverage needed over the long term to gain advantages for employees that they would not be able to negotiate on their own. This control also makes administration far simpler. Rather than chasing activity across dozens of individual vendor relationships, the school employer is working within a single company to implement its retirement policies.
That control also pays off for employees. When the employer negotiates as the plan sponsor, it can secure better investment options, service, education, and lower fees than any individual employee could on their own (caveat: it’s unlikely that most school employers will be able to negotiate a fee structure similar to Fidelity’s 403(b) plan which charges only $24 per year and as low as 0.015% on a broad market index, but this structure does not provide service or education). Even modest fee reductions compound significantly over a 20-30 year career, making a real difference in what employees actually retire with.
The tradeoff is real: Group contracts require more upfront effort. The employer must evaluate vendors, negotiate terms, and communicate changes to employees. For some school employers, especially smaller ones, that lift can feel daunting.
With Individual contracts, districts get the worst of both worlds: limited control over how the plan operates, but full responsibility for keeping it compliant. Group contracts flip that dynamic. They ask more of administrators up front, but they deliver something valuable in return: a plan the district actually runs, rather than one it simply watches from the sidelines.
For districts looking to simplify administration and offer a retirement benefit that genuinely works for their employees, Group contracts are worth a serious look.
Notes on 457(b) Group Contracts
All of the above applies to 457(b) plans as well. While multiple-vendor, individual-contract plans aren’t rare, the problem is less severe in the 457(b). School employers should focus on group contracts for their 457(b) plans to avoid the trap that 403(b) plans have fallen into over the decades.