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The K-12 403(b) is broken.
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Dan's Blog

Crisis Mandates School Districts Fix 403(b) Now 🔧

April 21, 2020

Sadly, the state of Hawaii's proposed 20% cut to teacher salaries will not be unique. Property tax receipts are plummeting. The hope now is to avoid a depression. While teachers have always been essential, the Great Recession taught us that salaries will be slashed, and teachers will be furloughed and laid off. Widespread adoption of virtual teaching will create a permission structure (unwisely, I believe) to increase class sizes. I envy no school district right now. However, I have zero sympathy for school districts with awful 403(b) plans. The excuses are over. Fix the 403(b). 

Most Plans Stink

Our 403(b)wise Facebook Group is now close to 1,000 teachers strong. Why? Because almost universally 403(b) plans stink. Teachers are finding out and they are pissed. Here is just a small samplings of what is being shared by this Group... 

  • "I have money through Vanguard in a Roth IRA because my 403(b) options are so poor." 
  • "I’m new to investing and worried about choosing the right company. I’ve read through a bunch of articles, and none of the highly recommended ones are on my district’s list." 
  • "I have exhausted almost every type of way to advocate to add just one low-cost vendor."
  • "Stonewalled..... Trying to help my sister-in-law to add one low-cost vendor. She has now written HR and Payroll and the only answer she gets is it’s complicated we’ll look into it.'"

You Know What's Complicated?

  • Pivoting on a dime to online instruction
  • Teaching under the best circumstances
  • Saving for retirement when paying 3% in fees

Insult to Injury

Thanks to the The CARES Act teachers affected by Covid-19 may withdraw up to $100,000 from their 403(b) account and avoid the federal 10% early withdrawal penalty. Most who exercise this provision will be subject to vendor surrender charges of up to 12% and in some cases even higher. This will not be the case in 401(k) plans. This is just one more glaring example of how bad K-12 403(b) plans are.  

Low Hanging Fruit

Fixing the 403(b) is a layup. In the midst of so much horrific new, let's give teachers at least one thing to smile about: simply add at least one low-cost vendor. We realize it's not realistic to engage in a request for proposal right now. We realize it's probably not the time to take a page from the 401(k) world and go down to one low-cost vendor. But it is time to move from the no low-cost vendor model. Do it. You will make a lot of teachers and school employees pretty happy. 

Stay well. 

Related Podcast: Dealing with a Bad 403(b) Plan

Dan and Scott offer advice on what to do if stuck with bad 403(b) choices. Topics covered include: How to know if you have a bad 403(b); steps to take to get a better plan; and foregoing a 403(b) for a Roth IRA. Listen Now »