403(b) Trick or Treat? 🎃
October 31, 2023
The story is seemingly as old as Halloween itself: Teacher gets teaching job. Sales agent sells teacher a frighteningly bad 403(b) plan. Teachers thinks s/he is doing the smart thing. Teacher finds out they have been duped. How do you know if your school's 403(b) vendor list is full of tricks or treats?
District Plan 403(b) Rating Project
To help employees make sense of their often 20+ vendors list 403bwise.org has developed a school district 403(b) plan rating system. Here's how it works: We begin by rating each vendor using a red light-green light system: green (go as in good), yellow (caution as in be careful), and red (stop as in avoid). We further subdivided by “+” and “-”. Green and “+” is the highest rating. Red and “-” is the lowest. We then rate the plan itself. There are more than 13,500 public school districts. We have data on more than 4,500 of them. The grades are grim.
Grades as of October 31, 2023
- 144 A (3.1%)
- 19 B (<0.5%)
- 2,868 C (62.5%)
- 883 D (22.9%)
- 655 F (16.4%)
- 17 N (0.4%) (N = Need more information)
Total: 4,586
Green Light+ Vendors (best of the best)
No asset based fee; no revenue share; ability to build an index portfolio for under 0.2%.
- Fidelity
- Vanguard
Green Light Vendors
No upfront or backend commissions or surrender charges; low admin fee: asset-based fee under 0.40%; reasonable account fee: $60 or less (excluding compliance add-ons); low investment fees: ability to create an indexed based portfolio for under 0.2%; transparency: open to answering questions, no sketchy affiliations; cross-selling: does not allow cross-selling of commission based products.
- Aspire Non Advisor
- CalSTRS Pension 2
- TCG FinPath
- WEA Member Benefits
Green Light- Vendors
Index-based portfolio costs more than 0.2%, but less than 0.4%.
- T. Rowe Price
Yellow Light Vendors
No upfront or backend commissions or surrender charges; sset-based fee over 0.40%; reasonable account fee: $60 or more; low investment fees: few or no index funds, primarily actively managed funds, revenue share not rebated; transparency: questionable practices, affiliated with a red vendor; cross-selling: allows cross-selling of commission based products.
- American Century
- CSD Retirement
- CTA
- IPC
- Lincoln PDP
- NEA Invest Myself
- PenServe/PenSelect (no advisor)
- PlanMember PC
- SFFCU
- TIAA-CREF
Red Light+ Vendors
Mutual fund wrap programs; commission based mutual funds.
- American Funds
- Amundi Pioneer
- Edward Jones
- Franklin Templeton
- Invesco
- Kades-Margolis
- Lincoln Investment
- Orion
- PenServe/PenSelect (advisor)
- PFS Investments (Primerica)
- PlanMember
- Putnam Investments
- Waddell & Reed, Inc.
Red Light Vendors
Load: upfront or backend commissions or surrender charges; admin fee: asset-based fees over 1.00% or large spread product
reasonable account fee: $60 or more; low investment fees: lots of actively managed funds, revenue share not rebated; transparency: questionable sales practices, rep required; cross-selling: allows cross-selling of commission based products; representative: required; fiduciary: representative not required to act as a high-level, full-time fiduciary.
- American Fidelity
- Ameriprise Financial
- Brighthouse (formerly MetLife)
- Corebridge Financial (formerly AIG and formerly VALIC)
- Equitable/AXA
- ESI Education
- GWN
- Horace Mann
- Minnesota/EFS Advisors
- Pacific Life Insurance Group
- Security Benefit Group
- Thrivent Financial
- VOYA Financial
Red Light- Vendors (worst of the worst)
Indexed annuity providers.
- Americo
- Athene
- FBC Mutual Fund Platform
- FBC National Life Group
- Great American
- Midland National
- National Life Group
Note: Some vendors that are rated yellow or lower when part of a multi-vendor plan will lower, often drastically, their pricing when part of a single vendor plan. A good example of this is Chicago Public Schools where Corebridge, a red-rated vendor, is the record keeper for this quality, low-cost plan.
Learned by Being Burned
To learn more about how school employees have been tricked by the financial services industry — and let down by their employer — check out our short pod series Learned by Being Burned: Teachers and the K-12 403(b). Episode 5 features a benefits official describing the step-by-step approach he took to move his multi-vendor plan to one low-cost, green+ rated vendor.
Stay wise and well (employers: turn your 403(b) plan into a treat).
