When Bad 403(b) Vendors Offer Good Investing Choices

May 26, 2020

We have long railed against the lack of quality, low-cost investment choices in the K-12 403(b). Typical vendor lists are long on agent-sold insurance products and short on low-cost mutual funds. When asked our preferred vendors, we generally like to see at least one of the following companies available:

• Aspire Financial Services
• CalSTRS Pension2 (only in California)
• Fidelity Investments
• MissionSquare (formerly ICMA-RC)
• T. Rowe Price
• Vanguard

Unfortunately, far too many school districts lack even one of these firms. This vendor list from Pittsburgh, PA is all too familair.

But there is a glimmer of hope. Shockingly, several of the vendors known for high-cost agent-sold products actually offer a few pretty decent options. Call this sheep in wolf's clothing. For teachers stuck without better options, this can be a lifeline to better 403(b) investing. 

Lincoln Investment’s RetirementSolutions Participant Directed Program

Offered mostly in New Jersey, this product which was put together by the New Jersey Education Association is essentially a clone of the Vanguard 403(b). Several of our most active 403(b) advocates use this product. We encourage you to interact with them via the 403bwise Facebook Group to learn more about their experience using this product. To get an application for this product send a message to inquiries@lincolninvestment.com and ask for the Participant Direct Program (PDP) application. 

PlanMember Participant Choice

This firm is now partially owned by AXA/Equitable, a notorious player in the 403(b) world. And not notorious in the cool way. This program is not so much “low cost” as it is better cost. It does offer products from American Funds, DFA, T. Rowe Price and Vanguard. A good place to learn more about this product is via the state of California’s K-12 database 403bcompare.com. Again, the 403bwise Facebook Group could be a good source for feedback on this product. 

NEA Direct Invest offered through Security Benefit

NEA Direct Invest offered through Security Benefit
We are generally very critical of Security Benefit and the National Education Association for their K-12 403(b) collaboration. The NEA receives more than $3 million annually in exchange for endorsing extremely costly Security Benefit products. To us, this is an unholy alliance. Unions should be looking out for their members, not looking out for themselves. We aren’t alone in this assessment. In fact, the NEA was once sued for this product. They prevailed, but were clearly rattled by the experience. So much so that they rolled out a pretty decent product: NEA Direct Invest. Of course, the firm spends almost zero money or resources promoting this product. We think it’s more of a lawsuit protection play. But who cares if it is your only option. Again, the 403bwise Facebook Group could be a good source for feedback on this product. Note: NEA Direct Invest has been closed to new enrollees. The program has been replaced by NEA InvestMyself which is also offered through Security Benefit. 

PenServe PenSelect (no Advisor)

Available nationwide, they offer a low-cost product featuring Vanguard funds. The key is to leave the advisor portion blank in the application. Fiduciary advisor Scott Dauenhauer, CFP has written about this product. 

Best in Show

Ideally, school districts should do what Montgomery County Public Schools in Maryland did: put their plan out to bid via the Request for Proposal process. MCPS employees now have access to one low-cost vendor: Fidelity. There are exactly zero sales agents trawling MCPS lounges and offices slinging high-cost products. Teachers and school employees can rest assured knowing their employer has acted in their best interests. Short of this, all school employees deserve access to at least one low-cost choice. 403(b) advocates should continue to fight to add the better financial firms, but know that some good 403(b) investment options can be found in some surprising places. 

Stay well and wise. 
 

Note: I basically stole the concept of this blog from my podcast partner and collaborator in all things 403(b), Scott Dauenhauer, CFP. 

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