403(b)s: Investor Beware, But We’ve Got Updated Tools For You!

Blog entry Jack Ehnes

How to choose the 403(b) investment vehicle that is right for you? CalSTRS members have access to up to 59 separate 403(b) supplemental tax sheltered investment vendors, offering 220 individual products, and a staggering 5,000 plus choices within those products. The vendors and products vary depending on where you work. That’s vexing.

Since 2004, CalSTRS has been administering your California school employee 403(b) product information bank. Known as 403bCompare, it’s a clearinghouse of information to allow for side-by-side comparisons of products.

That site is now undergoing an exciting interactive refresh and will relaunch in early 2017 with personalized step-by-step instructions and a bold, new interactive look and feel. Until the release of the updated site, the original version of the site is accessible today for your 403(b) comparison needs.

The My Next Steps tool is a checklist that guides you through the process of comparing and selecting 403(b) products.

  • Register and create your own 403bCompare account for an easy and secure way to save information about your employer, previous comparisons, and favorite 403(b) products
  • The Compare Products tool helps you filter through all available 403(b) products to quickly compare details like fees, features and services in a convenient side-by-side layout
  • There’s a Help and Resources section that provides information on the fundamentals of 403(b) and 457(b) plans, basic financial awareness resources, and links to financial tools and calculators
  • The new site brings knowledge and information at your fingertips with popover definitions for all financial terminology, quick tutorial videos, and enlightening educational pieces focused on ensuring users make better informed retirement savings decisions.

A recent New York Times multi-part investigation revealed a troubling fact: teachers who participate in a 403(b) plan as a means to supplement their defined benefit pension may be choosing investments that, over decades, deprive them of a significant amount of earnings they would otherwise enjoy and will need to maintain their standard of living in retirement. The reason: high fees, hidden charges, outrageous surrender fees and an antiquated and unregulated system that often places teachers at the mercy of unscrupulous sales persons and which often take place at schools in organized after-hours pitch sessions.

The situation is hardly new. In 2013, the Los Angeles Unified School District restricted access to school campuses and email systems to those selling 403(b) or 457(b) products, except for authorized representatives of LAUSD, CalSTRS or CalPERS.

These voluntary supplemental savings products play an important role in an educators’ financial future since, on average, a CalSTRS defined benefit pension will replace about half of an educators’ annual salary, while financial planners recommend that a replacement rate between 80 and 90 percent will be needed in retirement. Since CalSTRS members do not participate in Social Security, or will have benefits reduced due to the Windfall Elimination Provision, a 403(b) is a critical piece of the overall retirement puzzle that helps bridge the retirement income gap.

The impact of fees on an investment portfolio is significant. This table from a recent Aon Hewitt study shows the dramatic impact of fees on a $100,000 portfolio earning 5 percent a year over time. See how even small fee increases can result in tens of thousands of dollars in losses over time.

Total Costs Account Balance in 5 Years Account Balance in 10 Years Account Balance in 20 Years Account Balance in 30 Years
0.00% $127,628 $162,889 $265,330 $432,194
0.50% $124,618 $155,297 $241,171 $374,532
0.75% $123,135 $151,621 $229,891 $348,564
1.00% $121,665 $148,024 $219,112 $324,340
1.50% $118,769 $141,060 $198,979 $280,679

CalSTRS is proud to reboot www.403bCompare.com with its new features. This great tool should make the process of planning for your financial future less of a gamble and more of a well thought out plan.


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