Like many other educators, Robert Curtiss, a prominent science instructor at a school in Dearborn, Michigan, had the idea that he was doing the right thing by investing in his school district’s 403(b) retirement plan. Federal regulators then indicted the company that controlled Curtiss’s education. investments with fraud.
In July 2022, the Securities and Exchange Commission stated that Equitable Financial Life Insurance Co. He had misled investors (mostly public school workers) about the cost of their investments. Equitable published quarterly filings that appeared without commissions, when in fact expenses were much higher, according to the SEC. Equitable agreed to pay a $50 million civil penalty to the aggrieved investors.
After hearing about the fine, Curtiss learned that his retirement investments were costing him two to three times what a typical 401(k) investor would pay. Getting his money out would cost even more: the investments, known as variable annuities, had surrender charges of 5% to 6%.
“I was very frustrated,” he says, Curtiss. Si I had known earlier, I would never have invested my money there.
NOT ALL RETIREMENT PLANS ARE CREATED EQUAL
Like 401(k), 403(b) are employer-provided pension plans that allow staff to make pre-tax contributions through payroll deductions. But the 401(k) is usually filed through private-sector employers, while the 403(b) is sponsored. through schools, universities, devotional organizations, and some other charities. The type of 403(b) offered to public school staff offers less customer protection than the private-sector 401(k), says Dan Otter, a former instructor and co-founder of 403bwise, a nonprofit education and advocacy site.
Employers who offer 401(k) are held to a fiduciary standard, which means they will have to act in the most productive interest of their employees. As a result, 401(ks) typically offer a diversified mix of investments at a moderate cost. Employers typically choose a single investment company, called a custodian, to administer the plan and keep records.
Fiduciary regulations don’t apply to public school 403(b) plans, Otter says. School districts can contract with dozens of corporations to provide retirement investments while refusing to provide recommendations or guidance to employees, he said. That’s where insurance corporations come in. We will be providing expensive investments, adding variable annuities and expensive mutual funds.
“Guess who emails teachers? Guess who goes to school districts and gives out free lunches? It’s the high-cost corporations that do this,” Otter says.
And prices make a huge difference in an investor’s ability to accumulate. For example, someone who contributes $500 a month and pays a 1% payment each year can collect about $1 million after the age of 40, assuming an average annual return of 7%. . An investor who pays a 2% annual payment may end up with $230,000 less.
OFTEN, THERE IS A LOWER-COST OPTION AVAILABLE
Otter’s site evaluates public schools’ 403(b) plans, rates providers based on a smooth traffic system: green for low-capital providers, yellow for those with at least one cheap option, and red for high-cost providers that should be avoided.
In addition, the site provides alphabetical notes and comprehensive lists of 403(b) plan providers for more than 4,800 school districts that represent about a portion of the nation’s public school teachers, Otter says. Employees in those districts can use the site to view their projects and identify lower-cost investment options. Those in other districts ask for a list of providers from their school district and look for green-rated vendors, Otter says. If none are available, the cheap option presented through a yellow-rated supplier would arguably be the most productive choice of the moment.
The site and its Facebook partner organization offer step-by-step commands on how to transfer cash from one option to another.
MAKING THE MOST OF THE WRONG OPTIONS
Unfortunately, there are still some 403(b)s with nothing but high-cost investments, Otter says. In that case, employees could consider funding a Roth IRA on their own instead. Contributions aren’t tax-deductible, but withdrawals in retirement are tax-free. Another option could be a 457 plan. These tax-deferred accounts are often offered to government employees and may have more oversight and better investment choices, Otter says.
Employees also can lobby their districts to add better options — something that Curtiss successfully did late last year.
However, moving his $90,000 savings came at a painful cost: Curtiss says he paid more than $4,500 in ransom payments. Curtiss had the option to move the cash more slowly, waiting for the ransom payment to expire, but opted to “rip off. “”the band-aid” you have to pay for years of higher payments from Equitable.
Curtiss said he won a check from Equitable for his percentage of the fine. It’s for $33. 93.
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This column was provided to The Associated Press via the non-public finance site NerdWallet. The content is intended for educational and informational purposes and does not constitute investment advice. Liz Weston is a columnist for NerdWallet, a qualified money planner, and a “Your Credit Score. ” Email: lweston@nerdwallet. com. Twitter: @lizweston.
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