Headlines warn lawmakers to “Stop Fleecing Teachers” (Dallas Morning News editorial 10/30), and assert that a recently-passed bill “…declares open season on Texas teachers’ retirement funds” (DMN 10/27). How concerned should educators be?
HB 2820 from the 2019 legislative session eliminated a program that required the Teacher Retirement System to certify 403(b) companies and maintain a registry of 403(b) investment products. To be included in the registry, a product had to meet certain criteria, including fees of no more than a set percentage (which varied according to the type of product).
403(b) plans are similar to a 401(k) or other retirement savings plan, but are specific to school employees, certain charitable organization employees and certain ministers. If your school district has held meetings for employees to listen to insurance companies offering investment products that you can contribute a portion of your salary to each month, they’re probably talking about a 403(b) plan.
A 401(k) is offered through a private employer, and typically offers a variety of mutual funds to invest in. The employer often matches employee contributions, up to a limit. 403(b) plans only include employee contributions and usually feature annuities (which will eventually pay out monthly payments, similar to TRS or Social Security checks). However, each type of plan can offer both.
Companies chafed over what they considered excessive regulation given that they are already subject to oversight by other entities which may include the Texas Department of Insurance, the State Securities Board, the U.S. Securities and Exchange Commission, the Internal Revenue Service and others. They believed that it was unfair for TRS to set maximum fees rather than allowing the market to dictate what they could charge, and argued that focusing on fees could deny teachers access to products that might in fact have higher returns.
TRS felt that the program diverted agency time and resources away from its primary mission of providing teacher retirement benefits through the pension fund. There also were concerns that the registry lists would be seen as endorsements of the companies or products, when in fact TRS had no control over the quality of plans and products. If a product met the criteria, it made the list.
The Legislature passed the bill unanimously, with no “no” votes during any stage of the process. In addition, no witness testified against the bill during either of its two committee hearings.
So, why the concern? Although passage of the bill solved some problems for providers and TRS, it may well have created others for consumers (you!). Most worrisome is the loss of fee caps. Many school employees do not have the ability, know-how or desire to do extensive research into their various investment options, and could settle on a plan with unduly high fees that — especially in times of low investment returns — could eat into their retirement savings.
School district administrators should exercise caution before inviting companies to campus to speak to educators, and employees considering adding to their retirement savings should take the extra steps to compare fees and not just accept what gets offered through the district. Employees may even wish to consider investing in an IRA rather than a 403(b), depending on their personal circumstances — it’s worth your time to investigate all of your options.
TRS Executive Director Brian Guthrie has expressed concern over the fee issue, and it is possible that some additional protections will be considered in the next legislative session. One eventual solution could involve some type of statewide program such as the “Texa$aver” plan for state employees.
TCTA will be working closely with TRS and lawmakers if any bills to address 403b regulation are filed.