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| 90-24 Outrage
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| My wife and I are teachers in Virginia. We work for different school systems. Early in our
careers we were both taken advantage of by a salesperson working for an insurance company who sold us 403(b) annuities
with surrender fees, high loads, and high expenses. After realizing our small nest egg was not growing as anticipated,
I began to educate myself on the 403(b), and mutual funds. Learned About the 90-24 Transfer During my research I learned about something called a 90-24 transfer, a provision of the IRS code that allows a participant to move 403(b) money from a vendor offered by their employer to an outside-of-plan vendor. Since I was stuck with only high-fee annuity and mutual fund choices I was thrilled to learn about this. So three years ago I began first contributing to a money market account through a vendor offered by my employer, and then periodically 90-24 transferring this money to a low-cost mutual fund company not available at work. Ironically, this mutual fund company charged less in fees than the money market I was contributing to at work. If this doesn't show how horrible the 403(b) market is for participants, I am not sure what does. I set up a similar transfer plan for my wife. Learned About End of 90-24 Transfers by September 24, 2007 I was aware that the IRS was planning to come out with new 403(b) regulations pertaining to the 403(b). It was my understanding the reason was to make the 403(b) look more like a 401(k), and to force school systems to take fiduciary responsibility in selecting quality low-cost vendors. When the new regulations finally came out in July I was shocked to learn that not only would the current 90-24 provision be terminated, but that it would be terminated by September 24, 2007 of this year even though the full regulations do not take effect until January 1, 2009. I was and am outraged. Contacted Employer I had contacted our school system's human resources folks requesting better vendor choices a little over a year ago. After learning about the Sept 24, 2007 deadline, I contacted them again. They indicated that they were going to be looking at this issue in the next year or so since they are required under the new regulations to have a written plan in place by January 2009. In order to add a new vendor a formal RFP (Request for Proposal) would have to be completed, something my employer is unwilling to do at this time. 403(b): Should I Stay or Should I Go? My dilemma now is do I continue contributing to the high-cost money market fund or an even more expensive option (I have access to products with loads of up to 5.75% and fees ranging between 1 and 2 percent) through my employer in the hopes that a quality low-cost vendor will be offered in the 2008-2009 or 2009-2010 school year? Do I stop my 403(b) contributions all together and place the money in a taxable mutual fund account? I already contribute to a Roth IRA. Why Can't Employers and Unions Do the Right Thing? Why is it so hard, particularly for school districts, to simply offer at least one low-cost product? I am not demanding that the salespeople-sold products be eliminated (though because of conflict of interest it would be a good idea). Why doesn't my local union get involved? Why does the NEA endorse high fee products? Teachers work hard for the money they do receive. They (and all school personnel) deserve access to reasonably priced products. Is our only option to file lawsuits? |
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