YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     Questions and Answers on Legislation to Improve California 403(b) Plans Supporters of AB2506, which seeks to streamline 403(b) plans in California, make their case in a question and answer format.     April 3, 2002 Why is streamlining the number of 403(b) providers available to California teachers a good idea? Many 403(b) providers have high expense charges that severely impact retirement savings. With 100 or more providers, low-cost and high-cost alike, school districts do not educate their employees about financial security or the products available. Without financial education, 403(b) and saving for retirement seems complicated and teachers feel discouraged about saving additional money for retirement. They may make uninformed choices concerning their retirement savings. Unsuitable decisions expose them to risk or cost them thousands of dollars in fees and expenses. In private company 401(k), and in school districts with a reasonable choice of vendors, the employer arranges for vendors or other qualified people to educate employees about financial products.   Why do California's school districts offer so many 403(b) providers? A well-intentioned effort started in the early 1960s with California insurance code 770.3. This code was designed to prevent "sweetheart" deals between Districts and salespeople and provide educators with a broad but still selective choice of vehicles to save for retirement on a tax-friendly basis. Over time, the federal and state laws on 403(b) changed, while 770.3 remained essentially the same. The result is unanticipated and harmful consequences. As interpreted, 770.3 prevents districts from providing even basic information about the 403(b) options available to teachers and requires districts to make all 403(b) vendors available, no matter the quality or costs of offerings.   Who benefits from AB 2506? Educators benefit. They can make more careful, better educated choices about 403(b).   Districts benefit from improved teacher recruitment and retention as well as possible reductions in administrative costs. Citizens benefit from educators feeling more satisfied with their financial status, able to focus on teaching skills needed to keep California's economy growing strong.   Who supports the change? A broad coalition including educators, their representatives, districts and providers. Supporters include Faculty Association of California Community Colleges; Los Angeles Community College Guild; 403(b)wise; United Teachers of Los Angeles; TIAA-CREF.   Who started work on AB 2506? An outcry from individual educators about the bad choices they were given produced a ground swell of support that led to this legislation. Educators from the Los Angeles Unified School District, among others, went on record requesting the enhancement of their 403(b) program by attracting low-cost providers.   Wouldn't this bill limit choice? At present sales agents or brokers deliver 403(b) and are compensated by "loads" or commissions. AB 2506 invites direct purchase also from "no-load" companies, by those educators who do not require broker services.   What are we trying to fix? Inappropriate 403(b) products harm California educators. In several cases, educators have prevailed in suits and recovered part of losses. Other educators have less set aside for retirement, than if they had been provided financial education and a reasonable choice of investment options. Besides the individuals involved, districts and taxpayers will carry a cost from teachers having to work longer and draw higher public pensions to afford retirement.   Do other states have systems to register and screen 403(b) providers? Yes. The California-based Spectrum Group conducted a December 2000 analysis of the national 403(b) market. The national average number of 403(b) providers available in a public k-12 district is 9.8 and in public colleges the average is 9.6 providers. 403(b) plans at independent k-12 institutions average 3.5 providers and independent colleges 2.9.   Isn't this a sweetheart deal for certain companies? No. The current restricted marketplace, where educators are in effect restricted to purchase "retail" products, requires broadening to allow access to "wholesale" or direct purchases. The resulting increased level of interest will sustain both type options: load and no-load products.   Is STRS an appropriate body to handle registration? STRS has considerable experience addressing the retirement planning needs of California educators. In recent years, they have acquired knowledge of the 403(b) arena.   Do other states have a statue similar to 770.3? No. Other states permit screening vendors before they are allowed sell 403(b)s in school districts. California is the only state in the country with a statute that requires districts to deal with an unlimited number of 403(b) providers.     Home | Disclaimer | © 2002 403(b)wise. All rights reserved.