YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     ERSA 2.0 and the 403(b) Latest reincarnation of ERSA may not be a panacea for 403(b) participants.     When the Employer Retirement Savings Account (ERSA) was first rolled out last year many 403(b) advocates, including 403(b)wise, were cautiously optimistic. Our enthusiasm centered around the idea that if most retirement plans — 401(k), 403(b), 457(b), SAR SEP — morphed into one plan (ERSA), simplicity and understanding would rule, leading to greater and wiser participation.   Historically 403(b) plans have suffered from just that: lack of simplicity and lack of understanding. These problems are particularly acute at k-12 institutions where participation rates are about 40 percent, and the typical investment options are limited to high-fee annuity products. Worse, school district officials have shown little understanding of the 403(b), and even less inclination to rectify these problems. It was reasoned that ERSA would force employers to become more of a fiduciary which might in turn lead to better investment offerings and better education.   Parallels Between ERSA and Helping Public Education After initial fanfare following its February 2003 unveiling ERSA fell off the radar until its reintroduction this week (ERSA 2.0 if you will) as part of the 2005 Bush budget proposal. While still intrigued by the ERSA concept, we at 403(b)wise are beginning to question the wisdom of this plan. In fact we see parallels between ERSA and the efforts to improve public education. Instead of simply fixing public schools, we trot out charter schools, magnet schools, and vouchers. Arguments can be made that each of these concepts can improve education for those participating. But arguments can also be made that each of these education alternatives dilute education overall and simply takes the focus off the real problem: helping all public schools. Same thing with the 403(b). Instead of fixing it, we trot out a new retirement plan which may create new unforseen problems.   403(b) Improving Slowly but surely we are beginning to see tangible improvement in the 403(b) plan. Participation rates in mutual funds are increasing, and best of all employers are starting to take control of their 403(b) plans. Closer to home 403(b)wise has experienced a large increase in traffic in the past year, and the second edition of our book The 403(b) Wise Guide continues to sell briskly. We contend that participants and employers are starting to get it.   403(b) Participants Could Lose with ERSA The 403(b) contains some unique provisions that would end with ERSA. Currently, participants unhappy with their employer's investment offerings are eligible to perform something called a 90-24 transfer into the vendor of their choice. Educational institutions are allowed to offer both a 403(b) and a 457(b) to their employees. This means that employees can contribute $13,000 (for year 2004) into each plan for a total contribution of $26,000. Those eligible for catch-up provisions can contribute even more. Just recently a bill was introduced to allow all state workers, not just teachers, to participate in a 457(b) plan and a 403(b) plan. Finally, teachers are eligible for an additional catch-up provision called the 15-year-rule which allows an additional lifetime contribution of $15,000. All of these features would disappear under ERSA.   Would For-Profit Interests Rule Over Non-Profit Interests? Schools and non-profits who participate in the 403(b) are inherently different than for-profit business. It may simply be too unwieldy to blend these disparate entities into one retirement plan. In fact it is quite possible that the interests of schools and non-profits will be swallowed whole in ERSA. Already the American Society of Pension Actuaries is suggesting to the Treasury Department that "with respect to the ERSA proposal, that they consider retaining the 401(k) name since it has significant public brand recognition." While true that the 401(k) enjoys widespread name recognition, such suggestions do not bode well for the interests of schools and non-profit employees.   Birds of a Feather In many respects the 403(b) is an ugly ducking. But changing its feathers may not be the answer. When it comes to the 403(b) simply addressing what ails the plan may be the wisest course of action. Plus, as we all know ugly ducklings sometimes grow up to be beautiful swans.     Home | Disclaimer | © 2004 bWise Guys, LLC. All rights reserved.				More Information More ERSA Information Treasury Department Press Release Got an ERSA/RSA/LSA question? Got an ERSA/RSA/LSA answer? Join Discussion