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Sounds like insurers are pushing their agenda in Washington as they attempt to buy votes for this bill's passage.
I never understood why 403(b) plans were offered to non-profits when 401(k) plans were the preferred offering in the private sector. Insurers carved out their customer base by pushing 403(b) and are now are looking for additional customers.
Most 403(b) investment options are variable annuities that have loads, management fees, sales fees, wrap fees, rider fees, early redemption fees...even rules that limited upside capture of market returns...feh! These TSAs are offered by insurance companies that, like AIG, are not immune to failing.
As a teacher, we fought long and hard to "force" management to offer 403b(7) investment options with low fee firms like Vanguard.
Any annuity (Insurance product) should be competitively priced and closely regulated.
Once you head down the (Annuity 401(k)) rabbit hole its expensive tunneling out.
Alternative: Invest in low fee funds during your working years, then consider buying an immediate annuity with a portion of your investments to compliments your retirement income. This decision can wait until you are close to retiring and in fact even later into retirement if that makes better financial sense.
@bee, what if you has no option in your pension plan other than an annuity? Taking a lump sum is often calculated a reduced value. I still has 10-15 years to go.
@bee, what if you has no option in your pension plan other than an annuity? Taking a lump sum is often calculated a reduced value. I still has 10-15 years to go.
If you are participating in a 403(b) plan, ask your plan sponsor if there are 403(b)(7) options. If there are no 403(b)(7) options, you have a right to petition for these options. This usually requires a lot of work (on your part) and a little bit of luck, but is well worth the effort.
403(b)wise is a good source of information on 403(b) plans and has a discussion board where you can post questions. Might be a good place to gather information. https://403bwise.com/
One reason to keep your 403(b). If you are planning on retiring after age 55, but prior to 59.5, you can make 403(b) or 403(b)(7) withdrawals without incurring early withdrawal penalty (usually 10%). A traditional IRA would not be available for penalty free withdrawals until 59.5. Both plans can be accessed penalty free for hardship reasons and other reasons (medical expenses, down payment of first home, tuition expenses, etc)
I never understood why 403(b) plans were offered to non-profits when 401(k) plans were the preferred offering in the private sector.
I never understood why employer-sponsored health plans were offered in the US when government-sponsored health plans were the preferred offering globally.
Same reason - historical accident.
403(b)'s history goes back about 3/4 of a century before the advent of 401(k)'s - to Andrew Carnegie, who created the Carnegie Foundation for the Advancement of Teaching, with the an objective "to remedy the disparity between the great value conferred on society by higher education faculty and the miserly financial benefit society gave faculty in return." The focus was on providing pensions for educators.
This led to the Carnegie Foundation creating TIAA using annuities as the best way to provide pensions. It required no employee contribution for many years. As TIAA grew larger, that became unsustainable. TIAA was spun off, and employee contributions were added. As market returns became more important post WW2, TIAA created CREF. Finally, in 1958, Congress enacted legislation covering these plans. Thus 403(b).
401(k)'s come from the private sector, where gold watches and pensions were unfunded gratuities that employees couldn't count on. (See Studebaker, 1963.) While the Studebaker failure was the impetus for ERISA, the private sector had had CODAs (deferred compensation plans - cash or deferred arrangements) for decades, and these led to 401(k) plans.
While 403(b)s and 401(k)s are much more similar than they were in the past, they have different histories and different quirks.
Regarding the story linked to by Bee, what it doesn't say is that the company used, Aspire, charges participants $40/year and skims 15 basis points off their investments, which add their own ERs. Many of TIAA's 403(b) participants can do a bit better, e.g. VFIAX at 14 basis points, all in. https://www.aspireonline.com/resources/faqs/-in-category/categories/categories/fees
Comments
I never understood why 403(b) plans were offered to non-profits when 401(k) plans were the preferred offering in the private sector. Insurers carved out their customer base by pushing 403(b) and are now are looking for additional customers.
Good article on the differences:
https://humaninterest.com/blog/403b-compared-to-401k-retirement-plans-for-non-profits/
and,
https://investopedia.com/ask/answers/100314/what-difference-between-401k-plan-and-403b-plan.asp
Most 403(b) investment options are variable annuities that have loads, management fees, sales fees, wrap fees, rider fees, early redemption fees...even rules that limited upside capture of market returns...feh! These TSAs are offered by insurance companies that, like AIG, are not immune to failing.
As a teacher, we fought long and hard to "force" management to offer 403b(7) investment options with low fee firms like Vanguard.
Any annuity (Insurance product) should be competitively priced and closely regulated.
Once you head down the (Annuity 401(k)) rabbit hole its expensive tunneling out.
Alternative:
Invest in low fee funds during your working years, then consider buying an immediate annuity with a portion of your investments to compliments your retirement income. This decision can wait until you are close to retiring and in fact even later into retirement if that makes better financial sense.
403(b)wise is a good source of information on 403(b) plans and has a discussion board where you can post questions. Might be a good place to gather information.
https://403bwise.com/
A Story:
https://403bwise.com/k12/story/129
Article on the Topic:
https://investopedia.com/advisor-network/articles/what-do-your-403b-funds-if-you-change-jobs/
One reason to keep your 403(b). If you are planning on retiring after age 55, but prior to 59.5, you can make 403(b) or 403(b)(7) withdrawals without incurring early withdrawal penalty (usually 10%). A traditional IRA would not be available for penalty free withdrawals until 59.5.
Both plans can be accessed penalty free for hardship reasons and other reasons (medical expenses, down payment of first home, tuition expenses, etc)
Article:
time.com/money/4535619/retirement-withdrawals-age-55-401k-403b/
Same reason - historical accident.
403(b)'s history goes back about 3/4 of a century before the advent of 401(k)'s - to Andrew Carnegie, who created the Carnegie Foundation for the Advancement of Teaching, with the an objective "to remedy the disparity between the great value conferred on society by higher education faculty and the miserly financial benefit society gave faculty in return." The focus was on providing pensions for educators.
This led to the Carnegie Foundation creating TIAA using annuities as the best way to provide pensions. It required no employee contribution for many years. As TIAA grew larger, that became unsustainable. TIAA was spun off, and employee contributions were added. As market returns became more important post WW2, TIAA created CREF. Finally, in 1958, Congress enacted legislation covering these plans. Thus 403(b).
401(k)'s come from the private sector, where gold watches and pensions were unfunded gratuities that employees couldn't count on. (See Studebaker, 1963.) While the Studebaker failure was the impetus for ERISA, the private sector had had CODAs (deferred compensation plans - cash or deferred arrangements) for decades, and these led to 401(k) plans.
While 403(b)s and 401(k)s are much more similar than they were in the past, they have different histories and different quirks.
Regarding the story linked to by Bee, what it doesn't say is that the company used, Aspire, charges participants $40/year and skims 15 basis points off their investments, which add their own ERs. Many of TIAA's 403(b) participants can do a bit better, e.g. VFIAX at 14 basis points, all in.
https://www.aspireonline.com/resources/faqs/-in-category/categories/categories/fees