I would imagine by now that most school districts in Michigan have a compliant 403b plan document despite the 11th hour reprieve from full compliance by January 1, 2009. If you haven’t adopted a plan document by now you must do so by December 31, 2009 and it must be retroactively compliant back to January 1, 2009.
With the big hurdles of adopting a plan document and establishing a compliant reporting system behind us, many districts collectively exhaled and have set their programs aside and back on “auto pilot”. It is another accomplishment to put behind us much like Y2K and GASB 34. Or is it?
School districts are in an unprecedented position as the administrators of a 403b Plan. This is a significant change from the former role of depositor into our employees' individual plans. This new authority offers some opportunities for improving plans for both the district and our employee’s benefit. Districts now have the opportunity to use the power of plan assets to bid or negotiate the services of the vendors that service the plan.
There are now over $612 billion of assets in 403b accounts nationwide in 2008 according to the Spectrem Group. Districts now have a unique opportunity to review the products that are being sold in the district’s plan. Much like 401k programs in the private sector, both the vendors and products are now under the control of the plan administrator. Districts can utilize the purchasing power of their entire plan to negotiate with their approved vendors to drive down the excessive fees and charges that have historically been charged to 403b clients nationwide. One would only need to Google “the fleecing of teacher’s 403bs” to find dozens of articles that discuss the fact that educational employees have been paying investment fees on our individual deposits that are not common in the 401k world. Many of our investments were carrying fees or “loads” that were 5-6% higher then our 401k counterparts for the exact same investments. Certainly there is a place for some fees to help manage our investments. A competitive bid can help a district determine what an appropriate fee might be for these services.
Does your district have an obligation to utilize its new standing as plan administrator for better services and lower fees under the IRS regulations? No it does not. Your district has an opportunity to enrich the benefit of our plans for our colleagues and ourselves.
Your district might also consider the benefits of negotiating a board paid annuity match plan as opposed to a salary raise in these tight financial times. Unlike a salary increase, it doesn’t compound in perpetuity on a pay scale. In addition to increasing participation in the district’s plan, board paid 403(b)7 funds can be deposited without FICA expenses for either the district or the employee.
So before you put your district plan back on the shelf, consider if you have done all you can to enrich this benefit opportunity for your fellow employees.