Top of Mind


The Parallel Universes of 403(b) Plans

In the famous (at least to me) original Star Trek episode Mirror, Mirror, Captain Kirk and his crew are accidentally transported to a parallel universe where everyone is evil instead of good, and they are expected to be the same.

A recent post by Choose FI regarding 403(b) plans made me think of that Star Trek episode, not because the author is a “Trekkie”, but because he refers to a 403(b) universe that is completely alien to me:  the world of public K-12 school district 403(b) plans.

As I discussed in a prior Top of Mind, many K-12 plans are plagued by high fees, a confusing array of recordkeepers, and far too many investment choices to satisfy even the most basic fiduciary standards.  Although not quite as bad as the evil empire into which “good” Captain Kirk is thrust in Mirror, Mirror, I have a feeling that, if I were forced to work in this market, I would feel a lot like he does in the episode.

Fortunately, I work in the universe of higher education, healthcare and non-profit 403(b) plans, where generally speaking, single recordkeepers provide plan sponsors with low fees and best-in-class investments and services.  

One of the major issues with having parallel universes of 403(b) plans is that there is a lot of misinformation circulated about 403(b) plans in general.  While I loved the post in ChooseFI, a reader could easily be led to believe that there is only a single 403(b) universe, and thus the lower standards of many public K-12 plans may be associated with all 403(b) plans, giving the term 403(b) a bad name when many outstanding 403(b) plans exist.

And, of course, real life is not as black and white as the good and evil parallel universes in Mirror, Mirror. Some public K-12 plans, particularly those with input at the state level, have made great strides in improving their 403(b) participant offerings.  Conversely, there are some higher education, healthcare, and non-profit 403(b) plans that leave a lot to be desired.  It is important not to generalize when reading about the failings of 403(b) plans or make assumptions about any one particular 403(b) plan, without close examination.

Until the next Top of Mind, live long and prosper!

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Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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