403b...

[ScrimpAndSave]

I am a teacher...and during my lunch today, there was a representative from AXA Equitable in the faculty room. There were about 30 teachers chowing down with the representative stood up and introduced himself. He mentioned that he was there to speak with anyone about opening a 403b plan and blah blah blah. The teachers sat politely and listened...and then he asked, "Does anyone know what a 403b is?"...

I raised my hand...and I was the only one. I was totally shocked. I have been teaching for 5 years and many of these teachers have easily been teaching for over 15. They never heard of a 403b...I find that to be a little crazy - no? I know that it is a little less heard of than a 401k - but we only have 403b's in our public school and our company does not match.

Anyway...I was just really surprised that people are buying houses...sending kids to college...working VERY hard...and have do not have any idea how or pension works or what our other retirement options are. Is is really that rare to think of retirement early in your career?!?!

I guess that was sort of a rant - sorry. I work with very intelligent people and I really admire them as professionals...I was disappointed.

[rob62521]

Rant away because I can tell the same story at my own school. And when we were talking about investments and how some of us have really taken a hit, one gal said she would draw everything out of a 403b if she had one so she wouldn't lose any more...scary!

[GREENBACK]

I think most people really only have a vague idea of how retirement plans work(or even their availabilty at their workplace) . I worked my first five years without investing in my 457 plan or really even knowing what it was. I basically just kept all my money in a local bank becuse that's pretty much what my parents did.

Kind of dumb but I'm sure there are many just like me that are still clueless.

[disneysteve]

What is even sadder is how many teachers, hospital workers, etc. open a 403b and invest in an annuity. That has to be one of the biggest rip-offs in the investment world - putting a tax-free instrument inside of a tax-sheltered account. Plus, the expenses and fees tend to be sky high.

[GREENBACK]

What is even sadder is how many teachers, hospital workers, etc. open a 403b and invest in an annuity. That has to be one of the biggest rip-offs in the investment world - putting a tax-free instrument inside of a tax-sheltered account. Plus, the expenses and fees tend to be sky high.

I think it's a little odd that managers of 403b's tend to steer clients towards annuitys. These investment vehicles make plenty for the person selling them but are in no way beneficial to the vast majority of their clients. a lot of people just go for the first deal offered and if it's a annuity that is more or less shoved down their throat they think it's the best option and let it go from there with no further monitoring.

I've never heard a lot of good about annuities unless it's for special circumstances. Don't know why it would be suggested as a retirement option.

[ScrimpAndSave]

Steve - this is exactly what it was...and I started to talk to some people around me about having a Roth...they were still clueless.

[Like2Plan]

What is even sadder is how many teachers, hospital workers, etc. open a 403b and invest in an annuity. That has to be one of the biggest rip-offs in the investment world - putting a tax-free instrument inside of a tax-sheltered account. Plus, the expenses and fees tend to be sky high.

Disneysteve,
Maybe this is due to the origin of the tax law which created the 403b plans? It seems they started out specifically as annuities and then the tax law changed over time to make them pretty much like a 401k now a days... (I believe 401Ks were not invented until the late 70's) (Link to wikipedia article on the history of 401ks) Here are a couple of articles I've found:

Why is the 403(b) often called a TSA or TDA?
When the 403(b) was created in 1958, participants could only invest in annuity products, so the name Tax-Sheltered Annuity (TSA) or Tax-Deferred Annuity (TDA) took root. Despite the fact that Congress granted 403(b) participants mutual fund privileges in 1974, the TSA/TDA name remains very common today.
link to the Motley Fool article

The Employee Retirement Income Security Act (ERISA) does not require 403(b) plans to be technically "qualified" plans, i.e., plans governed by US Tax Code 401(a), but have the same general appearance as qualified plans. While the option is available it is not known how prevalent or if any 403(b) plan has been started or amended to be ERISA-qualified. This is because the main advantage of ERISA plans for participants has been in the event of bankruptcy of the account holder, but that advantage ceased to exist after the October 2005 Bankruptcy Abuse Prevention and Consumer Protection Act extended bankruptcy protection to 403b plans. While they are different in some fundamental ways qualified and unqualified plans appear almost the same to the participant and the options available are very similar. The only important differences for the participant are some additional ways that they can withdraw employer money, not salary-deferral money, before the typical 59 1/2 age restriction, but only if the plan is funded with annuities and not mutual funds. The federal government wants to eliminate this difference in proposed regulations expected to be finalized in 2007.
Link to Wikipedia

Like to IRS Web SITE FAQ IRC 403(b) Tax-Sheltered Annuity Plans - Ask Bob Architect

[Like2Plan]

Anyway...I was just really surprised that people are buying houses...sending kids to college...working VERY hard...and have do not have any idea how or pension works or what our other retirement options are. Is is really that rare to think of retirement early in your career?!?!

ScrimpAndSave,
I think it is rare to think about retirement early on in your career, but also I think it is rare for employers to provide a lot of details on the retirement plan. Sure, you can generally find info on the plan on the internet, but a class is much better.

I am really lucky in that my employer offers a retirement class and recently started offering a class on the 401k plan, too. However, the target group for the class is for folks not too far away from retiring. I think they should focus on new employees, too. Goals are way easier to achieve if set in place at the very beginning of the working career. In some cases employees had not given their plan too much thought only to find out they couldn't afford to retire when they hoped....

[Snave]

I have hired several employees that were just out of college over the years a s a manger for the company I work for. When I spend the first few days training them, I actually log them onto the website where our 401k is run through. I have a few simulators and show the power of compound interest, etc... and show them how a 401K, being before tax, will minimally affect their pay. I won't pick their funds for them, b/c I just don't want to go that far and ever feel like my butt is on the line if/when their account goes down, but I give them an idea of a diversified portfolio, etc... I show them how the company matches and all of that. I really try to make sure they know at least a little to get themselves started. At that age, unless someones parents understand investments and know a little, these young adults have no one to get help from.

[blankcheck]

What is even sadder is how many teachers, hospital workers, etc. open a 403b and invest in an annuity. That has to be one of the biggest rip-offs in the investment world - putting a tax-free instrument inside of a tax-sheltered account. Plus, the expenses and fees tend to be sky high.

Also keep in mind that many employers have a set number of companies that provide the 403(b) or 401(k) or 457 portfolio. Most of those companies, as already mentioned, work under the "annuity is primary, and all other options are extra" model, so there really is no "cheap" alternative. In those cases, I've mentioned to a few people that they can do what they want if they open their own IRA. I'm hoping for the question "what's an IRA?" and the process just snowballs from there.

I'm especially sensitive to this because the company options I have right now are high on fees, but I already max out an IRA so there's little recourse aside from the inquiry to HR about other options (tough luck so far.)

[disneysteve]

I'm especially sensitive to this because the company options I have right now are high on fees, but I already max out an IRA so there's little recourse aside from the inquiry to HR about other options (tough luck so far.)

The problem, as you know, is that the contribution limit on IRAs is so pathetically low. Until just this year, it wasn't indexed for inflation so it sat at $2,000 for about 20 years before getting gradually bumped up to the current $5,000, which still is very little for the average worker. Since only about half of all US workers have access to a 401k/403b, that leaves the rest of us with an IRA as our only option. Trust me. Putting away $5,000/year just doesn't cut it for many of us.

[cptacek]

I have hired several employees that were just out of college over the years a s a manger for the company I work for. When I spend the first few days training them, I actually log them onto the website where our 401k is run through. I have a few simulators and show the power of compound interest, etc... and show them how a 401K, being before tax, will minimally affect their pay. I won't pick their funds for them, b/c I just don't want to go that far and ever feel like my butt is on the line if/when their account goes down, but I give them an idea of a diversified portfolio, etc... I show them how the company matches and all of that. I really try to make sure they know at least a little to get themselves started. At that age, unless someones parents understand investments and know a little, these young adults have no one to get help from.

When I first started working, we had a "club" sponsored by our company for people who had been in the workforce for less than 5 years, and did three events a month (but of course, anyone could come if they wanted to). One was a social hour, one was some other fun event (like paint ball, a musical, a pro basketball or hockey game, etc) and one was a lunch where we had speakers come in. About 4 times a year we had someone come in to talk about investing, 401(k)s, etc., as well as what to look out for when buying a house, what insurance you should have (and they even said if you were single with no dependents, you don't need much if any life insurance!) etc. It was a really great program, but I think it lost most of its allocated money during this down turn. That is really too bad for the new employees!