403(b) Letter to the Editor

I recently sent a letter to the editor at the Purdue University newspaper, The Exponent.  I also wanted to share it here.

To the editor:

Protecting a workers retirement funds and portfolios from unethical acts will always be a noble cause.  The Department of Labor accomplished this with their newest rule where financial professionals need to act in a fiduciary capacity by putting the consumers’ needs first.  The problem has been that most consumers assumed this has always been the case when in fact the financial professional may have recommended a product based on it being  a suitable option (not necessarily the best) paying a high commission.

The new fiduciary rules cover accounts like the 401(k) and IRA.  The new rule does fall short for those accounts (403(b) plans and non-IRA retail investing accounts) outside of the Department of Labor’s jurisdiction.  The result will be a smaller pool of buyers for those advisors who sell products based on the old suitability standard.  403(b) plans will be at the center of the smaller pool leaving some consumers unprotected.

Future teachers or those just entering their career in k-12 schools need to exercise extra caution with whom they discuss their 403(b.)  Planning with a fiduciary practicing advisor will reduce stress, and will help in making those financial decisions when an unexpected event happens.

I can only hope the Securities and Exchange Commission creates a similar rule for those accounts not covered under the new ERISA standard.  In the meantime, here’s how 403(b) participants may protect themselves:

  1. Deal with a financial professional who automatically puts your interest first, like someone with a Certified Financial Profession designation or willing to sign a fiduciary pledge.
  2. When reviewing your 403(b) ask for a list of internal fees, expenses, and any potential commissions earned. Some annuities contain total fees up to 3%.
  3. Check your adviser’s history on brokercheck.com for any disciplinary actions.