Depew Teacher’s 403b Retirement Plan Options

This post aims to be a resource for Depew teachers to use to help them select the 403b provider and the difference between the available options. Please take your time to review this post and make sure you and your colleagues are using the best possible option – with the understanding that the best option for you may be different than your colleague’s, depending on everyone’s circumstances.

As a Depew teacher, you have access to a retirement plan known as a 403b. These accounts are very similar to the more popular private-sector retirement plan known as a 401k except for one big difference, CHOICE.

Now, this choice can be a good thing or a bad thing. In the private sector, when you get a job and want to save for your retirement, you use the one option the employer has selected. This is not the case for Depew UFSD, as they don’t have just one option but instead offer eleven different ones. Great! Choices! However, the district does not provide any guidance on the various options meaning you have to figure out which of those ten you should use. I have listed them below in alphabetical order:

• AIG (formerly Valic)
• Equitable (formerly AXA)
• Invesco / Oppenheimer
• MetLife
• Orion (L&M Financial)
• PenServ Foresters Financial (formerly Forresters)
• Plan Member
• Sgroi Financial
• The Legend Group
• Voya

This can be overwhelming for anyone who doesn’t have any experience with retirement planning. Most of us will go to a friend or co-worker and ask who they use. However, this is like comparing apples to oranges.  Your financial situation and life circumstances are different than your co-workers. So how do you know the difference between the companies and which one is the best option for you? If you’re at this crossroads, I hope to help you break down this long list of options into different groups based on what they offer.

Investment providers come in three basic types:

1. Insurance Companies
2. Mutual Fund Families
3. Independent Financial Professionals

Insurance Companies

• AIG (formerly Valic)
• Equitable (formerly AXA)
• MetLife
• VOYA

These insurance companies primarily offer variable annuities¹ to their clients. While annuities do offer tax deferral, investing in one as part of a 403b account receives no additional tax advantage. Under these circumstances, consider purchasing an annuity only if it makes sense due to its other features.

Variable annuities typically cost between 2% and 4% per year and often come with surrender periods lasting from 5 to 12 years. For example, a $100,000 deposit would range from $2,000 to $4,000 a year in annual expenses locked up for 5 to 12 years. Investments within a variable annuity are typically limited to 20 to 50 options.

While variable annuities may be a valid option for some investors, they can be expensive, have surrender charges, and lack investment options available. As a result, variable annuities may be the most expensive option for your 403b.

Mutual Fund Companies

• Invesco / Oppenheimer
• PenServ Foresters Financial (formerly Forresters)

A mutual fund² is an investment that pools your money together with other investors to purchase shares of a collection of stocks, bonds, or other securities, referred to as a portfolio that might be difficult to recreate on your own.

Mutual funds may come with an upfront commission of about 5.75% and an annual cost of about 1.25%.  On a $100,000 deposit, this would be $5,750 paid out in upfront commissions and the remaining $94,350 being deposited into your account with $1,180 in annual expenses. There are usually 20 to 100 investment options inside a mutual fund company.

These companies hire financial professionals that primarily distribute their own company’s mutual funds, so their recommendations are often limited to these companies.

Independents

• Aspire
• Orion (L&M Financial)
• PlanMember
• Sgroi Financial
• The Legend Group

These companies have financial professionals that are independent and not captive of a financial company so that they may offer the widest variety of investment options to teachers. For example, most can provide variable annuities or mutual funds.

The costs for these professionals can range between 1% and 2% of assets. On a $100,000 deposit this would range from $1,000 to $2,000 in annual expenses. These companies usually have the most freedom and flexibility as most have 1,000+ investment options to select from.

Because a specific list of investment products does not bind them, they can generally offer whatever investment is best for you.

What else to look for in a Financial Planner?

• One that holds the specific credential of a CERTIFIED FINANCIAL PLANNER™ professional
• Sign a Fiduciary Pledge – This means they agree to put your needs ahead of their financial interests.
• Works with other teachers in your district
• Transparent about all costs

“I’ve found a few financial professionals and companies I like. So what do I do next?”

The next step is to meet with the financial professionals from these companies – and make sure to meet with more than one.

(It’s important to note that you do not just use the professional your fellow teachers are using. They might be using them based on another teacher’s recommendation, which may not have been properly researched. Many clients have told me they did not know the difference between the companies and were going on what their colleagues told them. Sadly, no one was informed of the differences, and everyone was using a product that potentially cost them thousands in lost investment returns.)

Look these reps in the eye and get a good feel for them. It’s important to note that this person will be investing thousands of dollars of your money, so take as much time as you need to make this decision.

Email me for more unbiased guidance and support if you’re still unsure.

Good luck!