Recently, articles in the New York Times focused on what it called problems with 403(b) plans for K-12 public school districts.
403(b) plans often have annuity contracts, thousands of investment
options and hundreds of providers in which individual participants have
directed their deferrals and savings into providers they picked, often
after the sales rep visited the workplace. As the most recent Times’ article
pointed out, these sales calls often led employees to purchase
retail-type products with large sales charges, and/or annuity products
with long and potentially confusing contracts and what was later found
to be requirements to keep their money there for good.
The articles argued that fees were one of the problems associated with K-12 403(b) plans.
Lowder, tax-exempt and governmental plan consultant at TSA Consulting
and Training Services, in Tucson, Arizona, shared her thoughts with PLANADVISER.
PS: When selecting investment options for
their retirement plans, are employers, who seek the lowest available
fees, meeting their fiduciary obligations?
Lowder: Not if
fees are the only focus, according to the Department of Labor. “Higher
investment management fees do not necessarily mean better performance,”
says A Look at 401(k) Plan Fees, published by the DOL and Employee
Benefits Security Administration in 2013. The publication goes on to
advise, “Nor is cheaper necessarily better. Compare the net returns
relative to the risks among available investment options. And, finally,
don’t consider fees in a vacuum. They are only one part of the bigger
picture including investment risks and returns and the extent and
quality of services provided. Keep in mind the importance of
diversifying your investments.” NEXT: Tradeoff of focusing only on lowest cost