5 Ways Your 403(b) Plan Is Costing You Big

If you sponsor a 403(b) plan, you might be familiar with the limitations plaguing the 403(b) industry today. Did you know that more than half of all 403(b) plans are on an annuity platform, which is an outdated system that could be costing you and your employees big money? Good news, it’s easy to convert your 403(b) plan to a non-annuity solution that sets you and your employees up for retirement success.

Here are 5 ways your annuity platform might be nickel and diming you:

1. Higher Fees:

Annuity platforms tend to have higher fees for 2 reasons:

  • Many 403(b) annuity platforms are on antiquated platforms that are not proactively repriced by the vendor. This means that even as plan assets grow, you don’t get a fee break.
  • Some annuity platforms also include insurance wrappers that add unnecessary expense to the plan while providing little benefit. The details of these arrangements are confusing, and their fees can drag the performance of the plan.

FACT: An extra 1% in annual fees can reduce a participant’s account balance by nearly one-third over their lifetime1

2. Vendor Kickbacks and Commissions:

Annuity platforms are notorious for having fee structures that are difficult to understand. Because multiple vendors often take kickbacks and commissions from the annuity product, it can be very tricky to tell how much your plan is paying and to whom. This is problematic because as a fiduciary for the plan, it’s your job to understand your fees and make sure they are reasonable for the services received. 

3. Adviser Kickbacks and Commissions:

Most advisers who sell annuity products for 403(b) plans are broker-dealers instead of Registered Investment Adviser fiduciaries. This can be problem because a broker-dealers can choose to sell lower quality products that bring them a higher commission. An adviser who is a fiduciary is required to act solely in the best interest of the client, so you can trust that an RIA fiduciary is providing a solution that is best for your employees.

4. Higher Cost Funds:

Annuity platforms generally require proprietary funds on the 403(b) lineup because the funds bring extra revenue to the vendor. This can be an issue because the funds may be lower quality and higher cost than industry average, which can drag plan performance and significantly affect retirement outcomes. 

5. Hidden Penalties:

Most annuity platforms include funds that have penalties if a participant tries to move their money out of the fund. For example, it’s common for insurance-backed funds on an annuity platform to have a 5% penalty if a participant tries to move their money within certain time frames. These fees can offset performance, and sometimes even deter participants from changing funds within the plan.  

If your 403(b) plan is currently on an annuity platform, it might be time to consider an upgrade. At Fisher Investments our non-annuity 403(b) solution is designed to set you and your employees up for retirement success. The best part is that switching is easy, click here to learn more. 



1 https://www.demos.org/publication/retirement-savings-drain-hidden-excessive-costs-401ks

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