The Wise Cracks Blog by Dan Otter



Do the Right 403(b) Thing, Pennsylvania

Dear Pennsylvania School Districts,

I am quite fond of your state. It is the birth place of most of my family. Much of my wife's side of the family lives in the Philadelphia area. Unfortunately, a few years ago Pennsylvania did a really dumb thing. Well, state senator Jake Corman did a really dumb thing. He sponsored legislation requiring Pennsylvania school districts to maintain at least four 403(b) vendors. The 403(b) is a supplemental savings plan similar to the 401(k). No private sector employer plan has four 401(k) vendors because it costs more to maintain and results in higher fees for participants. 

What your state did is, sadly, pretty typical. Most K-12 403(b) are awful. School districts exert little oversight and as a result most of the financial firms selling 403(b) plans are high fee. The New York Times detailed 403(b) issues in a 2016 “Public sacrifice” series. The misguided Pennsylvania legislation, passed in 2017, goes into effect on July 1, 2019.

Teachers Will Pay More

Mr. Corman certainly didn’t do this to help teachers. As InvestmentNews reporter Greg Iacurci described in a recent story, multiple vendors drives up investment costs for teachers. The state senator certainly didn’t do this to trim bureaucracy. School districts now have to aggregate monthly 403(b) contributions to at least four vendors. Dumb! Dumb! Dumb!

How to Get Low Costs

Make vendors compete! Put your 403(b) out to bid. Choose the single vendor who offers the best mix of fees and services. If you want to get your house painted it’s perfectly reasonable to get four bids. You then choose one based on a combination of cost and service and reputation. But you don’t have all four painters paint your house. Jake Corman is a Republican. I thought Republicans were for free enterprise and competition. Not this Republican. It looks like he’s for bureaucracy and raising investment fees on teachers. We invite Mr. Corman to share his views on our site or better yet on our podcast. We have had a legislator on before. In episode 44 we interviewed Connecticut state representative Matthew Lesser who sponsored legislation to actually improve the 403(b) for teachers in Connecticut.

Easy Fix

There’s actually an easy fix. Pick four great companies. Choose: ASPIRE, Fidelity, USAA and Pennsylvania’s own Vanguard. These companies don’t flood classrooms, and staff lounges with sales agents. They are generally known to offer low cost products and solid service.

Money Talks?

Is it me or is it weird that 403(b) vendors known for higher fees sponsored this 2016 Pennsylvania Association of School Business Officials Report (see page 7) and many other PASBO publications? It’s interesting what you find when you look through these reports. For example, AXA Equitable Advisors paid for, err, awarded 20 "scholarships" to first time attendees of the 2019 Annual Conference (see top of page 2 and browse the 403(b) vendors on the right hand side of the page). They probably did this so these 20 could attend a session on how high 403(b) fees kill teacher saving rates. If only. Search yourself: Just click this link, then click “Publications ” by year, then choose individual months.

Do the Right Thing

In closing, make a teacher’s day by offering four, low cost options. It’s really that simple. I have a feeling Jake Corman won’t like this, but School Districts are for students, parents and teachers. They are not for politicians or companies that gouge teachers.


Daniel Otter, Ph.D.