School district 403(b) vendors: how to read your district's list

Your district approved the vendors. It did not choose your product. Here is how to.

Every California school district keeps a list of vendors approved to sell 403(b) products to its employees, and the list is often long: insurance companies selling annuity contracts, mutual fund companies offering custodial accounts, and CalSTRS's own program. The district's role is to approve and administer; the choice of vendor and product is yours, and the differences in fees, surrender charges and flexibility between products on the same list are large. This page explains how to find your district's list, how to read it, and what to ask before you sign or move anything. It applies to Salinas Union, Alisal, Salinas City Elementary, Monterey Peninsula, North Monterey County, Pacific Grove, Carmel, Gonzales, Soledad, King City and every other district in the county, because the registry and the rules are statewide.

Step 1: find your district on 403bCompare

403bCompare is the registry the state requires: every vendor that sells 403(b) products to California public school employees must register its products and fees there, and the site lists each employer's approved vendors. Look up your district, and you will see the vendor list along with each product's fees, charges and features in a comparable format. Your district's benefits office or third-party administrator can confirm the list and explain how to enroll or change vendors within the plan. Pension2, CalSTRS's own program, appears on the registry like any other vendor.

Step 2: know which kind of product you are looking at

The type matters more than the brand. Two vendors on the same list can offer a low-cost custodial account and a high-cost annuity with a ten-year surrender schedule, and a salesperson visiting the teachers' lounge is more likely to be selling the second. Neither type is wrong in the abstract; an annuity contract can be appropriate for part of a balance near retirement when its surrender charges, withdrawal limits and caps are understood, and a custodial account is usually the simpler home for money that should stay flexible.

Step 3: read the fees the way 403bCompare shows them

For each product the registry reports its charges in comparable terms: annual expenses as a percentage of the balance, any flat account fees, sales charges, and the surrender charge schedule year by year. Because a 403(b) is funded over decades, a difference of a fraction of a percent per year compounds into a large sum; a surrender charge, meanwhile, is the cost of changing your mind later. Compare the products you are considering side by side on those terms before you look at anything a brochure says about performance.

Step 4: know how to change vendors without leaving the plan

Most district plans allow an exchange: moving your balance from one approved vendor to another within the same 403(b) plan, without a distribution or a taxable event. The old contract's surrender charge still applies if it is inside its surrender period. You can also usually redirect new contributions to a different vendor while leaving the old balance in place until its charges age out. The plan's administrator handles the paperwork and can tell you what the plan allows. When you leave the district, the options widen to a transfer to the new district's plan or a rollover to an IRA, explained on our 403(b) rollover options page; the IRS describes the plan type on its 403(b) page.

Questions to ask any 403(b) salesperson, including us

1. Is this an annuity contract or a custodial account, and what are its total annual charges as a percentage?
2. What is the surrender charge schedule, year by year, and does it restart with each contribution?
3. Is this product on 403bCompare, and do its listed fees match what you just told me?
4. If I stop contributing, what happens to the balance and the charges?

We answer all five in writing for anything we recommend, and our page covers the fourth in full. Certificated staff should also read our CalSTRS and 403(b) page for how the account fits with the pension; classified staff in CalPERS, our CalPERS page.

Questions school employees ask

Reviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.