If you do not work for a public school, hospital or religious organization you may never have heard of a 403(b) plan. Think of it as the cousin of the 401(k) plan with yet another cousin named 457 working in the municipal field. They all share the same bloodline, with a few noticeable differences inside their nuclear family.
I began my career working a 403(b) TSA slot in a public school in the mid 1990's. In every year since my first year in the business, my clients have owned 403(b) accounts…. and I even watched my own family members retire with the coveted pension/403(b) combo plan. So when I tell you I heard a 403(b) story that blew my socks off, you know to grab the popcorn and pull up a chair. I am here to tell you a story about "you don't know what you don't know" and the vital importance of personal responsibility.
Imagine you spend your career working for a small school system, diligently saving 12% of your income into a company sponsored retirement account like every Financial Planner (like me) tells you to do. You budget the remaining amount of your paycheck to make sure the bills get paid, and your family is taken care of, because the “promise” of every financial talking head is that if you put away 12% of your income over a 25-year career, you should have enough money to retire.
Now, imagine you just trusted the process and never looked at your statement. And you never met with your plan advisor. And you never logged in online. You have no idea what the balance of your account is because the swings of the stock market make you a little nauseous and you’d rather just keep your head down and keep grinding. I have met two people in the last 12 months that approached their retirement like this and let me foreshadow this story a bit and tell you this doesn’t end well for everybody.
The first person checked her statement twice in twenty years. The first time early in 2009, and she had lost so much money she never looked at it again until this year (2024). When she looked at her statement this year, at the age of 65, to her surprise had more than enough to retire on! She put the wheels in motion and worked her last day this month after 30 years in her industry. With no pension, her balance was high enough to provide a sustainable income for the rest of her life.
The second person has not checked his statement in four years. He didn’t even know where the money was going, he just knew it was being deducted from his paycheck every two weeks. Upon receiving a telephone call from the recordkeeper, he found out none of it had been invested. Instead, the monies were being deposited into a cash holding account awaiting his direction on how to invest it. It was only for four years, not so bad…right? But his colleague was in the same boat, but she had not checked her statement in 20 years. And none of it was every invested. And I know enough about retirement planning to know without those deposits being invested in any basic asset allocation environment, she missed out on a massive opportunity to have her retirement money benefit from compounding growth.
Now, why do I tell you these two stories in a 403(b) blog? It’s because the vast majority of 403(b) plans are not governed by ERISA (Employee Retirement Income Security Act of 1974) and thus have less scrutiny than their 401(k) cousins. The reason for this is simple: these retirement accounts tend to be individual accounts rolled under one larger master plan agreement. Without the oversight of the group plan, almost all of the details are left to the individual participants. Their employer takes more of a hands-off approach and participant education is usually left to the 403(b) slot representatives.
But what happens when the system fails….and a participant, or an entire school district, falls between the cracks?
Now, I’m not going to play the blame game for the second situation, there is plenty of that to go around, but let me tell you one major difference between these two scenarios: the first was a 401(k) and the second was a 403(b). The first has some ERISA protections so the participants can hold their plan sponsors and plan advisors accountable. The second does not. The first had the best possible outcome. The second did not. I’m sure it’s just a coincidence. Maybe not.
Either way, the moral of the story is that personal responsibility is vital when using a 403(b) retirement plan as your primary retirement income source. Watching your accounts EVEN WHEN you “don’t like numbers” is essential if nothing more than to just know it’s going into the right buckets that match your risk tolerance. Also, to gauge the accuracy of your potential retirement income compared to your outside income sources. Think of it as a quick finger on the pulse of your financial future and not a comprehensive exam if that will get you to open the statement at least once a year.
Playing the roulette game of opening-a-statement-every-twenty-years is a risky bet for a notoriously conservative crowd. The payoff could be huge, or it can leave you working for the rest of your life. The choice is yours, but I feel better because now you know there may be something you might not know.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER™
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
www.enderswm.com
#kimenderscfp
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