403(b) Plans For Public School Teachers: How They Are Monitored and Regulated In Each State
This report examines the 403(b) plans in all 50 states and seeks to provide the first comprehensive analysis of these plans across the country. We consider the advantages and disadvantages of alternative methods of regulating 403(b) plans and present an assessment of 403(b) plans in each state. To help place 403(b) plans in a broader context, the report provides a brief summary of the primary or mandatory plan offered to schoolteachers in each state along with whether the state also provides the opportunity to participate in a 457 plan or other supplemental retirement saving plan and whether the state provides health insurance to retired teachers. We find substantial differences in the regulatory environment of 403(b) plans, both across and within states. Some states and school districts allow all interested vendors to offer 403(b) products if they meet certain specified criteria. This open access environment usually results in a relatively large number of vendors offering plans to teachers. An alternative system is where the state or school district adopts a competitive bidding process to limit access of providers to the market. In this controlled access environment, the plan sponsor negotiates with the approved providers over the mixture of products and the level of fees. This reduces the information cost for teachers at the cost of limiting the access to some vendors and some investment products. While it is sometimes difficult to classify states into simple categories, it appears that 6 states have adopted some type of state managed 403(b) plan through restricting providers and 4 states have state supervised plans but allow all interested vendors who meet basic requirements of the state to offer retirement saving plans to teachers. The other 40 states have chosen to have 403(b) decisions made solely by local school districts. Within a particular state, school districts vary in their approach to regulating vendors with some school districts limiting access while others have a more open framework for their supplemental retirement plans. As a result, some school districts have only one provider while others have 15 to 20 providers.