Apples and Oranges - Cherry Picked
The NTSA Gaslights America
Recently, the NTSA (The National Tax-Deferred Savings Association, a division of The American Retirement Association) released another in a series of misleading papers arguing that there is nothing wrong with public K-12 403(b) markets. They've been feeling the pressure surrounding their continued support of a marketplace that has failed educators for over 60 years. NTSA's absurd paper, "Apples and Oranges: Why K-12 403(b)s Work, " takes their disinformation campaign into overdrive.
I annotated the paper and provide proper context to expose what I believe are the lies at the heart of Apples and Oranges. You'll find each paragraph quoted, followed by my opinion.
"Comparisons between public and private sector benefits are understandable — indeed, such comparisons are often a large factor in employment decisions. But the variety and types of employers – and workers — covered by programs that operate under the auspices of 403(b) plans — are extraordinarily diverse. So much so that viewing 403(b) plans as a monolithic entity generally produces misleading results, despite the commonality of the Internal Revenue Code that supports their foundation. Like apples, 403(b) plans come in many varieties. However, to compare a 403(b) plan to a 401(k) plan is comparing apples and oranges."
I agree that 403(b) plans cover various entities, but so do 401(k) plans. The NTSA claim that 403(b) and 401(k) plans are like Apples and Oranges are not supported by the data; in fact, you might say it's cherry-picked. While the plans do have differences, there are not enough to say the two should be operated different.
401(k) and 403(b) plans operate under incredibly similar rules, and many aspects of these plans can AND should be compared. The NTSA doesn't like the comparison because it's generally favorable to the 401(k) and makes the 403(b) look inferior, especially in public K-12 education.
"For example, programs sponsored by non-profit associations and hospitals are, in fact, often quite comparable to 401(k) plans in design, operation and focus. They share similarities in terms of the typicality of matching employer contributions, investment menu size and construction. Programs sponsored by the nation's universities share many of those attributes as well, though they tend to make available investment menus that are considerably more complex, and sometimes make available multiple recordkeeping platforms to support access to that wider variety of options — alongside coverage by traditional defined benefit pension plans — an option rare among private sector employers these days, and one that both simplifies and complicates retirement planning. Education workers — those in the K-12 market — also typically are covered by a traditional defined benefit pension plan, and frequently rely on multiple providers to extend choice access — but also have attributes unique to that market that will be addressed below. These are all examples of the different types of employers and workers that may have access to 403(b) plans."
The NTSA cites three types of employers typical of a 403(b).
Non-profit organizations and hospitals
Universities, and
Public K-12
You can see where the NTSA is going here. They attempt to justify why the public K-12 education market generally has multiple vendors while other parts of the 403(b) do not. They purposely provide no context for why universities or public K-12 employers might have multiple vendors. For example, they imply that it's normal for universities to have multiple recordkeepers while ignoring that most universities are moving toward a single recordkeeper when they can.
The NTSA fails to mention that some universities maintain multiple vendors because they don't have a choice. TIAA is one of the oldest recordkeepers for university 403(b) programs. The legacy product(s) available often have significant assets that cannot be moved to another vendor. In addition, TIAA is so entrenched within the university system that it's nearly impossible to move to a single recordkeeper unless it is TIAA. Many universities aren't happy with TIAA but want to avoid dealing with unhappy employees, so they offer another vendor as an option. Thus, many universities provide a handful of vendors even though they'd prefer just one. I'm not saying TIAA is a terrible recordkeeper, simply that they are entrenched. What else is missing here is that almost all universities offering multiple vendors do so via a Request For Proposal process and provide high-quality options.
When the NTSA addresses the public K-12 market, they indicate that the presence of a defined benefit plan should impact the quality of the defined contribution plan. They even make up terminology - "extend choice access" when discussing the failed multiple vendor system that currently exists. This attempts to prime the pump and move you to the conclusion they want you to draw; multiple vendors are normal, natural, and needed in public K-12. A multiple-vendor system is not typical, nor should it be tolerated. 401(k) plans are not multi-vendor, public K-12 403(b) generally is, but it doesn't have to be.
"According to the U.S. Bureau of Labor Statistics' (BLS) most recent Annual National Compensation Survey (released March 2021), public sector educators are well-served by employer-sponsored retirement plans. At least 94% of teachers have access to a retirement plan at work, and 99% of primary, secondary, and special education teachers have access to such a plan.This compares quite favorably to private industry, where just 68% of workers have access to a retirement plan."
https://www.bls.gov/news.release/archives/ebs2_09232021.pdf
The NTSA attempts to find ANY statistic that supports their weak hypothesis that somehow 403(b) plans are better (or at least just as good) as 401(k) plans. The survey measures access to any retirement plan, including a defined benefit plan, which most in education have.
It's important to note that having access to a retirement plan and having access to a quality retirement plan are two different things. The BLS does not assess quality.
Access to water is not the same as access to clean water.
" Likewise, in the BLS' most recent Employer Costs for Employee Compensation survey (December 2021), retirement and savings costs represent 13.5% of public school teachers' compensation, which again compares quite favorably to private industry where 3.5% of compensation is related to retirement and savings."
https://www.bls.gov/news.release/archives/ecec_03182022.pdf
When I read that compensation related to retirement and savings in the private sector was only 3.5%, I knew something was off. The employer contribution to Social Security alone is 6.2%. You cannot tell me that Social Security is unrelated to "retirement and savings" with a straight face. It turns out the survey separates types of retirement contributions into two categories: "Retirement and Savings" and "Legally Required Benefits."
"Retirement and Savings" covers defined-benefit and defined-contribution costs, while "Legally Required Benefits" contains Social Security and Medicare.
If you compare education employees to the overall private sector, you should combine those two categories. It would also be wise to use the numbers for all education employees, not just teachers, as the NTSA did (we believe all education employees matter).
Doing the above changes the comparison (it's a bad comparison, but that's another story) so that the combined category for education employees cost is 18.4% versus the private sector at 11%. In the NTSA example, teachers cost nearly four times their private sector counterparts. In the new comparison, it's less than two times.
The survey states, "Compensation cost levels in state and local government should not be directly compared with levels in private industry. Differences between these sectors stem from factors such as variation in work activities and occupational structures."
The NTSA is cherry-picking data. They knew in advance that education employees are much more likely to be in defined-benefit plans, thus, would have a higher cost than their private sector counterparts where access is rare. Instead of comparing total compensation to a group of private sector employees (with similar education), they looked for the statistic that would make educators look like an outlier.
"Due in no small part to their prevalence, it has long been standard practice by some to look to the design, operation and oversight of 401(k) plans as an appropriate model for that of the 403(b) programs available to workers in the governmental and non-profit sectors. However, and specifically regarding the programs available to workers in the K-12 education sector, those comparisons are ill-informed."
The NTSA conveniently leaves out the fact that there are several states where 401(k) plans are available to public school employees. Colorado, Idaho, Kentucky, South Carolina, and North Carolina are a few examples. They are good programs and, in every case, better than the average 403(b) plan in those states. The comparisons are only ill-informed when you compare how the typical 401(k) currently operates (single vendor, fiduciary duty) to how 403(b) plans typically operate (multiple vendors, no fiduciary duty). There is no good reason a 401(k) model would not work in public schools. It just doesn't make NTSA constituents money.
Here is an excellent table to compare defined-contribution plans.
"First, and in sharp contrast to those in the private sector, the 403(b) plan provided to education sector workers is nearly always a supplemental arrangement — one offered in addition to a traditional defined benefit pension plan. Said another way, education sector workers still have available to them the traditional three-legged stool of retirement funding, whereas most in the private sector now must rely significantly, if not solely, on their 401(k) and Social Security alone."
It seems the NTSA believes if you are not offered a defined-benefit plan (a pension), you are more deserving of a high-quality defined-contribution plan (401(k), 403(b), or 457(b)). This is the only conclusion I can draw from their 401(k) comparison.
The subtle argument the NTSA seems to be making is that if educators have access to a defined-benefit plan in addition to Social Security and they also are provided a defined-contribution plan, they are unique and no longer deserving of a high-quality 403(b) option. While this argument might be valid in explaining lower participation and contribution rates, it should not affect the quality of a 403(b) option.
It's also strange to act like 401(k)s are not supplemental after arguing a few paragraphs earlier that almost a third of private sector employees lack access to one.
"This disparity has two foreseeable outcomes. First, individuals covered by those 403(b) plans are much more likely to assume that their pension alone will provide sufficient resources in retirement, though aspects such as tenure and vesting may well undermine that assumption. In fact, research shows that state DB plans generally only covers 50% to 75% of a teacher's salary at retirement. While that is significantly better than that available to the vast majority of private sector workers, it still leaves a retirement funding gap."
In this paragraph, the NTSA makes a claim ("individuals covered by those 403(b) plans are much more likely to assume that their pension alone will provide sufficient resources in retirement") without providing evidence and then debunks their claim while hinting that the educator is too dumb to figure this out. If individuals covered by 403(b) plans are "more likely to assume that their pension will provide sufficient resources in retirement," citing a study to support the claim should not be difficult. The NTSA likes to make claims without providing evidence. I agree that defined-benefit plans are unlikely to be sufficient for most employees in education. Still, I need to see evidence that educators are unaware of this.
The NTSA isn't even cherry-picking data here; they are just making it up.
"Secondly, they may well assume that they will obtain Social Security benefits, though some programs preclude that access as a trade-off with their pension contributions. For example, in the state of Texas, teachers do not pay into Social Security and thus do not have access to Social Security benefits. Even if a teacher earns credits from another job, the offset provisions of the state plan may effectively eliminate the social security benefits."
Fifteen states do not participate in Social Security for at least some of their public employees. While I agree that the 403(b) is essential for these uncovered employees, is it more important than a 401(k) to a private sector employee with access only to Social Security? Probably not, but this is a silly thing to argue about; the "supplemental" retirement plan offered by either employer is essential to both.
If the argument is that the 401(k) is more critical to the private sector than the 403(b) is to the public sector (which appears to be the argument), then we should conclude what? The importance of one plan (if that is even possible to be measured) should somehow affect its quality?
This isn't an Apples to Oranges comparison to me. Both groups of employees need access to a quality "supplemental" retirement plan to meet their goals. Arguing who needs it more isn't a good use of time.
An adult and a child both need water to survive, one may need more than the other, but at the end of the day, they both need access to clean water. Arguing who needs more of it is not apples and oranges.
"Finally, and most significantly, their awareness of, and enrollment in, their 403(b) account often requires the assistance of a trained financial advisor, as they must navigate the complexities of defined benefit plan structure and benefits alongside their decision to participate in the supplemental 403(b) plan at appropriate levels and choose and monitor investments commensurate with that goal."
This is the most absurd argument in this entire opinion piece. There is nothing special about a 403(b) or about being a government employee that requires a specially trained financial advisor to enroll. Millions of government employees have defined-benefit plans and single-vendor retirement plans that are simple to enroll in. In addition, very few salespeople in the 403(b)industry are specially trained or "advisors" in the legal sense.
The irony of this argument is that it ignores that the Federal government offers its employees a pension and social security while managing to enroll them at high rates into their supplemental plan, the Thrift Savings Plan. There is no need for a "trained financial advisor" who will act as a middle person, just a simple enrollment procedure and investment menu. Participation rates are in the 80-90% range for FERS employees and now exceed 50% for the military (https://tspstrategies.com/thrift-savings-plan-updates/tsp-participation-rates/).
Educators do not need a specially trained middle-person to siphon off their future retirement dollars to enroll in their 403(b) or 457(b). They aren't less able to contribute because they have a pension plan; the existence of the TSP dispels this. It's insulting to the intellect of all educators to suggest otherwise.
Suppose the 403(b) world followed the TSP and did the following. In that case, you'd likely see participation in the 70% and probably higher range:
1. Single vendor program (one recordkeeper)
2. Auto-enrollment into the program
3. A match, even if just 1% of compensation
4. A simple investment menu using low-cost index funds
Contrary to what the NTSA wants you to believe, this isn't rocket science.
No one is saying that educators couldn't or shouldn't utilize the advice of a qualified, well-trained, fiduciary financial advisor. They simply don't need one to enroll and manage a properly thought-out defined contribution plan.
Educators are unique and deserve the protections of the 401(k) that private sector workers receive (ERISA). The NTSA did not make a single argument that would justify the high-cost, low-quality nature of most 403(b) products. Having a defined benefit plan doesn't make saving so tricky that you must pay 2% more in fees annually than someone who works in the private sector.
The Chart
If you look at the chart (see the study, page __), you will find it's mostly correct, but it's designed to subtly shift your mindset away from how a 403(b) should look to how the NTSA wants it to look.
For example, the first line states that 401(k)'s are the primary retirement plan for the private sector, ignoring Social Security. The 401(k) is supplementary to Social Security, just as the 403(b) is supplementary to a pension or Social Security (or both if applicable). They are both supplemental plans. This is important because if you think of the 401(k) as primary but the 403(b) as supplementary, you'll consider one more important than the other and can therefore justify the extra scrutiny that comes with a 401(k). The same scrutiny should be shown to the 403(b).
Under the category of "Investment Selection Process," the NTSA states that the 403(b) is "Employee Driven" while the 401(k) is "Selected by the Employer." This is designed to make you believe this is how these plans operate, but it's not true.
First, the employer drives the investment selection process for 403(b) plans (except any willing vendor states); to state otherwise is to mislead intentionally. It's the employer who is required to vet and adopt vendor(s) for their 403(b) program. An employer may not adopt a 403(b) that doesn't meet IRS requirements; the employees do not do this, nor can they (except when the union controls or shares this process with the employer).
If I wasn't clear, the employee DOES NOT drive the investment selection process as the NTSA claims. The employees choose from those options once the employer decides on the vendors and products offered to their 403(b) program.
Employees cannot choose any investment option they want (even in any willing vendor states, they are limited by available vendors). The difference in practice is that 401(k) plans do not choose multiple vendors; most public school employers do. However, This is changing as many public school employers (Chicago, Denver, Anchorage, New York City, and many others) choose to go with a single vendor after implementing a bidding process.
The NTSA misleads again in the "Focus of Advisor Support" category. What they mean to say is salesperson support. 403(b) products in a multiple vendor environment are generally sold by salespeople, not advised on by fiduciary advisors. While some full-time fiduciary advisors are in the space, it's usually the exception. They even run into fiduciary issues if they can only use products that will debit fees. For example, suppose the best product for the employee is the Fidelity 403(b), but the advisor is paid through an asset-based fee and doesn't have a relationship with Fidelity. In that case, they may instead recommend the employee use a vendor like Aspire, which will allow fee debits but is more expensive overall.
This is one area where the NTSA is comparing apples and oranges. Advisors in the 401(k) space are subject to VERY different standards than salespeople in the non-ERISA 403(b) space.
The chart is correct but designed to lead you to believe that what happens in the 403(b) world is somehow normal; it's not.
More Like an IRA
"To unpack that just a bit, by design, from the participant's perspective, the typical K-12 403(b) plan operates more like a payroll-deduction individual retirement account (IRA) than a typical 401(k). While the employer is responsible for oversight and compliance with IRS regulations on a plan level, the employee / participant experience for a 403(b) account is similar to that of an individual investment. For the 403(b) plan, and unlike a 401(k) plan, there are typically no group education meetings, no enrollment campaigns, and — because of the supplemental nature of these programs, no automatic enrollment — at least not beyond the mandatory participation in the defined benefit plan, which is quite common. The decision to participate is voluntary and where to invest is much more open-ended than a 401(k) — in fact default investments are rarely needed and rarely stipulated in a 403(b)."
I will agree with the NTSA that the way most 403(b) plans in public education work is more similar to a payroll-deduction IRA; however, not entirely, and there is a big problem with their comparison: individuals have a choice with whom to invest an IRA, they don't with a 403(b).
The NTSA is saying that 403(b) plans primarily operate with multiple recordkeepers (vendors), unlike 401(k) plans, which have a single recordkeeper. Despite what the NTSA wants you to believe, this was not "by design." In fact, almost everything in the above paragraph is a lie.
Lie #1 “...by design…the…403(b) plan operates more like a payroll deduction IRA”
Whose design? The 403(b) wasn't even a plan developed originally for K-12 public education. When passed into law in 1958, even though many public schools adopted the 403(b), it wasn't until 1961 that Congress recognized they should include public education employers. There was no deliberate design embedded in the law that would require a 403(b) plan to have multiple vendors. It evolved this way due to inadequate oversight and needing federal and state protections. It wasn’t until 2009 that the 403(b) for public K-12 even had to be maintained pursuant to a plan. There was no design intention.
For decades public schools would send contributions to wherever employees wanted. Technically, the employer still had to add the vendor to their approved list, but if they didn't, there was a loophole. Once a participant deferred money into their 403(b) (of an approved vendor), they could then send it anywhere they wanted, even outside of the vendors their employer offered (this was called a 90-24 transfer). Not only that, some “vendors” acted as common remitters, meaning when you deferred your money to them they would send it to wherever you desired, they weren’t actually product providers themselves, they were in a sense, fake vendors. Some design.
The 403(b) had operated in this manner until 2009 when the IRS established new regulations to reign these plans in and force them to be maintained pursuant to an actual plan document. Before 2009 there wasn't even a plan document requirement. The NTSA conveniently leaves this part out. The 403(b) is an employer plan now and has been for almost 15 years.
Lie #2 "While the employer is responsible for oversight and compliance with IRS regulations on a plan level, the employee / participant experience for a 403(b) account is similar to that of an individual investment."
The above statement is a false and rather bizarre claim.
Yes, the employer is responsible for oversight and compliance, but they are also responsible for CHOOSING vendors. There are only a few states where the employer is not technically allowed to limit vendors (California, Washington, Massachusetts, and Texas). Still, even in those situations, the employer must officially add vendors to the plan and is not always required to do so (meaning they can put a process into place that a vendor must pass before being added). 403(b) plan participants aren't allowed to choose whatever vendor they want (only a vendor from a list provided); if they could, then 403bwise wouldn't have any D or F-rated 403(b) plans (see District Rating Project). Around 40% of educators in the United States do not have access to a quality, low-cost vendor (see 403bwise.org for this data).
Lie #3 "For the 403(b) plan, and unlike a 401(k) plan, there are typically no group education meetings, no enrollment campaigns, and — because of the supplemental nature of these programs, no automatic enrollment."
Notice there is no citation here for their claim. Group meetings happen all the time (I know, I lead many). Unfortunately, many group meetings are held by conflicted salespeople selling low-quality products. We do need more group meetings but by people only interested in educating plan participants and enrolling them in high-quality products.
The NTSA fails to mention that the 403(b) has an IRS requirement that forces the employer to tell all employees they are eligible to participate in a 403(b) annually. Employers could be doing a way better job, but they often fear steering their employees to specific providers and being liable. A single vendor 403(b) would go a long way to solving this issue.
There is auto-enrollment in K-12 403(b); it's allowed and happening. But it is rare. The NTSA also has lobbied against auto-enrollment (in fact, just recently in Maryland). When I was doing a Town Hall in North Carolina over a decade ago, a prominent NTSA member was adamant that the state not do auto-enroll, despite knowing how beneficial it can be for all employees.
The 403(b) is not like a payroll-deduction IRA. The employer controls the vendors available, often needs to do a better job choosing them, and employees cannot move their money when and where they want (like they could in an IRA).
One last note on the IRA comparison: annuities sold in an IRA are often subject to more regulatory scrutiny, but not if the same annuity is sold in a 403(b). The NTSA makes Apples and Oranges comparisons (but not in the way they claim), cherry-picking the data to serve their constituency.
"For participants, 403(b) accounts operate similarly to an individual retirement account (IRA) established with a local personal banker. The advice 403(b) participants receive is similar to that found with a typical bank IRA, although the fees paid for that advice are typically well below those found in an IRA. In fact, the education and advice received from a typical 403(b) plan advisor is likely the only such education these individuals are likely to receive about their retirement needs, options and alternatives."
We've already established that the NTSA lied about the 403(b) being like an IRA. But claiming that the typical 403(b) has lower fees than an IRA and that the typical 403(b) comes with advice is a whopper of a lie. Also, who uses a local personal banker anymore?
No footnotes are linked to studies to support their claims that "fees paid for that advice are typically well below those found in an IRA."
I've analyzed hundreds of 403(b) products and found them among the worst financial products available. Most of these products are available in IRAs. Still, IRAs can be invested in low-cost, high-quality options as well. That's not generally the case in 403(b).
The NTSA likes to use the words "Advice" and "Advisor," but they never define the terms. They are using the terms in a generic, not a legal sense. The overwhelming majority of salespeople servicing 403(b) participants are not legally Advisors at all times during the engagement process. Just because an insurance agent or a registered representative has a Series 65 or 66 license doesn't mean they always act in an advisory capacity with the participant. In most cases, they are working in a non-fiduciary sales capacity. The NTSA leaves this out of their comparison. Service providers in 401(k) plans have a very different duty to the participants than service providers in 403(b). This is an actual difference that is real and makes the comparison of these two plans, Apples, and Oranges. Still, ironically, the NTSA fails to point this out.
More and Better Impact
"Another comparison drawn with 401(k)s — one often promoted by 401(k) vendors — is the supposed advantage in restricting choice in access to funds and fund providers. While too much choice can indeed be intimidating for those making investment decisions unaided, the K-12 403(b) market typically offers not only investment advice – but access to investment advisors – in rough proportion to the number of those platform investment options."
Yet another claim with no evidence. A quick look at almost any vendor list reveals that most products offered do not include investment advice. Look at the 403bwise.org list of Red vendors (vendors you should consider not using); only a handful in the Red+ category offer investment advice options. Even when vendors (or their representatives) provide investment advice, it's often highly conflicted, costly and accompanied by cross-selling of other financial products. Just because a sales representative is registered as an investment advisor doesn't mean they must act as an advisor and provide fiduciary advice.
Advisor is a technical term, it means something from a legal standpoint, but the NTSA uses the term to refer to any person who works in the 403(b) industry servicing participants. When they use the word "Advisor," they want you to consider insurance agents not registered to provide advice as an "Advisor." They want you to think of Registered Representatives who are not registered as investment advisors as "Advisors." They want you to believe that someone licensed to provide investment advice but not acting in an advisory role (i.e., selling a commission-based product) is an "Advisor." When they use the term "Advisor," it's to deceive, in my opinion.
The NTSA is playing games with the data because they know it's not in their favor. It is atypical to receive investment advice from a sales representative in a 403(b). It's atypical to be serviced by someone who is always acting in your best interest, a fiduciary. To say that investment advisors are offered in "proportion to the number of those platform investment options" is a meaningless statement designed to gaslight. It beggars belief to think the NTSA believes this statement is true.
Advisor Impact
"Indeed, data also suggests that fewer teachers participate in 403(b) plans when the number of available investment providers and commensurate access to trusted advisor resources is limited. Said another way, when public teachers and staff no longer have access to the option(s) in which they choose to save and the professional assistance of their trusted advisor, they stop saving, and/or save less. For example, in 2009, Iowa transitioned from the traditional competitive, open 403(b) marketplace model to a narrow set of five options — only to subsequently see participation rates in the program plummet dramatically. In fact, some counties in that system suffered enrollment reductions of up to 50%."
Instead of providing evidence for this claim, the NTSA cherry-picks and cites anecdotal data without even providing the data. Within the claim is a claim of loss of access to "trusted advisor resources," which is meant to imply that all vendors who service 403(b) plans are, in fact, legally "advisors."
First, evidence must be cited or made available to support this claim; it's not.
Second, we disproved the idea that a significant number of advisors are working with teachers in the prior section.
Third, participation can drop in a plan for any number of reasons. In the Iowa example (assuming participation actually dropped, no data was provided), the drop happened in 2009. The entire financial world was falling apart in 2009, new 403(b) regulations had just gone into effect, and public school budgets were cut, leading to teacher layoffs.
If participation did drop, it’s possible that there needed to be a better thought-out transition plan to five vendors. If, in fact, there was a drop in participation, blaming that drop entirely on the consolidation of vendors is lazy and not proven; at best, it's anecdotal. The NTSA fails to cite school districts that made the transition successfully and have much higher participation rates with a single vendor or where the participation rate didn't fall. It's just more cherry-picked data.
You may notice that the NTSA said that "some counties in that system suffered enrollment reductions of up to 50%" after talking about dropping participation rates. Enrollments generally refer to new participants rather than existing ones. Did the NTSA mean participation rates dropped or enrollments dropped? Both? It needs to be clarified as they don't provide any data. Suppose we are talking about a drop in enrollments in some counties. In that case, it's entirely likely this drop was related to the worst financial crisis since the Great Depression. Enrollments generally increase with new teachers. In 2009 school districts were not hiring.
The NTSA is comparing Apples and Oranges, something they are adamant we shouldn't do.
"The number of investment choices was subsequently expanded to 30 approved companies and the participation rate increased dramatically. Highlighting these challenges, a 2017 study done by the Public School Employee's Retirement System Board (PSERB) under PSERB Resolution 2017-43 in Pennsylvania, demonstrated that the range of 403(b) plan and 457(b) participation rates in America's public school districts is dramatic, suggesting that the investment and provider choices that each school district makes available, as well as the resources they provide to help teachers understand the benefits of participation, are key differences in driving participation rates. That survey further revealed that participation rates for the 636 public schools surveyed ranged from approximately 56% to more than 75.69%. In situations where the 403(b) is not a supplemental plan (for example where the teachers may be exempt from the state teachers' pension) there is 100% participation, since the teacher and the employer provide mandatory contributions to the 403(b) plan."
The NTSA states, "The number of investment choices was subsequently expanded to 30 approved companies, and the participation rate increased dramatically." Ok, please show us the data. There is no data, only claims and no context. Also, there are not 30 companies, you can check for yourself here.
The NTSA quickly transitions to Pennsylvania, where they reference a study done by the Retirement System.
Interestingly, the PSERB Resolution 2017-43 referenced was not a study in an academic sense but a survey of local school districts. One of the main conclusions was that auto-enroll and auto-escalation would increase participation. The Resolution did not state that "investment and provider choices…are key differences in driving participation rates," this is a conclusion that the NTSA arrived at, pretending that the state Resolution supports their ideology. Of course, the NTSA knows this, which is why it used the term "suggesting" instead of "concluding."
"That survey further revealed that participation rates for the 636 public schools surveyed ranged from approximately 56% to more than 75.69%. In situations where the 403(b) is not a supplemental plan (for example where the teachers may be exempt from the state teachers' pension) there is 100% participation, since the teacher and the employer provide mandatory contributions to the 403(b) plan."
I've read this Resolution a dozen times, used keyword search, and cannot find ANY reference to these statistics. There is a reference to the 636 public schools, but only regarding the number of public schools offering a 403(b). There is no other reference to the rest of the numbers cited. If the survey revealed such information, the Resolution did not report it. I found 15 references to "100%", none of which were associated with participation. I'll leave you to draw your conclusions; this is why data needs to be cited when making claims.
You may not notice the slight of hand in regards to the 100% participation number. The NTSA references that where the 403(b) is not supplemental, the participation rate is 100%, an incredible figure that surpasses 401(k) participation. You’ll notice the last words of the final sentence state that participation is mandatory. Of course participation is 100% if participation is mandatory, how could it be otherwise? Isn’t this comparing Apples and Oranges?
I agree with one sentence in the above paragraph, "...suggesting that the investment and provider choices that each school district makes available, as well as the resources they provide to help teachers understand the benefits of participation, are key differences in driving participation rates." I believe that education will make a difference in outcomes. However, this should be done objectively by individuals who are not conflicted by having to sell products.
I'll give you an example of a conflict of interest 403(b) representatives face. The 457(b) is a better retirement plan than the 403(b). It might not be perfect for everyone, but it is better than the 403(b) on average. Most representatives of the 403(b) vendors often cannot make money selling the school district's 457(b) program, so they recommend a 403(b) even though they know it to be inferior. This is a significant conflict of interest and something the 401(k) doesn't have to deal with (an actual difference between the 403(b) and 401(k)).
The Right Combinations
"Continuing education for teachers, coupled with access to a trusted advisor, not only helps increase participation rates, it also serves to help build teacher retirement account balances. The education and assistance from an advisor supports teachers from early in their career through retirement. As noted earlier, there is evidence that working directly with an advisor increases participation. Coupled with their state sponsored retirement plan, a supplemental plan with a choice of options and access to a financial advisor can help teachers overcome the many factors that often impede saving for retirement, such as low salaries, significant student loan debt and lack of financial education — and unrealistic assumptions about the benefit that will ultimately be provided by their state DB plan."
If the above paragraph were true, participation rates would already be higher.
The 403(b) has been around since at least 1961 and the industry has always controlled access via multiple vendor programs using salespeople selling low-quality products and participation has never averaged over 30%. Clearly, the method the NTSA prefers is not working. The NTSA has had over 60 years to prove they increase participation rates, they have failed.
The 403(b) has been a "trusted advisor" driven solution since inception. The continued misuse of the term Advisor by the NTSA is troubling. The overwhelming majority of salespeople working with 403(b) plans are not always acting in an advisory capacity, and many are prohibited from providing advice. Even the "advisors" the organization refers to as "Elite" sometimes have over 700 customers. You cannot effectively advise that many customers.
What has been demonstrated repeatedly to improve participation rates and account balances is auto-enroll (if you doubt this, look at the continued passage of auto-enroll laws by Congress).
“As noted earlier, there is evidence that working directly with an advisor increases participation.” Where is this evidence? There are no footnotes or links. I've reviewed the "evidence" the NTSA uses (you have to go outside the Apples and Oranges document), and it's not academically sound by any stretch of the imagination (see here and here and here). The NTSA's method for recruiting educators into a 403(b) has been in place since the '60s, it has by all measures failed. The NTSA gaslights us though, effectiverly saying educators are better off than ever.
"Those intricacies — and the development of a workable plan to provide a secure financial footing for retirement — are the essence of the support provided by the type of 403(b) advisors that obtain the Certified Retirement Education Specialist (CRES) certificate sponsored by the National Tax-Deferred Savings Association (NTSA), and the firms that comprise the organization's Strategic Partners.
Objective data supports the conclusion that teachers in the K-12 market are saving more for retirement today than their counterparts in corporate America. Moreover, through access to a robust set of options, the freedom to exercise choice, guided by personalized and individualized connections with advisors, today's teachers are supplementing retirement assets which otherwise might fall short of needs and expectations."
If we've learned anything from this report, the NTSA is not above saying that a study or survey, or resolution they cite says something it doesn't. The inference is that educators contribute to their 403(b) plans at the same rate or higher than their corporate counterparts. No evidence has been presented to support this claim. No study compares similarly educated professionals in the teaching profession to those in the private sector. The best they could do is cite that government employers contribute more, on average, to retirement than in the private sector. The context of this difference is left out as pay in the private sector for a similar educated individual is generally higher.
The continued pushing of a "certificate" that is achievable in an afternoon (the vaunted CRES) which does not teach financial planning, investments, or how to act in a fiduciary manner, is an attempt to fool public school employers that these representatives are somehow unbiased, objective and only doing the "education" out of the goodness of their hearts. Education is a trojan horse; it's a way to gain and maintain access so that the representatives can sell financial products that might not be in the educator's best interest.
Conclusion
Our nation's public school employees deserve better than what an organization representing large financial service companies is offering. They are owed more than a cherry-picked document gaslighting them that all is fine.
Public school employees deserve objective education, reasonably priced 403(b) and 457(b) programs, and a simple way to be enrolled in these plans. They deserve to have their programs overseen by fiduciaries, not people looking at them as a source of income.
Educators don't deserve to be told that everything is just fine when the rate of contributions to their retirement plans is abnormally low and a significant cause for concern. Instead of addressing this concern, the NTSA would rather play the blame game than pursue actions that would benefit educators. The vision I (and 403bwise.org) have for educators and the one that the NTSA has is truly Apples and Oranges.
Scott Dauenhauer, CFP, MPAS
https://www.nasra.org/files/Issue%20Briefs/NASRAContribBrief.pdf
https://www.ntsa-net.org/sites/ntsa-net.org/files/2023-NTSA-403b-WhitePapers-Final.pdf
https://www.psers.pa.gov/About/Board/Resolutions/Documents/2017/res43.pdf