Non-ERISA 403(b) plans are the last stand for poorly run, highly expensive retirement plans. It is still the wild, wild West because, without ERISA coverage, there is no Department of Labor support in fee disclosures and avoiding other abuses. Thanks to the nature of 403(b) space, multiple high-cost providers compete at every school district in New York. Depending on the district, a school district may have 6-10 providers to choose from and that only drives up costs so only the most expensive providers can compete. Many years ago, I worked with a teachers union and their hope for an endorsed program. They looked at all the providers and when the providers realized that they would have to compete on the level of hundreds and hundreds of school districts, only the high cost, annuity based providers were still interested.
The problem with non-ERISA 403(b) plans is that it leaves the individual states to help teachers out and most have punted the ball. Thankfully, New York might be an agent of change. The New York Department of Financial Services has opened an industry-wide investigation. The state agency. has issued requests for information from insurers on their policies and procedures around 403(b) fees and how these retirement programs are being marketed to teachers. This might be the impetus to change the last stand of high-cost retirement programs and teachers deserve better.
