TRS to consider whether you are paying too much for your 403(b)

TRS logoAll state agencies adhere to a regular cycle of rule review. This requirement is intended to help ensure that state rules and regulations stay relatively up to date. Often times a required rule review will result in little more than the existing rule being published, without significant changes, in the Texas Register to satisfy public notice and then readopted essentially as is. Sometimes, however, an agency will take the opportunity of a rule coming up for standard review as a chance to evaluate the policy addressed by the rule and make substantive changes. Such is the case with a Teacher Retirement System (TRS) rule on certification of 403(b) vendors.

While Texas educators’ main source of retirement income will likely be their TRS pension, a TRS pension payment alone will not support more than a modest standard of living during retirement for most educators. That’s where supplemental retirement investment products, such as 403(b)s, come in. They encourage educators to put away additional dollars by providing a relatively simple vehicle, complete with tax advantages, for educators to use when saving for their retirement.

The legislature has tasked TRS with maintaining a list of 403(b) providers that are eligible to offer products to public school employees. In order to be eligible, a provider must meet certain requirements, including some set by state laws and others by agency rules. The agency is currently considering whether to tighten its eligibility rules, particularly with regard to fees that providers can charge educators both for investing and for early withdrawal penalties of certain investments.

ThinkstockPhotos-465016790_moneyThe agency’s proposed rule amendment, which can be found here, was the subject of an informal conference at TRS this week in which many members of the financial services community expressed concerns over the new rule proposal. Essentially all the discrete concerns expressed during the hearing boil down to the basic belief that the new rules create an environment for 403(b) providers in which many of them will not be able to do business profitably, and therefore the number of 403(b) providers offering products to Texas educators will drop dramatically under the proposed rule. The representatives of the financial sector believe this would be a disservice, of course, to Texas educators who benefit from a robust availability of 403(b) products in order to better meet their retirement goals.

TRS staff will now review and address the comments collected both from those who spoke at the conference this week and the many more who will submit written comments. The staff will then determine whether or not to make additional changes to the agency’s proposed rules before the recommending them for adoption by the TRS board. Stay tuned to Teach the Vote for updates as the rulemaking process continues.

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