State Bill Would Require Multiple 403(b) Providers

For certain 403(b) plan participants at New Jersey school districts, more choices could facilitate additional retirement strategy personalization, one bill supporter says.   


A bill in the New Jersey Legislature would require that certain boards of education have multiple providers for 403(b) plans. 

The legislation provides that certain school districts—those with at least 1,000 students that offer a 403(b) retirement plan to school district employees—select at minimum three providers or vendors for the plan.

The bill is intended to “to make sure that they are receiving what I would call competitive quotes from their service providers,” says Israel Tannenbaum, partner at Withum, a tax advisory and public accounting firm with headquarters in New Jersey. “A big part of that is to make sure that the fees are being reviewed and being looked at and that the plan is getting administered properly.”

He explains that for industries where 403(b) plans are prevalent, retirement plan sponsors have not always considered the widest range of providers, which has been to the detriment of plans and participants.

“Different industries are more common in terms of going out for a bid or looking at proposals or comparing quotes, whereas in others it may not be as common,” Tannenbaum says. “This bill does force the plans to make sure that they have multiple providers, are actually comparing these rates and making sure that the plan itself is getting the best deal and the most value for the fees it’s paying.”

The bill would require a financial institution or pension management organization that provides services for a board of education to enter into an agreement with the board; this agreement would require the institution or organization to provide, in an electronic format, all data necessary for the administration of the 403(b) plan as determined by the board of education. The bill would also require the institution or organization to provide all data required by the board of education to facilitate disclosure of all fees, charges, expenses, commissions, compensation and payments to third parties related to investments offered under the 403(b) plan.

The bill before the General Assembly was introduced in January and was referred to the Assembly Education Committee. A Senate version, introduced on May 9, was referred to the Senate Education Committee and approved unanimously.

The legislation is sponsored by Assemblymen Raj Mukherji and Roy Freiman, both Democrats.

Tannenbaum says that, if passed, the bill might help to improve retirement preparedness for school district employees and allow for greater personalization or strategies tailored to workers’ individual circumstances.

“By providing numerous management organizations, this allows [plan participants] … to choose among different vendors—maybe one vendor represents their retirement strategy better,” he explains. “Maybe [a participant] want[s] to be a little more aggressive, to have a little more growth, so they can choose the provider that most properly reflects that. Especially [for workers] earlier in their career, and they have their whole career ahead of them to save, they may want [their investments] to be a little more aggressive up front.”

Tannenbaum adds that the bill would enhance “the plan opportunities and retirement opportunities for members … by requiring multiple financial institutions. That really does enable the plan to efficiently use economies of scale to make sure that they’re getting the most value and that the participants ultimately are not overpaying.”

Other states may follow New Jersey with similar legislation to bolster participants’ retirement savings and options, Tannenbaum speculates.

“Other states will follow suit. This is definitely a big focus, specifically [for] 403(b) plans where they are only available to either governmental or 501(c)(3) public charities such as schools,” he says. “This will provide them all with multiple options in terms of their vendors, and by requiring it they’ll be able to have these choices and ultimately be able to enhance the retirement savings through these economies of scale.”