One of the best ways to build wealth is by saving and investing over a long period of time.  The earlier you start investing, the more your savings and investments will grow over time due to compound interest, helping you reach your investment goals with less money out of pocket. 

Many public schools, colleges, and universities offer investment plans for retirement to their teachers and other employees.  These plans are often a supplement to teacher pension plans, which on their own may not afford teachers adequate retirement savings.  

These supplemental plans usually include tax-advantaged retirement accounts called 403(b) plans (some employers may offer similar 457(b) plans).  Contributions to these plans can be automatically deducted from a teacher’s pay, and in some cases a teacher’s employer also may contribute to the account.

As a defined contribution plan, unlike a pension, a 403(b) plan does not promise a specific payment upon retirement -- the teacher, as the plan participant, bears the primary responsibility to fund the account and often to decide how to allocate the investments. 

Depending on the state or district in which you teach, your employer may allow you to choose your 403(b) plan provider (called a vendor) or your employer may offer only a single vendor.  A vendor could be an insurance company or an investment professional, like a broker-dealer or investment adviser.

Do not assume that your employer has vetted any vendor.  Contact your employer to find out your vendor options for your specific 403(b) plan.  And make sure you ask questions and understand whether there will be fees taken out of your investment and how your vendor gets paid.

Determining which investment products best meet your financial objectives and identifying a vendor who sells those products is very important.  If your employer offers multiple vendors, each vendor may sell different types of products, and some may have a limited number of choices.  It is important to ask about fees and costs associated with investment products and services; they may seem small, but over time they can have a major impact on your investment portfolio.

Here are some questions to ask when choosing a vendor for a 403(b) plan:

• Given my financial situation, should I choose an insurance agent, an investment advisory service, or a brokerage service?  Why or why not?
• How will you choose investments to recommend to me?
• Help me understand how fees and costs might affect my investments, including vendor fees.  What are the total fees, commissions, and other costs I will pay when I buy, own, and sell my investment – directly or indirectly – over time?  
  • If I give you $1,000 to invest, how much will go to fees and costs, and how much will be invested for me?
  • How will fees and costs be reflected on my account statements? Will I be charged any fees and costs that won’t be detailed on my account statements? If so, how will I be informed about those fees and costs? What types of fees and costs will I pay? Can you give me this information in a simple form, so that I can easily compare it to similar information from other vendors?
  SEC Enforcement Action – Misleading Account Statements. In In the Matter of Equitable Financial Life Insurance Company, the SEC took enforcement action against a vendor for allegedly giving the false impression that all fees paid by the investor were detailed in the investors’ personalized quarterly account statements when instead the most significant fees were excluded.  According to the SEC’s order, the vendor offers variable annuities to participants in 403(b) and 457(b) defined contribution retirement plans.  The SEC found that the vendor provided investors with quarterly account statements that often misleadingly stated that the investor paid $0.00 or a very small amount of fees, when in fact investors had paid significant fees that were not detailed in the account statements and that could amount to thousands of dollars each year.  According to the order, the vendor provided the misleading account statements to approximately 1.4 million investors, most of whom are teachers or other employees of kindergarten-through-twelfth-grade (“K-12”) public school districts.
• Do you make more money by selling me one product over another?
  • Do you receive a commission for selling a particular product and, if so, how much? What other types of compensation do you receive for selling the product?
• How might your conflicts of interest affect me, and how will you address them?

• As a financial professional, do you have any disciplinary history? For what type of conduct?

• What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?

• Who is my primary contact person?  Is he or she a representative of an insurance company, an investment adviser or a broker-dealer?  Whom can I talk to if I have concerns about how this person is treating me?

There is a wealth of information available to you about your plan. Take the time to read and understand the documents and materials.

• Read your employer’s 403(b) plan documents to learn the basic rules for how your plan operates.
• Read each vendor’s 403(b) plan materials. A vendor’s plan materials may include:
  • A background description of the vendor, including the vendor’s credentials and experience;
  • A description of the vendor’s investment products and services, including information related to product fees and past investment performance;
  • Information related to the vendor’s fees, including brokerage fees, advisor fees, account transfer or closure fees, recordkeeping or custodial fees, and general administrative fees; 
  • A discussion of the tax information related to investing in a 403(b) plan; and
  • Any additional information the vendor may need to provide as required by applicable federal or state laws.
• A state can require vendors that provide 403(b) plans to register with one or more state regulators, in addition to any required registrations under federal laws.  If your state requires these vendors to register, it may provide resources to assist you in researching vendors.
  • Some vendors may be registered with the SEC or state securities regulators. For tips on researching a vendor registered with the SEC or state securities regulators, read our Investor Bulletin: How to Select an Investment Professional.
  • If the vendor is a broker-dealer or an investment adviser, you can run a background check using the free search tool at Investor.gov. For more information on using the search tool, see How to Use the Investment Professional Search Tool on Investor.gov.
  • Vendors that are insurance companies generally register with a state’s insurance commission.  For information on how to research insurance companies in your state, contact your state insurance commission.

A 403(b) plan may offer different investment products.  Do not assume that your employer has endorsed any particular investment product offered through a 403(b) plan.  It is up to you to select investments that best meet your financial objectives.  You may need to choose among different types of investments.

By law, 403(b) plans can only offer annuities and mutual funds.

Annuities are contracts between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future.

There are three basic types of annuities: fixed annuities, variable annuities, indexed annuities. Some annuities include both an insurance and an investment component and require you to choose from various investment options, generally mutual funds.  Each of these products have different features, risks, fees, and rewards. 

Mutual funds pool money from investors and invest the money in stocks, bonds, short-term debt or money market instruments, or other securities.  Most mutual funds fall into one of four main categories — bond funds, stock funds, money market funds, and target date funds.  Each type has different features, risks, and rewards.

Here are some questions to ask when choosing investment products in a 403(b) plan:

• Why is this product best for me?  What are the other options?  Are there lower-cost products that also meet my needs?
• How does my salesperson get paid?  Does the salesperson make more money selling me one product over another?
• What fees will I pay?  Are these fees ongoing or only assessed upfront?

In addition to investment product fees, you should also carefully consider the impact of fees charged by the vendor. You can generally find these fees in the vendor’s plan materials.  Ask about the vendor’s fees.

• Will I have to pay any penalties if I change my investment choices? If so, how much?

Make sure you know the answer to these questions before you make your investment choices.

For example, if you withdraw money from an annuity within the first few years, the insurance company may assess a "surrender" charge that compensates the vendor who sold the annuity to you.

Some mutual funds have a fee paid at the time of the sale of the mutual fund, also known as the “back end.”  One type of “back end” fee is known as a “contingent deferred sales load.”  Additionally, some mutual funds charge a redemption fee when shareholders redeem their shares.

Whether your employer offers you one vendor and few investment options, or many vendors and investment options, make sure you pick the services and investment products that work best for you, and know the costs and fees associated with them.  Remember — it’s your money at stake.