W. Scott Simon from Morningstar has written an excellent three part series entitled "Fleecing 403(b) Plan Participants". Part 3 is attached and defines the types of charges that are imbedded in typical 403(b) Plans. These charges, according to the author can range from 2.00% to 5.00% per year on the assets invested in 403(b) plans. This "fleecing" can cost the typical participant with a $50,000 account balance earning 8% per year nearly $150,000 in lost account value over a 25 year career. (For comparative purposes, the typical 401(k) plan participant's costs range between 0.75% and 1.25%.)
Innovest has been very involved in helping educate 403(b) Plan sponsors about these cost issues. In 2005 we helped the 26th largest school district in the country streamline their 403(b) plan and move from an insurance model to more of an institutional 401(k) model saving the average teacher $60,000 over a 25 year career. Pricing in the entire retirement plan arena has come down significantly over the past few years and services have vastly improved. The market has changed and evolved. Millions of participants in 401(k) plans are enjoying better services and lower fees thanks to disclosure and transparency. We believe our nation's teachers and not-for-profit employees investing in 403(b) plans deserve the same.
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