Your 2009 Lesson Plan: How to Do Your 403b Homework
Lee Rosenberg, CFP | July 20th, 2009
It is not only students who have much to learn this year. With all of the changes taking place in the world of 403bs, teachers and administrators are going to have to also be very diligent in keeping up with their studies. With all of the plans and protocols in a state of flux, it has never been more important for you to understand your options as well as have the right tools to evaluate your options.
I know that it sounds intimidating. It’s like bringing your car in for service all these years and not really worrying about what they found under the hood. As long as they took care of the problem and the bill was reasonable, you were happy to drive off. Then one day the mechanic tells you that from now on, you will personally need to look under the hood and make decisions about how you want to handle the repairs. Where do you start?
The first lesson plan for 2009 is to look under the hood to become familiar with 403bs and the best ways to manage your investment choices. The good news is that you have time to acclimate. As you may have heard, there was a recent announcement by the IRS regarding your plan sponsor’s new deadlines.
Previously, plan administrators had to have everything in place and approved by January 1. Effective with this new ruling, however, they will have until December 31. This will allow them more time to identify sponsors, review, evaluate, assemble and present their plan choices to you. In the long run this is a good thing.
In light of the economic downturn, the severe state budget cuts and the desperate need to modernize a forty-year old program, extended time is the best antidote for fixing what is under the hood. Districts were struggling to put new plans into place and now this postponement will allow administrators a chance to select better plan choices, lower costs and create greater tax savings for surviving spouses and children.
However, in light of the deadline extension, this does not mean that plan sponsors are off the hook. They must adhere to stringent IRS timelines along the way and correct any errors that do not conform, as if the plan had already been enacted. This will ensure that every district is on target for completing their plan offerings by the new deadline.
How to Do Your 403b Homework
As for your making informed choices once you are presented with your options, there are important criteria for understanding and evaluating the investment choices in your 403b.
These are some of the most important:
-Financial solvency of the company
-Performance history and track record not just over the past year, but a three-to five year average that spans a variety of market conditions
-Risk ratings
-Annual fees and service charges
-Reporting methods- frequency and access to available updates
How do you gather this intelligence? There are a number of ways:
-Attend financial fairs and seminars sponsored by plan sponsors
-Meet personally with representatives of the companies and ask them to design a custom plan for you based on your age, financial goals and risk tolerance
-Ask them what tools they provide so that you can continually review and evaluate the performance of their investments so that you can make timely adjustments based on market conditions
-Work with a financial advisor who can guide you, rather than relying on friends and colleagues to help you choose based on their decisions
-Take advantage of all of the on-line resources that offer investment analysis and tools, such as www.marketwatch.com, Morningstar.com, cnbc.com,smartmoney.com, cnnfn.com, and yahoo.com
Although all of this may be new to you, it is far better that you are will be a partner in this process of making investment choices and understanding your plan benefits, rather than relying on administrators to make decisions for you.
As for the learning curve, it is just like students hear every day. Take one step at a time, don’t be afraid to ask questions, and give it your best shot. In time, you will be very pleased with your progress.
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Tags: 403(b), 403b planning, 403b rule changes, financial lesson plan, financial planning, financial tools, lee rosenberg, personal finance
About the Author: Lee Rosenberg is the Co-founder of ARS Financial Services, Inc. As a Certified Financial Planner with more than 34 years of solid financial expertise. Lee is a registered representative of Cadaret, Grant & Co., Inc. He was also named one of the top 25 Independent Financial Advisers in the US by Rep magazine.
