A 403(b) product on a school district’s approved list is not automatically low-cost or endorsed by the employer. The SEC tells teachers to ask for all fees, commissions and compensation—not only the amount shown on an account statement. Before enrolling or moving an existing balance, gather the plan and product disclosures and compare annual costs separately from one-time exit charges.
Find every layer of the cost
A product can charge more than one fee. Look for: investment expenses, such as a mutual-fund expense ratio; account or vendor charges, such as administration, recordkeeping, custody or advisory fees; annuity contract charges, such as mortality-and-expense, rider or contract fees; and transaction costs, such as a sales load, commission, transfer fee or surrender charge. A fixed-dollar account fee may be billed separately, while other charges are deducted inside a contract or investment.
If the statement shows no fee or “$0.00,” ask whether the contract deducts costs indirectly. The SEC’s teacher bulletin discusses a case where account statements did not show the largest fees paid. Request a written list of the total you pay to buy, hold, change and leave the product.
| Cost source | How it is charged | Where to verify it |
|---|---|---|
| Fund expense ratio | Ongoing % of assets | Prospectus / investment option disclosure |
| Administration or advice | Flat fee, balance %, or contract charge | Plan fee disclosure / adviser agreement |
| Annuity and rider | Contract % or optional benefit charge | Contract / rider schedule and account statement |
| Commission or sales load | One-time or product-based compensation | Sales disclosure / vendor compensation statement |
| Transfer or surrender charge | Usually one-time exit cost; schedule may decline | Current surrender value and transfer quote |
Start with recurring investment and account costs
A fund’s expense ratio is an ongoing percentage of assets. On a $100,000 balance, a 0.85% annual cost is about $850 for one year before changes in balance; a 0.20% cost is about $200. The difference is about $650 for that year. These figures illustrate arithmetic, not future balances or investment returns.
Add separate flat account fees and advisory charges. A $60 annual fee equals 1.2% of a $5,000 balance but 0.06% of a $100,000 balance. As the account grows, fixed-dollar and percentage-based fees affect it differently. Write both the dollar charge and its percentage of your current account so that vendor offers can be compared on the same basis.
Target-date funds can contain underlying funds, so find out whether the displayed expense ratio includes the underlying investment costs and whether another plan fee is charged separately. Do not assume a higher-cost option will perform better or that a low expense ratio describes every product cost.
| Annual percentage cost | Approximate cost for one year |
|---|---|
| 0.20% | $200 |
| 0.85% | $850 |
| Difference | $650 per year before balance changes |
Review annuity terms without assuming every annuity is the same
Some 403(b) products are annuity contracts. Depending on the contract, expenses can include insurance charges, subaccount investment expenses, optional rider fees, commissions, and a surrender schedule. A surrender charge is generally an exit cost under contract terms; it is not an annual fund expense. Ask when the schedule ends and whether new contributions have separate or rolling surrender periods.
An annuity may include an insurance guarantee that matters to a particular investor, but the guarantee and its price should be explicit. Compare it with the actual alternative, including investment risk, restrictions and any benefits you would give up. This checklist does not mean every annuity is unsuitable; it means the contract needs a complete price and terms review.
Ask how the vendor or adviser is paid
The SEC recommends asking whether a professional receives a commission for selling a product, what other compensation they receive, and whether they earn more from one option than another. Ask who will service the account and how to check the person’s registration or disciplinary background when applicable. A friendly school presentation or an approved-vendor listing does not answer those questions.
Ask the vendor to put in writing: the fee amount, whether it is one-time or recurring, where it appears on statements, how it changes with balance, how long it applies, and whether it is waived or offset by another charge. If an answer says “no fee,” ask whether the product has internal insurance, investment or surrender costs.
Compare similar options and show annual dollars
Compare products that serve a similar purpose: a broad stock fund with another broad stock fund, a target-date option with a similar date and strategy, or a guaranteed-income product with the terms of another guarantee. A difference in cost does not make two investments equivalent. Record investment type, risk and contract features beside the fee.
Make a small cost sheet for each choice: current balance; fund expense ratio; account/vendor charge; advice fee; contract and rider charges; commissions or loads; transfer/closure fees; surrender schedule; and any guarantee or service being purchased. Convert each ongoing percentage into annual dollars. Keep a one-time purchase or exit charge on a separate line so you do not mistakenly count it every year.
A hypothetical $20,000 transfer with a 5% surrender charge would cost $1,000 once. That should not be added to an annual expense ratio as if it recurs yearly. Conversely, a small ongoing percentage may cost more over a long holding period than a one-time fee. Compare both against the time you expect to keep the product and ask the provider to confirm the current transfer value.
Use the right comparison source for your district
If you teach in a California public school or community college, CalSTRS’s 403bCompare tool lets members select their employer, compare approved products and inspect annual costs, expense ratios, surrender fees and commissions. It is a California plan resource, not a nationwide list of products or fees. Elsewhere, request the employer’s current vendor list, plan document, product prospectus or contract, participant fee disclosure and transfer rules. A vendor’s broad website may not show the specific contract terms your district makes available.
- Collect employer plan, product and fee documents
- Ask for every annual fee and vendor compensation in dollars
- Request current surrender value, transfer costs and schedule end date
- Compare similar products and identify guarantees/restrictions
- Verify the transfer or payroll change is permitted and retain answers
Before signing or transferring money
- Get the current plan and product documents and identify every fee source.
- Ask the vendor to show recurring charges in both percentage and dollars, plus any one-time commission or sales charge.
- Get the current surrender value, transfer fee and end date of every surrender schedule from the existing provider.
- Compare similar investments and write down guarantees, riders, restrictions and vendor compensation.
- Confirm with the employer that the product is available and that the proposed contribution change or transfer is permitted under the plan.
- Save written answers and compare again if the balance, product or contract changes.
Do not move an account solely because another product advertises a lower expense ratio. A transfer can trigger an exit charge, reset contract terms or give up a guarantee. Likewise, a contract’s exit charge does not prove that staying is cheaper over the period you expect to hold it. Compare the full future costs and benefits using your own disclosures.
A fee review is complete when you can explain, in plain dollars, what you pay each year, what you would pay to leave, what the product provides in return, and where each figure came from. If any charge is missing or described only as “included,” ask for the exact amount and calculation before signing.