Retirement professionals serving 403(b) clients in the two states will be impacted by legislation slated to take effect in the Keystone State in July and the Lone Star State in September.
PA School Districts Must Have Multiple 403(b) Service Providers on July 1
A law requiring school districts in Pennsylvania to have multiple financial institutions or pension management organizations for each 403(b) plan they sponsor, as well as investment option providers, will go into effect July 1.
Act No. 5, enacted June 12, 2017, provides new state employees hired after Jan. 1, 2019, including teachers, with three retirement benefits from which they can choose. It also requires that there be multiple vendors providing services to school districts’ retirement plans.
Act No. 5 of 2017 inserted Section 8411.1 into the Public School Employees’ Retirement Code. It requires that beginning July 1, 2019 school districts have at least four separate vendors – i.e., annuity contract or custodial account providers – for each 403(b) plan they sponsor. In addition, the Pennsylvania State Employees’ Retirement System (PSERS) must select three providers of investment options for the School Employees’ Defined Contribution Plan by that date. And if one or more of the providers PSERS chooses for the DC plan is also a vendor that has a contract with a school district for the district’s 403(b) plan, then the school district must seek additional vendors to ensure that it has four vendors plus the DC plan vendor.
The National Tax-Deferred Savings Association (NTSA) found in a 2018 study, “Improving Retirement Savings for America’s Public Educators: A Comprehensive Survey of Public Education 403(b) Retirement Plans” that the biggest factor affecting participation and savings rates in school districts is the ability of participants to make choices. “Public employees who have access to retirement education resources at the workplace and the assistance of financial professionals are saving earlier and contributing more to their 403(b) plans, and have greater confidence in being able to achieve their retirement goals,” it says. Furthermore, the study found that there is 25% greater participation in plans with 15 or more investment providers compared to plans with only one provider, and that on average, account balances are 73% higher among plans with 15 or more providers compared to single provider arrangements. Conversely, it also found that participation rates in 403(b) plans fell when the number of choices was reduced.
Deregulation of Texas Teachers’ 403(b)s
HB 2820, which Gov. Greg Abbott (R) has signed into law, will change regulatory authority over the 403(b)s offered to public school teachers in Texas, effective Sept. 1, 2019.
The state’s Teachers Retirement System (TRS) currently has regulatory authority over 403(b) products offered to Texas public school teachers. Insurance companies must certify to TRS that they offer a qualified investment product in order to be eligible to sell annuities and investments to teachers. TRS maintains a list of qualified investment products registered under this law, regulates maximum fees for 403(b) products and exercises other rulemaking authority.
The new law removes that authority from the TRS and changes the requirements that 403(b) providers have to meet in order to offer investment products. Beginning Sept. 1, in order to offer qualified investment products to employees of education institutions in Texas, a company will need to be licensed by the Texas Department of Insurance and be in compliance with minimum capital and surplus requirements.
The law also removes the requirement that eligible 403(b) plan providers have at least five years of experience in offering qualified investment products and replaces the standard that an eligible 403(b) plan provider had to have its main office, branch office or a trust office in Texas with a requirement that the company must have sufficient presence to serve plan participants.
