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 — 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 NTSA has found in “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. Further, it 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.