Texas teachers need to be more careful than ever with decisions about their retirement plans.
There are now concerns that a new state law that few people know about makes teachers’ 403(b) plans riskier than before.
That's because it takes away previous consumer protections, like a cap on fees, and a requirement that providers have at least five years of experience.
“I was really appalled. Texas has been really careful up until this point to be sure those regulations were in place,” President of Alliance AFT Rena Honea said.
Honea said she is surprised that lawmakers would remove consumer protections from teacher retirement plans, called 403(b) plans.
“If people aren't careful and pay attention to what the fines and fees are, they can be taken for a whole lot of money,” Honea added.
403(b) plans give teachers an alternative to a traditional pension, but experts say the plans are notorious for poor disclosures and huge fees, making them riskier than 401k plans offered by private companies.
Texas Representative Dan Flynn, who authored the bill, told FOX4 why he wanted to remove the fee cap and provider experience requirements
“Whole reason we did this was to open up the markets, get more transparency, get away from a monopoly,” he said.
Flynn said he believes the new law will allow teachers to make higher returns with their plans, if they choose to have a 403(b) plan at all.
“No one is being forced to do anything. It is an option opening up markets to get a bigger and better return,” he explained.
SMU economist Mike Davis recommends that teachers do their homework, especially before agreeing to high fees in hopes of a greater return.
“Professional financial advisors and investors have a hard time beating the market,” Davis said. “I know how these markets work. I know not to chase extra return. If you can match the market, keep your fees down, save regularly. You'll have a great retirement.”
One reason to pay close attention to those fees, is that experts say that even just a one-hundredth of a percent can cost tens of thousands of dollars, if not hundreds of thousands of dollars, in retirement income.