A Teacher Came In Confused About Her 403(b). The Real Problem Was the Product
A teacher recently came to us because she did not understand her 403(b). That, by itself, is not unusual.
Most teachers are never taught how their retirement plan works. They are handed a list of vendors, a stack of paperwork, and a pitch that usually sounds something like, “This is for your retirement, and we’ll help you pick the right option.”
She had been contributing consistently and assumed everything was set up appropriately. She just wanted clarity. So we reviewed the plan.
What we found was a variable annuity with total fees of approximately 2.5% per year.
Those costs were not presented in a way that made them obvious. Instead, they were layered across the product:
• Mortality & expense charges
• Administrative fees
• Underlying fund expenses
• Optional rider costs
• Surrender restrictions
Individually, none of these stood out. Combined, they created a high-cost structure inside a retirement account.
A lot of people assume a 403(b) works like a 401(k). In many public school systems, it does not.
Certain 403(b) plans fall outside ERISA, which means they may not be subject to the same level of oversight as corporate retirement plans. In these environments, it is common to see multiple vendors operating within the same plan, limited centralized oversight, and a heavy presence of insurance-based products.
That combination has historically led to widespread use of commission-based variable annuities.
And that is exactly what this teacher owned.
On paper, a variable annuity can sound sophisticated.
Features like death benefits, income guarantees, and downside protection are often highlighted. One of the most common examples is the “death benefit,” which is designed to ensure beneficiaries receive a minimum value.
This video walks through how that feature is typically presented.
What is less emphasized is that these features are not free. They are built into the structure of the product and paid for through ongoing charges.
That is how you end up with an all-in cost like 2.5% without it ever being clearly stated.
And this is where the impact really shows up.
Let’s put real numbers to it.
Assume a teacher:
• Contributes $500 per month
• Does so for 30 years
• Earns an average return of 6% annually
At 2.5% in total fees, the ending value is approximately $415,000.
If those fees are reduced to 1%, the ending value increases to approximately $560,000.
That’s a difference of roughly $145,000.
Same contributions.
Same market returns.
The only difference is cost.
This example is hypothetical and intended for illustrative purposes only. Assumptions include consistent contributions and a fixed rate of return, which will vary in real market conditions.
The issue in this case was not that the client had a 403(b), and it was not that she was saving.
The issue was that she was in a high-cost, complex product she did not fully understand, inside a system that makes that outcome very common.
Once we identified the structure, we worked with her to break everything down clearly — what she owned, what she was paying, and where those costs were coming from.
From there, we reviewed what options were actually available. That included looking at lower-cost alternatives within the plan, understanding any surrender restrictions, and evaluating how much flexibility she had to make changes.
Where it made sense, we helped reposition the account toward a more transparent and cost-efficient structure.
The biggest change wasn’t just the investments.
It was clarity.
She now understands what she owns, what it costs, and how her retirement account is actually working.
Because in many K–12 403(b) plans, participants are given access to a system that looks like a standard workplace retirement plan, but operates very differently.
Decisions get made quickly, costs are not always clear, and products are often more complex than they need to be.
A 403(b) can still be a powerful tool.
But like anything else, the structure matters.
If you don’t understand what you’re invested in, what you’re paying, or why the product is structured the way it is, it’s worth taking a closer look.
This case study is based on a real client experience and is provided to illustrate our advisory process. It is not intended as personalized investment advice or a recommendation, as each client’s situation is unique.
This case study is based on a real client experience and is provided to illustrate our advisory process. It is not intended as personalized investment advice or a recommendation, as each client’s situation is unique.