While your TRS pension benefit will provide a valuable source of ongoing retirement income, your pension probably won't provide enough income to ensure a financially secure retirement.
Why a 403(b) Plan May Be Important to You
Let's look at the numbers:
• 70-90% = percentage of pre-retirement income that experts estimate you will need to maintain your standard of living in retirement (if not more)
• Roughly 69% = percentage of the average career employee’s pre-retirement income replaced by their TRS pension*
• $0 - ? = amount of retirement income most Texas school employees can expect to receive from Social Security varies with some changes in the Federal Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) laws under Social Security.
As you can see, there is a gap between the amount of income provided by the average career employee's TRS pension and the minimum amount of income you will likely need to live a financially comfortable retirement. To increase the income available to you in retirement, you’ll need to supplement your TRS pension. One way to save for retirement is in a 403(b) plan.
A 403(b) plan is a tax-deferred retirement savings plan offered to public school employees through their school districts or open-enrollment charter schools. Like 401(k) plans in the private sector, employees can make contributions to 403(b) plans on a pre-tax basis. Employers direct these contributions to specific 403(b) investment products selected by each employee from among the options available in their district or charter school.
Participating in a 403(b) plan gives you a valuable opportunity to supplement your TRS pension with tax-advantaged savings. Contributing to a 403(b) plan as early as possible will allow you to earn as much as possible from compound interest, but it’s never too late to start.
With a 403(b) plan, contributions are deducted from your paycheck on a pre-tax basis. Taxes on your 403(b) contributions are deferred until you begin making withdrawals, typically upon retirement. A Roth 403(b) is similar to a standard 403(b) program, but instead of getting the tax-advantage when the money is deposited in the account, taxes are paid on current earnings and no future taxes are owed on these funds, including any compounded interest.
Additional information about standard 403(b) and Roth 403(b)s can be found at the Internal Revenue Service:
• 403(b) plans
• Roth 403(b) plans
Before opening a 403(b) account, TRS encourages you to thoroughly research the options available. There are a wide variety of online resources in addition to the information TRS has provided on this website.
*A career employee is defined as one who retires at age 62 with 32 years of service. The roughly 69% replacement ratio applies only to replacement income at initial retirement. Inflation will lower effective purchasing power over time. For more information, see page 55 of the TRS Pension Benefit Design Study (pdf). If you have questions regarding individual 403(b) contracts, please contact your school district, third-party administrator (TPA) or 403(b) provider directly.
Financial Awareness Video Series
Both standard 403(b) and Roth 403(b) plans invest varying portions of your money into annuities and/or mutual funds.
What are annuities and mutual funds? For a detailed overview of annuities and mutual funds, please see Evaluating Your Retirement Options from the U.S. Securities and Exchange Commission (SEC).
Before entering into any 403(b) contract, TRS encourages you to thoroughly research the options available to you. There are a wide variety of online resources available in addition to the information TRS has provided here. If you’d like information on types of qualified financial professionals and obtaining help from them, please see page 3 of our TRS News article on financial advisors (pdf).
More information from the SEC is available at the following links:
Annuities
Annuities
Variable Annuities – An Introduction
Mutual Funds
Mutual Funds and Exchange-Traded Funds (ETFs) - A Guide for Investors
Mutual funds and annuities will cost your 403(b) plan. Although these fees may sometimes appear small, they are ongoing, and they can have a huge impact on your retirement savings over time. Understanding the fees you pay could save you a lot of money for retirement in the long run. Before entering into any 403(b) contract, ask questions so that you understand what, when and why you will be charged. The U.S. Securities and Exchange Commission (SEC) illustrates the long-term effect of different ongoing fees and example questions for you to ask in their publication How Fees and Expenses Affect Your Investment Portfolio.
Also, be aware that if you are interested in purchasing a variable annuity, state law requires that the company’s sales representative provide you with a Uniform Disclosure Notice detailing all fees and charges associated with the investment.*
*Stated in Vernon’s Civil Statutes, Title 109 Pensions, Art. 6228a-5, Sec. 11. The SEC also mandates this under Rule 498A of the Securities Act of 1933
Questions?
Please contact your school district, third-party administrator (TPA) or 403(b) provider directly.
Complaints about 403(b) companies or products should be referred to the Texas Department of Insurance or the State Securities Board.
To inquire or file a complaint about:
An insurance agent or company offering an annuity contract, contact the Consumer Protection Division of the Texas Department of Insurance at: 1-800-252-3439
Email: ConsumerProtection@tdi.texas.gov
Website: TDI Insurance Complaints Resources
A Consumer Complaint Portal can be accessed through the TDI website.
A person or company offering a qualified investment product other than an annuity contract, or if you have information indicating that a firm or individual engaged in fraud in connection with the sale of securities, you may submit an official complaint form to:
ATTN: Complaint Processing
Texas State Securities Board
P.O Box 13167
Austin, TX, 78711-3167
Website: State Securities Board - Filing a Complaint
Complaint Form: State Securities Board - Investor Complaint Form (interactive pdf)
To file a complaint about a scam or other consumer complaint, contact the Consumer Protection Division of the Texas Attorney General's Office at:
Phone: 1-800-621-0508
Website: Texas Attorney General - Consumer Protection
Changes to TRS 403(b) Certification and Registration for Active Members
As of September 1, 2019, TRS no longer certifies 403(b) companies nor maintains a list of registered 403(b) investment products. This change is pursuant to legislation (House Bill 2820) that was adopted by the Texas Legislature in May 2019.
Questions?
- Members – Contact the HR department at your school district or charter school.
- Companies, school districts and charter schools – Consult your legal counsel.
TRS is not authorized to offer legal or financial advice to members. The contents of this page are provided by TRS for educational and informational purposes only. It is neither intended as tax or investment advice nor does it constitute a recommendation to buy or sell any security.
TRS does not explicitly or implicitly endorse or approve any individual type of retirement plan and/or investment product offered by other retirement plans. All investing is subject to risk, including the possible loss of all the money you invest. Before investing, consider your investment objectives, risks, charges and expenses.