Denver Public Schools Single-Vendor 403b Plan: Is It The Best Choice?

I’ve written before about 401k, 403b, and 457b retirement plans and the similarities and differences between them. Unfortunately, many school districts offer some truly horrible 403b plans (listen to Learned by Being Burned for more info). But there has been a positive development lately in that some school districts, typically large ones, have now started to put their 403b plans out to bid, which often results in a much better choice for their employees. This usually also results in what’s known as “single-vendor”, meaning that the winner of the bid is the only 403b plan that can be offered in the district. Some folks see this as a negative (and 403b companies spend a ton of time and money trying to use that as an argument against it) but, when, done correctly, it is a huge win for school districts and their employees. (Ask yourself, how many private employers do you know who have multiple plan choices for their 401ks?)

Teachers in Colorado have the added benefit that all public school districts have to offer PERA’s excellent 401k plan (which uses the same tax “bucket” as the 403b, and they can choose to offer PERA’s excellent 457 plan (although unfortunately not all have opted in yet). At least two large school districts in Colorado have recently gone through this process, Cherry Creek and Denver Public Schools. I still have not been able to get the full disclosure documents for Cherry Creek, but they went with Equitable. Now, Equitable is usually one of the absolute worst, but the bidded program fro Cherry Creek appears to be pretty decent (although still not as good as PERA’s offerings). If I ever get the entire info on fees I’ll write it up. But I do have the information for Denver Public Schools (at least as of Spring 2022), so I thought I’d go through a few of the details and then weigh in on whether it’s the best choice for DPS employees or not.

Denver Public Schools put their plan out to bid and selected corebridge (formerly known as AIG/Valic and, as an aside, you do have to worry a bit about a financial company that frequently changes its name). AIG/Valic/corebridge has, in the past, not been a great 403b vendor. They have had way too high of fees, both administrative and investment fees, have tried to do a lot of cross-selling of products, and sometimes have even had surrender fees to get your money out. But the new-and-improved corebridge, at least in the bidded space, is actually looking pretty good (although it’s still unclear if they will be cross-selling other financial products). Here’s the DPS page with information about corebridge, although I wish they had much more information available before you have to create an account. The last information they have posted is a quarterly update from Spring 2022, so that’s what I’m working off of (as well as a bit of back-channel communication with an informed source.)

Here are the basics of what corebridge offers:

• 0.26% administrative fee (but no yearly fixed dollar fee that I can see). I’m still not 100% sure on the 0.26% as the documentation is somewhat contradictory, with higher fees listed, but the 0.26% net to participants is what I’ve been told so I’ll go with it.
• A decent list of investment offerings, with expense ratios ranging from 0.015% to 0.99%
• Both traditional and Roth options, as well as 403b and 457b options.
• They don’t appear to have any ticky-tack fees associated with basic functions.
• They offer two dedicated “financial representatives” (qualifications unknown) with “100 onsite visits each year”. There appears to be no additional charge for this or exactly how much and what types of advice they give. They also appear to be salaried, not on commission, which is great. It’s unclear whether they are allowed to cross-sell expensive insurance products.
• For some unknown reason, they appear to have set the “normal retirement age” for the 457b plan to 70.5, which is frustrating in that it effectively eliminates the special last-3-years catch up provision for anyone retiring earlier than that (which is most educators).

So, what’s the verdict? This is a pretty good plan, and much, much better than the average 403b plan out there. Having said that, is this the plan that DPS educators should choose? No, except if they can max out their 401k plan and then want to contribute additional tax-deferred money to the 457 plan (since DPS has inexplicably decided not to opt-in to PERA’s 457 plan).

The reason is that DPS educators also have access to PERA’s 401k plan, which uses the same tax-deferred “bucket” as the 403b plan, and yet offers lower fees than corebridge. Here are the investment offerings in PERA’s 401k and 457b:

• There is an additional 0.03% administrative fee, as well as a $12 yearly fee for the 401k and an $18 yearly fee for the 457 (the 457 is newer with lower total assets, they hope to bring that down to $12 fairly soon as well). They also offer access to a full-service brokerage account for a $50 annual fee.
• They have both traditional and Roth options.
• A decent list of investment offerings, with expense ratios ranging from 0.05% to 0.27%
• There is free online advice through the recordkeeper (Empower) or you can pay an additional asset based fee for a managed account (which isn’t really necessary).
• There are no ticky-tack fees.
• The normal retirement age for the PERA 457 is whenever you can retire under the PERA structure, so almost everyone can take advantage of the 3-year catch up provision.

So, while the bidded corebridge 403b is good, PERA is better. Let’s break out the spreadsheet. Again, corebridge does much better than most 403bs, but look at the differences over time. First, let’s look at choosing a target date fund (assuming a $500/month, $6,000/year contribution, and an assumed rate of return of 7%, you can adjust those numbers if you make a copy of the spreadsheet).

After 20 years…

After 30 years…

After 40 years… (yes, most folks may not work for 40 years, but their investment timeline is likely that long or longer)

After 50 years… (think starting at age 25 and starting to take RMDs at 75)

Is that an astronomical difference, as it often is with non-bidded 403bs? No. But I think most folks would agree that that’s a significant amount of money just for choosing a different vendor.

Now let’s do the same if you take the most expensive option that PERA and corebridge offer.

DPS employees should clearly choose the PERA 401k over the corebridge 403b, and advocate with their district to affiliate with PERA’s 457b program (which costs the district absolutely nothing except the time to check a couple of boxes on their payroll system software). And, crucially, DPS should be providing this information to all employees (especially all new hires) up front. I’ll be presenting at the Colorado Education Leadership Conference in June on this and other financial topics that, if districts would simply take the time to educate their employees, could make a huge financial difference for their employees at little or no cost to the district.

This would obviously be of great value to employees (and district staffers), but would help with employee satisfaction and retention, which is a huge issue right now in K-12. I would be happy to do a similar presentation for anyone who might be interested.