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403(b) Updates and Clarifications

Act 5 of 2017 inserted Section 8411.1 into the Public School Employees' Retirement Code that requires school districts, beginning July 1, 2019, to have a minimum of four separate "financial institutions or pension management organizations" for each 403(b) plan sponsored. The term "financial institutions or pension management organization" is intended to include providers of an annuity contract or custodial account (collectively referred to as "vendors"). 
 
The Retirement Code also requires PSERS to select three "providers of investment options" for the School Employees' Defined Contribution Plan ("DC Plan"), effective July 1, 2019.   If one or more of the providers selected by PSERS for the DC Plan is also a vendor that has a contract with a school district for the school district's 403(b) plan, then the school district is required to seek additional vendors to ensure that the school district has four vendors plus the vendor that was selected to be a provider for the DC Plan.  In other words, the school district must maintain four vendors that are not also a provider for the DC Plan.   
 
For example,
PSERS DC PLAN selects providers A, B and C for the DC Plan.

*Employer 101 contracts with vendors A, B, E, F and G for its 403(b) plan.
*Employer 101 must select one additional vendor, other than A, B or C, for a total of 4 vendors in addition to providers A and B of the DC Plan.
*Employer 102 contracts with vendors H, I J, L, N and Q for its 403(b) plan.
*Employer 102 does not need to select any additional vendors.
*Employer 103 contracts with vendor C for its 403(b) plan.
*Employer 103 must select four additional vendors, other than A, B or C, for a total of 4 vendors in addition to provider C of the DC Plan.

The PSERS Board approved the following investment options to be made available to the DC Plan participants:

T. Rowe Price Retirement Blend Target Date Funds
ICMA-RC VT Plus
PIMCO Total Return Instl
BlackRock High Yield Bond K
Templeton Global Bond R6
Fidelity® 500 Index Premium
Fidelity® Extended Market Index Premium
American Funds Europacific Growth R6
Invesco Oppenheimer Developing Markets R6
PIMCO Real Return Instl
Fidelity® Real Estate Index Premium
Calvert Balanced R6

If you have a question regarding the number of vendors you may have or need, you can contact the third-party administrator of your 403(b) plan.

Act 5 403(b) FAQ as of July 2019

Pennsylvania's new retirement law, known as Act 5 of 2017, went into effect on the July 1 start of the 2019-20 school year.

Among other things, Act 5 created:

  • New defined-contribution (DC) retirement benefit plans offered by the Public School Employees Retirement System [PSERS].
  • A new mandate regarding school employers' own supplemental and optional 403(b) and 457 DC retirement plans, which are separate and apart from PSERS' new plan offerings (Section 8411.1 of the Retirement Code).

Act 5's changes to local 403(b) / 457 DC plans have generated some confusion among PSERS' school employers.

PSERS is presenting this disclaimer and FAQ as it seeks to clarify questions raised by some school employers.

Disclaimer

The information contained in this FAQ is strictly meant to serve as general information to be used only for educational purposes.  The information does not constitute legal advice and is not a substitute for legal counsel. The statements in this publication are not binding and do not represent a final determination.  The information is subject to change.  If there is any conflict between the statements made and applicable law, the law will prevail.  A school employer is responsible for ensuring it is in compliance with the law regarding the subject matter discussed herein.

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