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
MissionSquare PLUS Fund R10
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.
Accordion
Expand AllClick here for a more accessible versionFAQ
A: No. PSERS never has had – and will not have – a role in managing or overseeing 403(b) / 457 plans school employers may offer to their employees as supplemental retirement packages.
A: No. Act 5 does not mandate that school employers create a 403(b) or 457 plan. If, however, a school employer already sponsors such plans, or decides to do so in the future, then Act 5 does impose some requirements.
A: Act 5 created a mandate for how many “financial institutions or pension management organizations” school employers must hire to operate their respective 403(b) / 457 plans.
Act 5 stipulates that school employers must “select a minimum of four financial institutions or pension management organizations, in addition to the financial institution or pension management organization that entered into an agreement [with PSERS] under section 8411.”
The phrase “financial institutions or pension management organizations” will be collectively referred to as “vendors” in this FAQ.
Also, PSERS interprets the law’s phrase “in addition to” to mean employers cannot solely rely on PSERS’ contracted list of vendors to select their own 403(b) / 457 vendors. Employers should select at least four additional vendors who are not under contract with PSERS.
A: The law required PSERS to select three or more vendors that offer at least 10 DC investment options. PSERS Board of Trustees chose nine vendors offering 20 DC investment options. The vendors are:
- T. Rowe Price
- Fidelity
- PIMCO
- ICMA-RC
- BlackRock
- Templeton
- American Funds
- Invesco Oppenheimer
- Calvert
Please note: The above vendor list could change in the future. If the list changes, then employers may have to add additional vendors.A: Yes, but if so, then the school employer must also retain another vendor, so that the school employer maintains a total of four vendors who are not also retained by PSERS.
For example, if an employer has an existing contract with Blackrock to manage its 403(b) or 457 plan, the employer can retain Blackrock, provided the employer hires at least four other vendors not on PSERS’ list.
Also, if your district offers both a 403(b) and a 457 plan, then you need only select four additional vendors to serve both plans. You do not need four different vendors for each.
A: It doesn’t. PSERS does not believe that VOYA, as the recordkeeper, is a vendor as contemplated by Sections 8411 and 8411.1.
The law’s restrictions on employers hiring a minimum of four vendors appear to apply only to the selection of vendors offering DC investment vehicles. Voya does not currently serve in that role for PSERS. Rather, Voya’s recordkeeping duties requires it to track contributions and assist PSERS in administering participants’ accounts.
In summary, employers may use VOYA as their recordkeeper or as one of their four required vendors.
A: The law does not provide an operative answer. Act 5, however, required a July 1, 2019, start date for PSERS to implement a DC plan for public school employees. Thus, it appears employers may need to implement the 403(b)/457 changes as of that date.
A: Maybe. Act 5 states: “if fewer than four such additional” vendors cannot be found … “then the school district shall select the number of available vendors able to meet the school district’s requirements.”
A: The law is silent on collective bargaining agreements, but collective bargaining agreements do not supersede the law. Under general contracting principles, however, Act 5’s additional vendor requirements may not become effective until your district’s existing collective bargaining agreements expire.
PSERS recommends that employers review their labor agreements and discuss their options with their solicitor and existing 403(b) / 457 vendors.
A: Act 5 does not specifically impose on PSERS the requirement to enforce this provision. The DC vendors, however, who will be directly affected by this change, will certainly be tracking compliance. Also, any violation should be uncovered during the state’s audit of the school employer.