Quick question. How much are you paying in fees inside your 403(b)?
If you’re like most school employees in Washington, you have no idea. That’s normal. Your statement probably doesn’t spell it out, and nobody sat you down on your first day to explain it. You signed a form, picked a company, and money started coming out of your paycheck.
In this post I’m going to walk through the four layers of fees that can show up in a 403(b) account. Some you’ll pay for sure. Some are optional. One is pretty rare here in Washington. By the end you’ll know what to look for on your own account and what questions to ask.
First, fees aren’t the only thing that matters
Before we dig in, I want to be clear about one thing. Fees are important, but they shouldn’t be the only thing you look at when you pick a 403(b).
Think about the rest of your life. You probably don’t drive the cheapest car you could find. You don’t live in the cheapest house in town, and you don’t go to the cheapest doctor. Sometimes paying more gets you things you actually want, like reliability, comfort, or someone who knows what they’re doing.
Your 403(b) works the same way. A higher-cost option might come with help, service, and someone handling the paperwork. A lower-cost option might leave all of that on your plate. The goal is to know what you’re paying and what you’re getting for it.
The two main types of 403(b) plans
There are two basic kinds of 403(b) accounts:
- Annuity-based 403(b) plans. These are run by insurance companies. I’d guess around 90% of people have one of these without knowing it.
- Mutual fund-based 403(b) plans. These are sometimes called traditional plans. Your money goes into mutual funds or index funds held in a custodial account.
Either type can have up to four layers of fees, depending on the provider. And there are a lot of providers. There are probably more than 30 different 403(b) companies out there. Which ones you can use depends on what your school district or employer allows.
So step one is simple. Find out which 403(b) company you’re with (or plan to go with), then dig into their fee structure to see where all the charges are hiding.
Layer 1: Administrative fees
The first layer is the administrative cost. This is what the company charges you to keep an account open with them. Think of it like the rent you pay for the account itself, before any investing happens.
Admin fees can include things like statement fees and contract fees. Most companies lump all of it together and call it an “admin fee.” You might be charged:
- A flat dollar amount each year,
- A percentage of your account balance, or
- Both.
A common setup looks like this. You pay something like $25 a year while the account is small. Once the balance reaches $5,000 or $10,000, that flat fee goes away. After that you just pay a percentage, maybe 0.1% or up to 0.4% a year. The range is wide and depends on the company you pick.
The M&E fee on annuity-based plans
If you have an annuity-based 403(b), your admin cost usually shows up as an “M&E fee.” That stands for mortality and expense charge. It’s just a different way these companies charge for running the account.
M&E fees usually range from 0.8% to 1.5% a year. This is how the annuity company charges you for its product. It’s also how the company pays its advisors or agents. They get paid a commission, and that commission comes out of the yearly M&E fee.
Layer 2: Investment expense ratios
Once money is in the account, you want to invest it. That’s how it grows. And no matter where you put it, there’s going to be a fee attached. Index funds, mutual funds, even a money market fund all carry some cost, because the companies running those funds don’t work for free.
This cost is called the expense ratio. It’s a yearly percentage taken out of the fund itself.
Here’s the tricky part. Expense ratios usually aren’t shown as a line item. You might see the cost when you first pick a fund. But on your monthly or annual statement, you won’t find a line that says “investment expenses: $X.” The cost is built into the fund’s returns, so it just quietly comes out in the background.
To find out what you’re really paying, you have to look up each fund you own and check its expense ratio yourself.
Watch out for temporary fee waivers
Sometimes fund companies discount their expense ratio for a while to attract money. You pull up the fund sheet and it says the fee is only 0.1%. But there’s a little asterisk. Read the fine print and it says the discount is temporary, and a year from now the fee goes to 0.5%.
Most people forget about that. The waiver ends, the fee goes up inside the fund, and you never notice. You’re now paying more for the exact same investment. It’s worth checking any fund you own for an expiring waiver.
Layer 3: Advisory fees (optional)
The third layer is optional. If you choose to work with an advisor, they may charge a fee to manage your account. Advisory fees can range from 0.25% up to 2% a year. It depends on the advisor and the service they provide.
If you set up the account yourself, you’re your own advisor. There’s no advisory fee in that case.
If you’re in an annuity-based product, you usually won’t see a separate advisory fee either. Remember, the advisor there is paid a commission out of the M&E fee. So the advisor cost is already baked into Layer 1.
Layer 4: TPA fees (rare in Washington)
The last layer is the TPA fee. TPA stands for third-party administrator. Most school districts that offer a 403(b) use a TPA to manage the different providers. The TPA handles things like loan forms, salary reduction agreements, and sending your money out to the right company.
Sometimes a TPA wants to get paid for that work and charges you separately. But for most 403(b) providers, the provider pays the TPA for you. For example, say you have a 403(b) with Vanguard. Vanguard may pay the TPA cost on your behalf. You’d just pay the expense ratios and admin fees, and the TPA cost is covered.
When I reviewed Omni 403(b), a really big TPA in Washington State, they had a list of companies that cover the TPA cost. Pretty much every major 403(b) company was on it. The one big name missing was Fidelity. So if you have a Fidelity 403(b), double-check whether you’re paying a TPA fee. It’s rare, but it’s worth a look.
Putting it all together
Let’s sum it up by plan type.
If you have an annuity-based 403(b), you’ll pay the M&E fee. You may or may not pay a contract fee. Those are usually charged on small accounts, because a percentage of a $100 balance doesn’t make the company much money, so they use a flat charge until you reach a certain balance. On top of that, you’ll pay the expense ratios on your investments.
If you have a mutual fund-based 403(b), you’ll pay admin costs and possibly a contract fee. You’ll still pay expense ratios. And you may or may not have an advisory fee, depending on whether you work with an advisor.
For most people, two or three layers of fees apply. All in, total costs can range from about 0.25% to 3% a year. It depends on the company you choose and how its fees are set up.
A worked example on a $100,000 account
Percentages are hard to picture, so let’s turn them into dollars. Here are three made-up setups on a $100,000 balance. The fee numbers are picked from the ranges above just to show how the layers stack. Your actual fees will be different, so check your own plan.
| Fee layer | Do-it-yourself fund plan | Annuity-based plan | Fund plan with an advisor |
|---|---|---|---|
| Admin or M&E fee | 0.15% ($150) | 1.25% ($1,250) | 0.15% ($150) |
| Expense ratios | 0.10% ($100) | 0.50% ($500) | 0.20% ($200) |
| Advisory fee | None | None (paid by commission) | 1.00% ($1,000) |
| TPA fee | None | None | None |
| Total per year | 0.25% ($250) | 1.75% ($1,750) | 1.35% ($1,350) |
| Who does the work? | You do all of it | Agent helps at setup, paid by commission | Advisor handles funds, forms, and follow-up |
Look at the bottom row, not just the total. The cheapest column is cheap because you are the one doing the work. The advisor column costs more, and in return someone is managing the account and the paperwork for you. Neither one is automatically right. It comes down to what you want and what your time is worth.
The low-cost route: what you give up
Let’s look at a real low-cost option. Aspire Financial has an admin fee of about 0.15%. They also offer around 10,000 investment options, including low-cost index funds from companies like Vanguard and Fidelity. You could very well build a 403(b) there with an all-in cost of 0.25%.
That’s a cheap option. But if you go that route, you’re responsible for everything:
- You set up the account.
- You fill out a new salary reduction agreement every time you want to change your contribution.
- You communicate with payroll.
- If you want to move money, take a loan, or request a hardship withdrawal, all the paperwork is on you.
- You make sure every form is done in the right order, and you follow up when something stalls.
That can be a real hassle. If you’re busy like most of us, working through the forms and rules of a 403(b) may not be worth your time.
Why some people choose to pay for help
For that reason, you might choose to have an advisor on the account. A good advisor picks the investment funds and makes changes when needed. When paperwork comes your way, they help you fill it out, or at least they should. Often they can pre-fill the forms and do the follow-up behind the scenes.
With an advisor, all you really have to do is sign a form a couple of times, and they take it from there. Here’s a simple way to think about it. Changing your own oil saves money. Plenty of people still pay a shop to do it, because their Saturday is worth more to them than the savings.
That’s one reason you might pay a little more for a 403(b). If you want to talk through what makes sense for your own account, you can schedule a personal meeting with me here.
How to check your own 403(b) fees
Here’s a short checklist you can work through this week:
- Find out which 403(b) company holds your account, and whether it’s annuity-based or mutual fund-based.
- Look for the admin fee or M&E fee. Note whether it’s a flat dollar amount, a percentage, or both.
- List every fund you own and look up each one’s expense ratio.
- Check the fund sheets for an asterisk or a temporary fee waiver that might expire.
- If you work with an advisor, ask how they’re paid: a separate advisory fee or a commission.
- If you’re with Fidelity, check whether you’re paying a TPA fee.
- Add it all up, then write down what you’re getting for that cost.
Frequently Asked Questions
What fees are in a 403(b)?
A 403(b) can have up to four layers: administrative fees (or an M&E fee on annuity plans), investment expense ratios, an optional advisory fee, and sometimes a third-party administrator (TPA) fee. Most people pay two or three of these.
What is an M&E fee?
M&E stands for mortality and expense. It’s the fee annuity-based 403(b) plans use to cover their administrative costs, and it usually runs from 0.8% to 1.5% a year. The agent’s commission is paid out of it.
Why don’t I see my expense ratios on my statement?
Expense ratios are taken out inside each fund, so they usually don’t show up as a dollar line item. You have to look up each fund’s expense ratio to see what you’re paying.
How much does a 403(b) cost in total?
All-in costs can range from about 0.25% to 3% a year. It depends on the company, the investments you pick, and whether you pay for an advisor.
Do I pay a TPA fee in Washington?
Probably not. Most 403(b) providers pay the TPA cost for you. When I checked Omni 403(b)’s list, nearly every major provider covered it. Fidelity was the big one missing, so Fidelity account holders should double-check.
Should I just pick the cheapest 403(b)?
Not automatically. The lowest-cost plans usually mean you handle every form, change, and follow-up yourself. A plan with an advisor costs more but takes that work off your hands. Know what you’re paying and what you’re getting for it, then choose what fits your life.
The bottom line on 403(b) fees
Fees in a 403(b) come in layers, and most of them are easy to miss. Now you know where to look: admin or M&E fees, expense ratios, advisory fees, and the occasional TPA fee. Pull your account up, add up what you’re paying, and decide if what you get is worth it to you.
Remember, your future depends on what you do today.
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