When it comes to retirement savings, most people know about 401(k) plans. They’re the go-to option for workers in the private sector. But if you’re a teacher, nonprofit worker, hospital employee, or part of the clergy, chances are you’re offered a 403(b) plan instead. On paper, 403(b)s look a lot like 401(k)s—they both allow tax-deferred savings, employer contributions, and long-term investing for retirement.
So why do 403(b) plans get such a bad rap? Why do financial experts—including me—warn people to tread carefully with these accounts?
Let’s get into it.
High Fees Eating Your Money
The number one complaint about 403(b)s are the ridiculous fees. Many plans are stuffed with annuities and mutual funds that charge layers of costs—management fees, administrative fees, mortality expenses, and commissions for the salesperson who sold them.
Those fees don’t sound like much—1 percent here, 2 percent there—but over 20 or 30 years, they eat up tens, even hundreds of thousands of dollars in lost growth. That’s money that should be compounding for your retirement but instead lines the pockets of an insurance company or rep.
Lack of Oversight
Here’s the dirty little secret: unlike 401(k)s, 403(b) plans don’t always fall under ERISA (Employee Retirement Income Security Act). ERISA is the law requiring employers and plan administrators to act in your best interest, keep fees reasonable, and monitor investments.
Without ERISA oversight, many 403(b)s run wild. There’s no one ensuring investments are solid, costs are fair, or that salespeople aren’t steering you into products that benefit them more than you. That lack of protection leaves employees exposed.
Limited Investment Choices
Another headache with 403(b)s: they’re often tied to insurance companies instead of large brokerage firms. That means you may not get access to low-cost index funds or ETFs. Instead, you’re stuck with expensive mutual funds or annuity contracts lacking transparency.
Teachers and nonprofit workers often say they feel trapped—knowing better investments exist but unable to access them through their 403(b). It’s like showing up to a buffet only to find cold hot dogs and stale bread.
Liquidity & Withdrawal Traps
Many 403(b)s push annuities, and annuities come with fine print. One of the worst is the surrender charge—a penalty if you move your money out too soon.
Imagine working for years, finally realizing you’re in a high-fee account, and trying to roll your money into a better IRA or 457 plan. Surprise! You could get hit with thousands in penalties just for wanting control of your retirement. That’s not freedom. That’s a trap.
Weak or No Employer Match
One of the best features of a 401(k) is the employer match. Many companies match your contributions dollar-for-dollar up to a certain percent. That’s free money.
With 403(b)s, the story isn’t as bright. Some employers don’t contribute. Others contribute very little. Without a strong match, you’re mostly investing your own money into a fee-heavy account—hardly an attractive deal.
The ERISA Loophole
Let’s take it a step further. Why are 403(b)s allowed to operate with fewer rules than 401(k)s? The answer goes back decades.
When 403(b)s were created, the assumption was that most public service employees already had pensions. Pensions were seen as the main retirement vehicle. The 403(b) was just a “sidecar” account—extra savings, not the main event. Because of that, Congress gave them lighter regulatory oversight.
That outdated assumption is why many 403(b)s aren’t bound by ERISA. Less regulation leaves more room for insurance companies and reps to sell high-fee products without accountability.
Why the Exemption Backfires Today
Fast forward to today, and pensions aren’t what they used to be. Many are underfunded. Some are disappearing. For teachers, nurses, and nonprofit workers, the 403(b) is no longer “extra.” It’s a critical part of their retirement plan.
But the rules never caught up. Here we are in 2025 with millions depending on a plan never designed to carry that much weight. The result? Weaker protections, fewer choices, and higher costs compared to 401(k)s.
The Problem on the Ground
Let me paint you a picture. A young teacher fresh out of college sits in the break room. A smiling rep with glossy brochures pitches a retirement plan. They sign up—because hey, they want to do the right thing.
Fast forward 15 years. That teacher realizes their account barely grew compared to a 401(k) or IRA. The fees bled them dry. The rep is long gone, but the financial damage is permanent.
That’s not rare. That’s reality for too many educators and nonprofit workers.
The Reality Today
The good news is you don’t have to throw out the baby with the bath water. 403(b) plans aren’t evil by default. If your employer offers low-cost mutual funds, index funds, or ETFs not wrapped in an annuity, you can use a 403(b) to build wealth. The key is knowing what you’re in and what it’s costing you.
But for too many workers, especially in public schools, the options are stacked against them. The lack of ERISA oversight, combined with pushy sales tactics, makes 403(b)s feel more like a hustle than a benefit.
The Bottom Line
Yes, fewer restrictions exist because pensions were once assumed to handle the heavy lifting. But today, that assumption leaves millions of workers at risk. Teachers, nurses, nonprofit employees and clergy deserve better.
Here’s my recommendation:
If your 403(b) offers low-cost index funds, mutual funds, or ETFs without being wrapped inside an annuity, use it. Those are cost-efficient, transparent, long-term building blocks for retirement.
If your 403(b) is loaded with high-fee annuities, only contribute enough to capture the employer match—if offered. An employer match is a 100 percent return on your contribution. Even with bad investment choices and high fees, that match makes it worthwhile.
If your employer doesn’t offer a match, run. Don’t lock your hard-earned money into a fee-heavy, restrictive plan that benefits the salesperson more than you.
After that, put your money into an IRA or Roth IRA, where you control costs and choices. And if you have access to a 457 plan, compare it. Often, it’s stronger than a 403(b).
At the end of the day, your retirement is too important to be left in the hands of a high-fee, commission-driven system. Do your homework, know your options, and make moves that keep your money working for you—not for the rep who sold you the plan.
(Damon Carr, Money Coach & Tax Pro can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)
Helping you flip your finances from stressed to blessed—one smart decision at a time.