A 403(b) tax-deferred annuity plan is a retirement plan used by nonprofits to help employees save through a combination of pretax and post-tax contributions. To identify the best 403(b) companies, we looked for providers with the widest array of cost-effective investment options, best customer service and additional services to help employers and participants.
Human Interest provides effective 403(b) plans using advanced technology to streamline the process and save on administration costs. Plans start at just $120 per month. Reach out to an agent today to explore low-expense options.
Top 403(b) Companies
|Vanguard||(Best Overall) Employers who want a low-cost 403(b) plan with access to more than 50 mutual fund investments|
|TIAA||Teachers, researchers, healthcare systems and government agencies that want to work with the largest 403(b) provider in the world|
|Fidelity||Employers who want in-person guidance on 403(b) plans and investment options|
|T. Rowe Price||Nonprofits that want to provide participants with lots of high-quality market research|
|Franklin Templeton||403(b) plans with mutual fund investments that focus in sectors like gold, real estate and oil and natural gas|
|American Funds||Nonprofits that want advisers to walk them through the entire process and manage mutual funds on their behalf|
How We Evaluated Which 403(b) Provider is Best
403(b) plans can only be used by certain kinds of charities, church groups, health and education systems and government agencies. Employers who utilize 403(b) plans have very particular needs because setup and administration can be more difficult due to eligibility restrictions.
To identify the best 403(b) providers, we gauged providers on several criteria, including the following:
- Ease of setup: How easy employers can set up and administer a 403(b) plan
- Investment options: The diversity of investments permitted within a 403(b) from different providers; investment options for 403(b) plans are limited to annuities, mutual funds and target date funds
- Costs: The relative costs of plan administration and investment options with different providers
- Customer service: The ability of providers to help with plan setup and administration as questions arise
- Additional services: What other services providers offer in addition to 403(b) plans that might be helpful for an employer
- Assets under management: The amount of 403(b) assets managed by a provider
If you already have a relationship with an investment firm that provides 403(b) plans, it may be able to offer you the best deal on administrative costs. If you don’t have a relationship, however, after researching 403(b) companies based on the above criteria, we recommend Vanguard as the best 403(b) company.
Best Overall 403(b) Company: Vanguard
Vanguard is the best overall 403(b) provider because it’s a very reputable company that offers nationwide, inexpensive, diversified investments. As the largest mutual fund company in the world, Vanguard offers more than 50 professionally managed mutual funds that are great for focusing on long-term, passive investment.
What Vanguard Offers
Vanguard is the world’s largest mutual fund company with more than $4.5 trillion in assets under management. It offers more than 50 professionally managed mutual funds that are ideal for any 403(b) investor. Vanguard is a well-established firm with a strong reputation and provides investment options and retirement plans at very modest costs.
In a 403(b) plan with Vanguard, potential investments options include:
- Money market mutual funds: Funds that invest short-term debt to provide investors high liquidity
- Bond funds: Debt-focused mutual funds that invest in a portfolio of bonds to provide the portfolio with interest income
- Equity funds: Seek returns by concentrating investments in stocks that are poised to rise in value
- International funds: Focus investments in foreign countries to benefit from development in other countries and currency fluctuations
- Target date funds: Mutual funds that automatically shift from stocks to bonds as a target retirement date approaches
Vanguard is one of the best 403(b) companies because it offers straightforward, cost-efficient plans for qualifying nonprofit organizations. It provides access through 403(b) plans to more than 50 of the best mutual funds in the industry but doesn’t provide additional services like banking that may benefit an employer.
Historically, Vanguard’s business has been driven by financial advisers. As a result, Vanguard doesn’t have offices around the country where clients can get help. Vanguard provides clients with customer service online and over the phone. However, clients who need additional assistance can also enlist the help of an adviser, most of whom offer Vanguard products.
Vanguard 403(b) Costs
Typical Vanguard 403(b) plan costs include:
- Recordkeeping fee ($5 per month per employee): Vanguard can conduct the recordkeeping required for 403(b) plans at an annual cost of $60 annually per participant
- Annual fund expense ratio (0.12% average per fund): These fees are among the lowest in the industry and are deducted automatically from funds to cover trading and fund management costs
- Lending fees ($50 upfront plus $25 annually): For plans that allow participants to borrow against their retirement assets, participants pay $50 when they take out a loan and another $25 each year the loan has an outstanding balance
Vanguard’s costs are extremely low and more transparent than most other providers. There are no commissions, account maintenance fees or asset-based administration fees.
What’s Missing With Vanguard
Vanguard is a great provider of low-cost investments that are ideal in a 403(b) plan. However, it doesn’t provide individual advice on investment options, banking services or offices around the country where you can get individual attention — you’ll need to hire a financial adviser for that.
Best 403(b) Provider for Educational, Healthcare and Government Employers: TIAA
TIAA is a storied firm in the 403(b) space. It has far and away the most 403(b) assets, with between 40% and 70% of the market nationwide. TIAA was started more than a century ago to sell tax-deferred annuities to teachers, and its expertise in this area makes it one of the best 403(b) providers for schools and teachers today.
What TIAA Offers
For the firms it serves, TIAA acts as a single-point source for plan design, implementation, administration, recordkeeping and investment options. 403(b) plans with TIAA aren’t charged commissions but are charges recordkeeping fees and expense ratios for investment options as well as additional charges for custom portfolio services.
Once you set up a 403(b) with TIAA, participants can be given access to several different types of investment options. TIAA manages more than $1 trillion in assets between mutual funds and target date funds in addition to the tax-deferred annuities that the firm began selling more than 100 years ago.
The typical investment options in a TIAA 403(b) include:
- Mutual funds: TIAA offers their own line of mutual funds, which are available to investors commission-free
- Target date funds: Participants also have access to TIAA’s in-house target date funds, which automatically rebalance as a targeted retirement date draws closer
- Annuities: Tax-deferred annuities are TIAA’s oldest product and the basis for modern-day 403(b) plans
- Custom portfolios: For participants who want more individualized investment products, TIAA offers customized portfolio services at an additional charge
While TIAA offers a few additional services, it is mostly centered on brokerage and investment management. It does not offer additional banking or brokerage services that might be found at other diversified financial services companies.
Specific additional services available through TIAA include:
- Lending: Participants who want to borrow against assets in 403(b) accounts can do so with TIAA
- Custom portfolio service: Investors who want more individualized investment management can create custom portfolios through TIAA at additional cost
- Brokerage: 403(b) plan participants who have outside savings can invest those funds through TIAA in addition to their plan assets
Unlike Vanguard, TIAA has offices in some major markets around the country, where you can potentially work with a dedicated adviser on all customer service issues. However, while TIAA is a large provider, it is not a household brand known for servicing individual customer accounts. In addition to its modest network of offices around the country, it provides customer service online and over the phone as necessary.
TIAA 403(b) Costs
The typical costs for a TIAA 403(b) include:
- Recordkeeping ($44 per year per participant): TIAA conducts the recordkeeping required for 403(b) plans. It charges a flat per-participant fee.
- Mutual fund and annuity expense ratio (0.5% to 2%): There are annual expenses charged by TIAA mutual funds and annuities used as investment options in 403(b)s; these costs are automatically deducted from funds to cover trading and management.
- Custom portfolio services (0.5% to 2%): These expenses vary and are charged to investors who want more customized investment strategies; this includes investors’ pro-rata share of investment costs for executing the strategy.
A large national provider, TIAA provides 403(b) plans at a reasonable cost. It generally structures plan fees on a case-by-case basis, but there are some rules that you can expect.
What’s Missing With TIAA
TIAA focuses on teachers, healthcare workers and government agencies but doesn’t market to philanthropies or religious institutions that are typically eligible for 403(b) plans. It also doesn’t provide many additional services or much information on fees. You’ll need to contact TIAA to get a better idea of what a 403(b) plan will cost.
Best 403(b) Provider With a Network of Offices: Fidelity
Fidelity is one of the best 403(b) companies for a large network of offices, making it ideal for employers who want access to a large network of offices where participants can get in-person guidance and individual investment advice. Fidelity is one of the largest financial service companies in the world and provides a host of banking and brokerage services in addition to 403(b) plans.
What Fidelity Offers
With nearly $2.5 trillion under management, Fidelity is a one-stop shop for employers who need a variety of financial services. While it is one of the best 403(b) providers, Fidelity is certainly not the cheapest nor does it offer investment options that aren’t available elsewhere. Where Fidelity is one of the best 403(b) companies is for providing in-person advice and individual guidance to employers and plan participants.
Investment options through a Fidelity 403(b) include:
- Target allocation mutual funds: Fidelity mutual funds that are invested for a targeted investment strategy based on a level of risk
- Target date funds: Although they come with added costs, Fidelity has a line of in-house target date funds that automatically rebalance as predetermined retirement date approaches
- Money market mutual funds: Fidelity has funds that provide high liquidity by investing in short-term debt
- Bond funds: Fidelity’s debt-focused mutual funds hold portfolios of bonds designed to provide interest income
- High-yield bond funds: For investors who want higher returns, Fidelity has mutual funds that invest in debt issued by riskier companies that pay higher interest
Fidelity funds can be used individually or in concert as part of an overall investment strategy. If you need help formulating an investment strategy, Fidelity representatives can help provide individual guidance and advice on specific investment options.
In addition to 403(b) plans, Fidelity offers a number of additional services including:
- Investment advice: Fidelity can provide help picking individual investment options
- Cash management: Fidelity can help employers manage cash resources and sweep funds for retirement plan contributions when necessary
- Brokerage services: Participants with funds to invest outside 403(b) plans can trade stocks, bonds, mutual funds and ETFs through Fidelity
- Education savings plans: Participants who want to start saving for a child’s education can do so through Fidelity
- Annuities: Although it doesn’t appear Fidelity makes these investments available within 403(b) plans, Fidelity can help participants to purchase annuities outside their 403(b) accounts
- Life insurance: Fidelity offers term life, universal life and long-term care insurance products for participants who want to buy these products outside their 403(b) account
Fidelity has strong customer service when compared to most other national providers. Unlike most other companies on this list, it has a large network of investor centers where you can work with individual reps if you’d prefer. Fidelity also provides customer service through online and over the phone as administration issues arise.
Fidelity 403(b) Costs
Typical Fidelity 403(b) costs include:
- Custodian fees: Fidelity typically charges $24 per year per participant for holding 403(b) accounts
- Account maintenance and recordkeeping fee: This fee varies according to plan size, number of participants and other factors. It’s typically a flat annual fee per participant.
- Mutual fund expense ratios (0.05% to 1.25%): Mutual funds offered in Fidelity 403(b) plans have their own expenses for trading and account management; these costs are automatically deducted from mutual funds, starting as low as 0.05% for certain Fidelity funds.
Like other best 403(b) companies, Fidelity varies its fees according to plan size, the number of participants, and other factors. Employers who set up 403(b) plans at Fidelity should expect to pay custodial fees, account maintenance and recordkeeping fees as well as annual expense ratios for mutual funds within a 403(b) plan.
What’s Missing With Fidelity
Fidelity is a well-known, established provider of financial services. However, for certain services like 403(b) plans, Fidelity makes very few investment options available through 403(b)s and has less experience in the space compared to Vanguard and TIAA.
Best 403(b) Provider for Market Research: T. Rowe Price
T. Rowe Price is one of the best financial services firms for providing financial literacy and research tools to individual investors. 403(b) Plans by T. Rowe Price can provide plan a host of high-quality market research and investor education tools so participants can make informed decisions about their saving and investment strategies.
What T. Rowe Price Offers
T. Rowe offers its own line of mutual funds to 403(b) clients as well as high-value, independent research and a host of additional services. Although T. Rowe Price’s operation centers on fund management, it also provides a host of investment advisory and brokerage services, education savings plans and additional investment services for assets outside of 403(b) plans.
T. Rowe Price manages nearly $1 trillion through more than 90 mutual funds including:
- Stock funds: Investors can focus assets in equity investments
- Bond funds: Debt-based investments invested to provide portfolio income
- Money market mutual funds: Funds invested in short-term debt to provide investors with a high degree of liquidity
- Target date funds: Mutual funds that automatically rebalance from stocks to bonds as you approach a targeted retirement date
Aside from 403(b) plans, T. Rowe Price provides a number of additional services including:
- Independent market research: T. Rowe Price research is highly regarded in the industry and can help investors make wise investment decisions
- Education savings plans: Plan participants who want to save for a child’s education can set up a plan through T. Rowe
- Separate retirement planning solutions: If you have assets in addition to your 403(b), T. Rowe Price can help you incorporate these funds into part of an overall investment strategy
- Investment advisory services: T. Rowe Price can assist investors who need help picking individual investment options
- Securities brokerage: If you want to trade stocks, bonds, ETFs or other securities outside of your 403(b), T. Rowe Price can help you trade
While T. Rowe Price was founded as an asset management firm, it also provides a full suite of investment management and financial services. The firm puts a significant emphasis on research and investor education, which is where it can really add value to 403(b) plans.
T. Rowe Price doesn’t have retail offices. Its funds and investment products are available through independent financial advisers around the country. However, if you go directly to T. Rowe Price for a 403(b), you aren’t going to get a dedicated rep. You’ll need to handle customer service online and over the phone.
T. Rowe Price 403(b) Costs
Costs for a T. Rowe Price 403(b) include:
- Mutual fund expense ratios (0.45% to 4.5% annually): These fees vary widely but are generally between 0.6% and 1.5%; charges are automatically deducted from funds to pay for trading and management
- Account service charge ($20 per year per participant): T. Rowe Price has a modest annual service charge that is waived for participants who have more than $10,000 in their 403(b), more than $50,000 total among all T. Rowe Price accounts or subscribe to electronic delivery of statements and confirmations
What’s Missing With T. Rowe Price
While T. Rowe Price makes plenty of investor education and market research available to customers, it doesn’t have offices around the country that you can visit for detailed financial advice. It also has very little detailed fee information online — you have to contact the company directly and provider information on your organization to get a better idea of plan costs.
Best 403(b) for Sector-focused Investment Options: Franklin Templeton
Franklin Templeton is the fourth largest mutual fund company in the world. With more than 100 mutual funds and retirement plan solutions including non-ERISA 403(b)s, Franklin has one of the most diverse mutual fund lineups in the industry. It is ideal for anyone who wants to focus investments in specific sectors like gold or oil and natural gas.
What Franklin Templeton Offers
Franklin Templeton manages more than $700 billion in more than 100 proprietary mutual funds. It offers the widest array of sector-focused mutual funds, each with multiple share classes to suit individual investor circumstances. Franklin is a well-established firm with an excellent reputation. In addition to its wide array of funds, Franklin offers a number of retirement plans including non-ERISA 403(b) plans.
Franklin Templeton 403(b) investment options include:
- Money market mutual funds: Funds that invest in CDs and short-term debt to give investors with a high degree of liquidity and sometimes a small return
- Bond funds: Debt-focused funds that hold a portfolio of bonds designed to provide investors with interest income
- Equity funds: Mutual funds focused on stocks for price appreciation or dividend income
- International funds: Focused on foreign assets to benefit from development in other countries and currency fluctuations
- Target date funds: Franklin Templeton offers a few target date funds, which typically come with added costs and automatically rebalance between stocks and bonds as you approach a target retirement age
- Sector-focused funds: Franklin Templeton has a number of mutual funds that focus investments in specific sectors like gold, oil and gas or utilities
Franklin Templeton is not the most inexpensive mutual fund provider, but its wide selection of funds makes it one of the best mutual fund companies — and one of the best 403(b) companies — in the industry. Its funds include some of the best sector-focused mutual funds available.
Franklin Templeton offers no additional services like lending, securities brokerage or banking services. Its offerings are focused almost exclusively on mutual funds and retirement plan solutions that investors can use to invest in their funds.
Franklin Templeton won’t provide you with a dedicated representative but its customer service representatives are generally very helpful. If you prefer to work with a dedicated adviser, you can hire an independent financial adviser who can sell Franklin Templeton funds. This will come with additional costs, but your adviser can provide more one-on-one guidance and investment advice when necessary.
Franklin Templeton 403(b) Plan Costs
Franklin Templeton 403(b) costs include:
- Mutual fund expense ratio (0.5% to 1% per fund): Cover the costs of management and trading
- Account maintenance fees ($30 to $35): Franklin charges $35 to hold 403(b) accounts with balances less than $50,000; investors with balances of more than $50,000 are charged $30 annually
- Commissions (0% to 5.75%): Some classes of mutual fund shares from Franklin charge commissions on initial purchases or redemptions; these commissions vary according to the share class you buy and amount you invest; for some funds, there are also commission-free shares
Although one of the best 403(b) companies for non-ERISA covered plans, Franklin is not the most inexpensive provider. Its fund expense ratios and account maintenance fees are very reasonable but commissions can get extremely expensive if you don’t buy no-load shares.
What’s Missing with Franklin Templeton
Franklin Templeton offers a great selection of sector-focused investments but fund expense ratios are higher than some other providers and commissions can be expensive if you buy loaded shares. Franklin also doesn’t provide individual investment advice, and 403(b) plans offered directly from Franklin are also limited to non-ERISA covered plans. This includes certain government employees like hospitals and schools, religious institutions and 501(c)(3) philanthropies. If you need an ERISA-covered 403(b) plan, you can’t set up your plan directly with Franklin Templeton.
Another 403(b) Provider Alternative: American Funds
With more than $1.5 trillion under management, American Funds is third largest mutual fund company ahead of Franklin Templeton. The company offers more than 40 mutual funds and sub-advisory services for large institutional investors. It is one of the best 403(b) companies for nonprofits that want to offer a small group of diversified mutual funds and keep participants from investing in more niche products.
What American Funds Offers
American Funds has a full lineup of more than 50 cost-effective mutual funds available in 403(b) plans. These funds invest in a variety of assets and different investment strategies to suit your objectives. They can be used individually or in concert as part of a diversified portfolio.
Investment options available through American 403(b) plans include:
- Growth funds: Invest in stocks to provide returns through price appreciation
- Income funds: Aim for income generation by investing in bonds
- Money market mutual funds: Invest in short-term debt to provide investors with a high degree of liquidity
- Balanced funds: Mutual funds that invest in a mix of stocks and bonds to provide a blended return
- International funds: Focus investments in foreign securities to benefit in the development of foreign economies and currencies
- Target date funds: Automatically rebalance between stocks and bonds as a targeted retirement date approaches
Although American Funds is a well-established and reputable mutual fund company with a wide array of investment options suitable for 403(b) plans, the firm provides little else in the way of additional services. It focuses on providing well-managed mutual funds rather than banking or brokerage services that might benefit employers.
Historically, American Funds provides very little customer service directly to clients because its marketing and customer service are adviser-driven. Routine account maintenance issues can typically be handled over the phone, but more in-depth questions or individual investment advice are typically provided by independent financial advisers who are licensed to sell American Funds products.
American Funds 403(b) Costs
The typical costs of an American Funds 403(b) plan include:
- Mutual fund expense ratio (1% to 1.5%): These expenses cover fund management and trading costs. Also included are a fee paid for plan administration and a 0.25% to 0.75% fee paid to your financial adviser
- Recordkeeping fee ($750 per year plus $20 per participant): American Funds provides required recordkeeping services for your 403(b) plan, starting at $750 per year plus $20 per participant paid by participants.
- Plan setup fee ($500): There is no fee if American Funds takes over an existing 403(b) plan, but it does charge to set up new plans.
In addition to expenses related directly to investment options within a 403(b), American Funds can also provide administrative and recordkeeping services, as needed, for a separate fee. Its less-expensive option, RecordKeeper Direct, starts at $750 per year plus $20 per participant. Under this plan, average fund expense ratios paid by plan participants are about 1.39% per year.
What’s Missing With American Funds
To set up a 403(b) plan with American Funds, it’s best to enlist a financial adviser to help you set up the plan and provide guidance. American Funds’ business is adviser-driven, so it doesn’t have offices around the country where you can get direct individual guidance. It also doesn’t provide much customer service directly to clients.
Alternative Options to a 403(b) Plan
A 403(b) is only appropriate for certain nonprofits. If you want to set up a retirement plan for a small business, a 403(b) probably won’t work for you.
Some small business alternatives to 403(b) plans include:
If you have more than 10 to 12 employees in your business, a 401(k) may be your best option. 401(k) plans allow you to contribute up to $56,000 per year from a combination of employee deferrals (max $19,000), employer matching (max $19,000) and discretionary employer profit-sharing ($18,000). For more information on 401(k) plans, check out our article on the Best 401(k) Companies.
A SIMPLE IRA is often called a poor man’s 401(k) because they’re much less expensive and easier to administer. While contribution limits are just $26,000, SIMPLE IRAs allow participants to contribute up to $26,000 per year split between employee salary deferrals (limited to $13,000) and employer matching (up to another $13,000). For more information on SIMPLE IRAs, check out our ultimate guide on SIMPLE IRA Rules, Providers, Contribution Limits & Deadlines.
In SIMPLE IRAs, employers are required to match employee deferrals up to 3%. You can reduce the match but must match at least 1% and can’t match less than 3% in more than two years during a five-year period.
Safe Harbor 401(k)
For-profit companies that want to structure 401(k) plans that make it easier to maximize contributions can do so by qualifying their 401(k) as a Safe Harbor plan. Safe Harbor 401(k) plans have their own set of rules and requirements including generous matching requirements for employee salary deferrals.
In exchange for these generous matching programs, Safe Harbor 401(k)s exempt themselves from nondiscrimination testing, making it easier for company owners and highly compensated employees to maximize their contributions even if rank-and-file employees don’t participate.
Even if you are eligible for a 403(b), you may also be eligible for certain other types of plans, so it’s important to consider other options.
The Bottom Line
If you run a nonprofit organization that qualifies for a 403(b) plan and want to set up a plan, the most important first step is to identify the right provider to benefit you and your employers. The best 403(b) companies vary so it’s important to consider investment options, fee structures and the availability of one-on-one guidance.
Human Interest is an experienced provider of 403(b) plans. Opening a 403(b) with Human Interest has a fee of just $120 per month plus $4 per employee. Get in touch with an expert today and start saving up to $55,000 per year.