My 403b Is Losing Money. What Should I Do?

A 403(b) plan is a retirement savings vehicle specifically designed for employees of public schools, certain tax-exempt organizations, and some religious institutions. These plans allow individuals to save for retirement with tax advantages, offering options for pre-tax contributions that grow tax-deferred or Roth (after-tax) contributions that can lead to tax-free withdrawals in retirement. Similar to 401(k) plans, 403(b) accounts are defined contribution plans where the investment performance directly influences the account value over time. Understanding the factors that can cause a decrease in the value of these accounts is a practical step for participants.

Understanding Why 403(b) Values Fluctuate

The value of a 403(b) account can decrease due to various factors, with market volatility being a primary influence. Financial markets naturally fluctuate, with upward and downward movements in asset values like stocks and bonds. These shifts are driven by economic conditions, investor sentiment, and global events. During economic downturns or periods of uncertainty, the value of investments held within a 403(b) can decline, leading to temporary losses.

Different investment types within a 403(b) respond uniquely to changing market conditions. For instance, if a significant portion of a 403(b) is invested in stock-based mutual funds, its value can decrease during market downturns because stocks are inherently volatile. Bond funds are more stable than stock funds, but not without risk. Rising interest rates can cause the value of existing bonds and bond funds to decline, impacting the account’s overall value. Target-date funds and variable annuities, common 403(b) options, also carry market risks as their values are tied to underlying investments.

Fees associated with a 403(b) plan also contribute to the erosion of returns over time, potentially leading to perceived losses. These charges include administrative fees for plan operation, such as recordkeeping and compliance. Administrative fees may be a flat annual charge, like $50 per participant, or a percentage of assets, typically ranging from 0.1% to 0.5%. Some plans may charge these fees directly to participants, while others might have the employer cover them.

Investment fees, often expressed as expense ratios, represent the annual percentage of your investment paid to manage a fund. For mutual funds, these ratios can range from 0.5% to 1.5% and are automatically deducted from the fund’s returns. Annuity products may also include mortality and expense (M&E) fees, which can be 1% or more, alongside other administrative charges. Some funds might levy sales charges, known as loads, when investments are bought or sold, although many no-load funds are available. Even small fees can significantly reduce the total amount saved for retirement over many years.

Assessing Your 403(b) Account Performance

Understanding the current state and historical performance of your 403(b) account is an important step in addressing any concerns about its value. Most 403(b) plan providers offer online portals where participants can securely access their account information. After logging in, you can navigate to sections like “Statements,” “Account History,” or “Documents” to view quarterly and annual statements. If online access is not available or preferred, you can request physical statements by contacting your plan administrator or customer service department.

Once you have your statements, focus on several important metrics to gauge your account’s performance. Identify your current account value, which reflects the total worth of your investments at the statement date. Look for details on your contributions, including your own payroll deductions and any employer contributions, to understand the inflow of funds. Statements display rates of return over various periods, such as the last one year, three years, five years, and since the account’s inception. These figures help illustrate how your investments have performed over different market cycles.

Interpreting these performance figures involves comparing them against relevant benchmarks. For example, if your 403(b) holds a large-cap stock fund, its returns can be compared to indices like the S&P 500 to see how it performed relative to the broader market. The average rate of return for a 403(b) account has historically ranged from 5% to 8%, although this can vary significantly based on investment selections and market conditions. Regularly benchmarking your plan’s fees and investment performance against industry averages is also recommended, with a review every three to five years.