Certification and Oversight of Investment Products Changes

Concerns that teachers will be taken advantage of surfaced as changes to safeguards related to investment products offered to school district and open enrollment charter school employees go into effect.

House Bill (HB) 2820 of the 86th Texas Legislative session removed oversight of 403(b) products from the Teacher Retirement System (TRS). Prior to the change, TRS certified companies based on financial strength according to established criteria. In addition, fees companies could charge were capped at 2.75 percent.

Eligibility Criteria

As of September 1, 2019, a company is eligible to offer qualified investment products if it meets two criteria:

1. It is licensed by the Texas Department of Insurance (TDI) and is in compliance with minimum capital and surplus requirements, and
2. The educational institution determines the company has experience providing qualified investment products and has a specialized department dedicated to the service of qualified investment products.

Fee Caps Removed

HB 2820 also removed the cap on fees and costs. This is of particular concern because an investment with excessive fees could eliminate all income and even some principal from the investment each year. As always, employees must be aware of the impact and select products with fees that don’t consume dividend and interest income.

Proceed With Caution

Because TRS will no longer certify companies, districts must determine which companies are eligible to provide investment products to employees under the new law. If a product meets the criteria above, employees must be allowed to invest. Districts should communicate the changes to employees and work with the district third-party administrator to ensure a smooth transition.