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Brad Scharlott

Can school district force teachers into a 403b?

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My wife is retiring from Cincinnati Public Schools and will be owed a considerable amount for unused sick pay. School officials tell her she has no choice but to allow that money to go into a Voya 403b, through which she may (or may not) be able to freely roll it over to a retirement oriented instrument at TIAA. She would prefer to avoid Voya altogether, because of complex fee structure, lack of clarity about rules on passing money thru to TIAA, etc. My question: shouldn't she be able to take the money owed her directly as income and avoid Voya entirely? Or can a school district and/or union sign a contract with third party like Voyage that forces all employees due a certain benefit to use that company? Ohio law states employees cannot be forced to purchase goods from a third party. But unions can compel employees to do certain things, so the legal question here is perhaps thorny. 

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Wow , never heard of this being done but it might make sense.  I was just written  a paycheck for my days.  She should be allowed to just take the money but my check was taxable and was gutted by taxes and other deductions..  But  maybe the money is not taxable this way  and might be to her benefit..She is retiring ,  so she should be able to  do what she wants since it's her money. Even if school officials put it in a Voya 403b  for whatever reason she can then send that money immediately to an IRA by transfer and no taxes paid on it . That seems her escape route, an IRA outside a 403b by way of separation of service.  In an  regular traditional IRA it's totally in her hands where it goes. She can do a transfer. I spent my money. Her arrangement might serve her better. Did I miss your point?

On 1/18/2020 at 10:38 AM, Brad Scharlott said:

My question: shouldn't she be able to take the money owed her directly as income and avoid Voya entirely? Or can a school district and/or union sign a contract with third party like Voyage that forces all employees due a certain benefit to use that company? Ohio law states employees cannot be forced to purchase goods from a third party. But unions can compel employees to do certain things, so the legal question here is perhaps thorny. 

Also, since the money is given as a school benefit /perk they may be able to award it to you as they wish. I would bet there is some advantage to the employer to doing it this way. Perhaps with so many teachers retiring this arrangement might in some way ease their budget burden.

 

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I think Tony is correct--she can roll the VOYA 403b balance to an IRA. She does not have to invest the money with VOYA. This is much better than how Tony's district treated him. I don't think anyone can restrict the rollover to TIAA. If she is retired, the IRS permits the 403b to IRA rollover to a vendor of her choice. 

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On 1/18/2020 at 10:38 AM, Brad Scharlott said:

School officials tell her she has no choice but to allow that money to go into a Voya 403b

I don't have a definitive answer. I've never heard of this and all of my experience tells me that 403b contributions (with the employee's money) are purely voluntary. So I think she has the choice, but I can't say that for sure.

If we assume she has to put the money into a 403b, then I'm not sure why it would specifically have to be Voya. Unless Voya is the district's sole 403b vendor?

Another reason to doubt that she has no choice, what would happen if an employee had already maxed out their 403b?

On 1/18/2020 at 10:38 AM, Brad Scharlott said:

she may (or may not) be able to freely roll it over to a retirement oriented instrument at TIAA.

As others have said, she can roll it over into any IRA of her choice.

However, if the money has to first enter the 403b, make sure you figure out the surrender fees. If the contribution is left in cash as opposed to buying mutual funds, do any potential surrender fees get waived? Do the surrender fees get waived no matter what when employment is terminated? Do the legwork to try to avoid this potential fee.

If you assume she doesn't have to pay a surrender fee then having the money go into a tax advantaged account (like a 403b) provides maximum flexibility. You can then choose to pull the money out and pay tax on it (as you would if it were paid to you directly) as well as potential IRS penalties depending on your circumstances or you can let it stay in the account and enjoy the tax benefits.

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I can't imagine them putting this money in a instrument that charges surrender fees which would limit access further. We will have to see of OP returns to clarify.

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