403(b) Fees: Why They Are Usually Higher Than 401(k) Fees
The 403(b) structure is not bad. The products sold inside many 403(b) plans are. Here is the full accounting of every fee type, what you are likely paying, and how to find out for sure. Updated 17 April 2026.
Every fee type, explained
| Fee type | 403(b) typical range | 401(k) typical range | What it is |
|---|---|---|---|
| Expense ratio (fund level) | 0.03% to 2.5% | 0.03% to 1% | The annual cost of owning a fund, deducted from returns. Index funds are at the low end; actively managed and annuity sub-accounts at the high end. |
| Mortality and expense (M&E) charge | 0.5% to 1.5% | Rare (0%) | Insurance fee embedded in variable annuity contracts. Pays for the death benefit guarantee. Does not exist in mutual fund plans. |
| Administrative fee | $0 to $100/year | $0 to $100/year | Annual account maintenance fee. Similar across both plan types. |
| Surrender charge | 5-8% declining over 5-10 years | None | Annuity exit penalty if you transfer or withdraw before the surrender period ends. Locks money in even if fees are high. |
| Sub-account fee | 0.1% to 1% additional | Minimal or none | Additional layer of fees within annuity sub-accounts, on top of the underlying fund expense ratio. |
| 12b-1 marketing fee | 0.25% to 1% | 0% to 0.25% | Fund marketing fee paid to the distributor. Some 403(b) fund classes include this; institutional 401(k) share classes often do not. |
| Wrap fee | 0.2% to 0.75% | Rare | An all-in fee charged by some group annuity contracts on top of fund expenses. |
| Rider fee (annuity) | 0.5% to 1.5% | None | Optional guaranteed income, death benefit, or long-term care riders in annuity contracts cost extra. |
Why the gap exists
Until 1974, 403(b) plans were legally required to invest exclusively through annuity contracts issued by insurance companies. This gave the insurance industry a 20-year head start building sales networks directly into schools, hospitals, and nonprofits that persist today.
When the 1974 ERISA reform allowed mutual funds in 403(b)(7) accounts, most school districts and hospitals did not update their plan structures. Insurance reps continued visiting campuses, building relationships with administrators, and being the only retirement representative most teachers and nurses ever met.
The conflict of interest is structural: reps from AXA Equitable, Voya, Lincoln Financial, VALIC, and Equitable Financial are insurance agents paid by commission. They are legally allowed to recommend products that pay them well, even if lower-cost alternatives exist in the same plan. They are not fiduciaries. Most never disclose their compensation to plan participants.
401(k) plans have been reformed differently. A series of class-action lawsuits against large employers in the 2010s forced plan sponsors to remove high-fee funds and add index funds. The competitive market for 401(k) plan sponsors (often large for-profit corporations with HR and legal departments) drove fees down. The market for 403(b) plans (often school districts and small nonprofits with minimal HR expertise) did not produce the same competitive pressure.
Named provider comparison
All-in annual cost estimates based on typical 403(b) products offered by each provider. Actual costs vary by plan and product. Check your specific fund prospectus for exact figures.
| Provider | Product type | Typical all-in fee | Notes |
|---|---|---|---|
| AXA Equitable | Annuity | 1.6% to 2.8% | Variable annuity products sold heavily into K-12 districts |
| Voya Financial | Annuity | 1.4% to 2.2% | Group and individual annuity contracts |
| Lincoln Financial | Annuity | 1.5% to 2.5% | Variable annuity contracts with rider options |
| VALIC (now Corebridge) | Annuity | 1.3% to 2.3% | AIG subsidiary; large presence in K-12 and healthcare |
| Equitable Financial | Annuity | 1.5% to 2.5% | Formerly AXA; common in school district plans |
| Horace Mann | Annuity | 1.2% to 2.0% | Specifically targeted at K-12 teachers |
| TIAA (mutual fund window) | Mutual fund | 0.1% to 0.8% | Wide range depending on product; institutional funds are low cost |
| Vanguard | Mutual fund | 0.03% to 0.2% | Low cost index and target-date funds |
| Fidelity | Mutual fund | 0.03% to 0.5% | Low cost index funds and managed options |
| Schwab | Mutual fund | 0.03% to 0.5% | Index funds and target-date funds |
Career cost scenarios (7% gross return)
$50K balance, 1% fee gap, 30 years
Starting teacher, annuity plan vs index fund alternative
High-fee result
$373K
Low-fee result
$478K
Fee cost
$105K
$100K balance, 1.5% fee gap, 25 years
Mid-career nurse, 2.5% vs 1.0% all-in fee
High-fee result
$463K
Low-fee result
$658K
Fee cost
$195K
$200K balance, 1% fee gap, 20 years
Professor with substantial savings, 20 years to retirement
High-fee result
$602K
Low-fee result
$757K
Fee cost
$155K
The fiduciary question
Most K-12 403(b) sales reps are insurance agents, not fiduciaries. A fiduciary is legally required to act in your best interest. An insurance agent is allowed to recommend products that pay them well, as long as the product is "suitable" for you. The difference is enormous.
The Department of Labor has expanded fiduciary rules for IRA rollovers as of 2024, meaning agents must now act in clients' best interests when recommending rollover decisions. However, in-plan 403(b) sales by insurance agents to active employees are not fully covered by these updates. Always ask any 403(b) rep: "Are you a fiduciary? Are you required to act in my best interest?" If the answer is not a clear "yes", treat their recommendation with scepticism.
Useful resources: 403bwise.org tracks plan quality by school district and advocates for teachers. efast.dol.gov provides Form 5500 filings for ERISA plans.