As an employee of a non-profit (501-C-3) institution, i.e. a college, university, public school, or hospital, you may defer up to $16,500 of your annual salary into a tax deferred account.  (IRS Code 403(b))  If you are 50 or older, you may defer up to $19,500.  In addition, if you have worked for a qualified college, school, or hospital for 15 years or longer, you may defer another $3,000 on top of that (“lifetime catch-up”)

Texas O.R.P.

The Texas Optional Retirement Plan is available to  faculty members, administrators, and other employees of most Texas colleges and universities.  It is chosen as an option over TRS, the Teacher Retirement System.  If you were hired after 1995, up to 6% of your contributions are matched by your employer.  Your contribution is 6.65%.  O.R.P. vests fully after one year, which means, should you leave your employment after one year, you retain your contributions as well as all of the matching contributions.

Choices under O.R.P.

Each institution offers its own list of choices.  They usually consist of either mutual funds or variable annuities. Variable annuities usually come with a built in extra fee, called a mortality expense.  This is life insurance that will pay the beneficiary at least the initial amount invested at the death of the participant. This means that, if the account were to drop in value, the beneficiary would at least get the initial amount invested.  Variable annuities also offer a fixed rate option which is declared each year.  This rate is unaffected by the ups and downs of the stock market. 

Variable Annuity or Mutual Fund?

On a pure cost basis, mutual fund internal fees are lower than those of variable annuities.  There is no extra charge for the death benefit.  Also, there are two classes of mutual funds.  No load funds which charge no commissions to be paid to the sales representative.  And load funds which do pay a commission to the sales representative. Bottom line, the no load mutual fund offers the lowest cost to the investor.