Cost of Investing Part III - 403(b) Multi Vendor Expenses & Contingent Deferred Sales Charges (CDSC)

Cost of Investing Part III - 403(b) Multi Vendor Expenses & Contingent Deferred Sales Charges (CDSC)

August 10, 2021

Previous blogs in this series pertain to general costs of investing.  In this blog I am going to discuss Contingent Deferred Surrender Sales Charges (CDSC) common in multi-vendor 403(b)’s.


Let me begin by explaining why such a cost exists.    Simply put, it is the difference of buying in bulk vs. retail.     While many school districts feel offering a robust list of vendors to choose from is a benefit of their 403(b) program, in reality they are more likely providing staff a retirement program with inferior pricing.    While any vendor would welcome the opportunity to be an eligible investment in a district, vendors incur costs to run the investment.   When they are one of multiple vendors, costs are passed to the investor through back-end sales charges called CDSC’s.


A CDSC is an expense on the contract, not the share class.   Vendors strive to provide the lowest expense ratios and share classes possible for the investment.    The CDSC is incurred if the investor decides to transfer their account to another 403(b) vendor, via Contract Exchange while working or to another account upon retirement.   Each vendor has their individual fee schedule, outlined in the investment prospectus.   Investors can work around the CDSC.


While some vendors calculate the CDSC on account balance, (contributions & earnings) a CDSC on an Empower 403(b) is calculated as 6% of the last 72 months total deposits.   Earnings are not included in the calculation.      While Empowers timeline is 72 months (6 years) from the last deposit, each vendor has their own timeline with some being 15 years.     Costs decrease as you move further away from the last deposit.  To avoid a CDSC, you may choose to transfer or distribute the account one of the following ways:

  • Transfer or distribute 10% of the account balance annually until 72 months have passed; transfer 100% of remaining balance. 
  • Transfer account as a 4-year periodic payment. This can only be done if the investor is no longer employed with the employer where this account was funded.   Completing the Separation from Service form directing the account to be transferred or distributed over 4 years, avoids the CDSC.  
  • Keep the account invested at Empower until the 72 months have passed; transfer 100% of the account at that time.      


If you have additional questions or if I may help you with your financial needs, please do not hesitate to contact me.



Disclosures:  This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice.    If you are seeking investment advice specific to your needs, such advice must be obtained on your own separate from this educational material.    1-05121300