Big changes could be coming to a retirement plan that affects millions of Americans. Surprisingly, I am not talking about Social Security reform. Instead, I am referring to proposed changes to the 403(b) retirement plan, which covers more than 6.8 million teachers and other not-for-profit workers.

The 403(b) is a powerful wealth-building tool, but it suffers from a severe lack of low-cost investment choices. Unlike the 401(k), where participants usually have access to mutual funds, most 403(b) participants are limited to high-cost annuities. In fact, more than 80% of the $590 billion invested in 403(b) plans goes into annuity and variable-annuity products, according to the Spectrem Group, a San Francisco-based consulting operation. Foolish readers know that paying 0.2% annually for a low-cost mutual fund is much better than paying 2.3% a year for a variable annuity. Consider: After 35 years of contributing $4,800 annually to an investment charging 0.2% and returning 8%, a saver would accumulate $824,000 vs. $517,000 from an investment charging 2.3%.

The reasons for the lack of quality choices abound. The insurance industry and its army of agents who flood school districts pushing annuity products are a favorite target of reformers. The biggest culprit, however, is employer indifference to the 403(b), which is a direct result of the relatively loose rules that currently govern the plan. Right now employers are not required to exact true fiduciary oversight on 403(b) plans. Instead, this responsibility is basically farmed out to the vendors who -- not surprisingly -- put their interests front and center.

In an effort to address the plan's shortcomings, the IRS and the Treasury Department recently proposed new rules set to take effect in 2006. Some of the ideas -- increased employer fiduciary responsibility and requirement of a document detailing rules of the plan -- have real potential to benefit participants. The reason? The hope is that if employers are required to monitor investment offerings they are sure to demand better products. However, defenders of the status quo (and perhaps their financial stake) think that increased fiduciary responsibility will cause smaller school districts and employers to drop their 403(b) plans rather than conform to new requirements that detractors say could be expensive.

One new proposal may actually make things worse for fans of low-cost products. As it now stands, 403(b) participants are able to perform something called a 90-24 transfer of their money from an employer-sponsored vendor to any financial institution willing to accept the money, even one not offered by their employer. The 90-24 transfer has been a tremendous boon to the participant stuck with poor vendor choice. Unfortunately, this benefit may disappear.

Those worried about the loss of this provision have a few options: If you are contemplating a 90-24 transfer, look into completing it this year; contact the IRS with your concerns; and the best course of action: educate your employer on the benefits of offering quality investment choices. After all, benefits officials are also participants, so it is in their interest to have lower-cost products, as well.

At this point it is hard to predict which provisions will become law. Intense lobbying behind the scenes may ultimately determine the future of the plan. The insurance industry has a huge stake in this market. For its part, the mutual fund industry has been eying the 403(b) market for years and may be ready to pounce if barriers to entrance (poor employer oversight and unwieldy vendor lists) are removed. Advocates of change have their fingers crossed that the government will do the right thing, but I'm not holding my breath.

Looking for other ways to boost your savings? Give the Rule Your Retirement newsletter service a 30-day free trial and receive a complimentary copy of our book Money After 40.

Fool contributor Dan Otter is a teacher who operates the education and advocacy website 403(b)wise . His new book, Teach and Retire Rich, details how educators can reap the intrinsic and extrinsic rewards of the profession.