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Nea Valuebuilder: Another Perspective


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#16 kev

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Posted 12 July 2007 - 12:41 PM

I have been a member for 15 years. I have been president of our local association and chief negotiator. However, I too am very frustrated with this entire "Members Benefits" program. I am not saying there is never a deal to be had via this program, but as often (or more often) the "deals" they list are not that great. They can construct the paperwork any way they want, but to say that Members benefits is 100% seperate from NEA is just not true. THere is no way that they are just doing this out of the goodness of their hearts - they do it to make money, plain and simple. I joined the union for one reason, the representation in negotiating a contract to work under, and the continued support to uphold those conditions.

I am growing increasingly weary of the NEA's involvement in political issues and its newfound obsession with sending me some sort of insurance, investment or credit deal every day in the mail. I also grow tired of the area reps badgering us about membership and spouting off about the "value" of the union dues (which are going up significantly faster than our salaries) plus "all the great deals you get through the benefits program."

If I want "deals" I will clip coupons out of the sunday paper, not pay nearly $600 per year in union dues. If NEA really wanted to provide a service - negotiate a great health insurance program, and scrap all the other crap they throw down our throats.

As far as investments, they stink - a lot. Rather than endorse a single product, why not simply promote an intelligent investment philosophy that individual schools can implement. Why not come straight out and say: Annuities, sold by insurance companies, are bad nearly 100% of the time. It is important to set up options within your school that provide NO LOAD, NO SURRENDER, NO 12b-1, LOW FEE mutual funds.

The reason they don't say that is it would substantially upset the partnerships they have formed with insurance companies. There is NO other reason. It is either that, or the possibility that they are so insanely stupid that they cannot recognize the difference between a good product and a ripoff. Take your pick. But in either case, it has nothing to do with the well being of individual teachers.

#17 JMacDonald

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Posted 12 July 2007 - 12:52 PM

Hi,
Vanguard Prime Money Market Fund offers a good rate too: http://tinyurl.com/259w82

Best Wishes,
Joe

#18 tony

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Posted 12 July 2007 - 12:59 PM


Kev

I know some might say we don't offer solutions when we critize but you know, the truth needs to be told.
I agree with you 100%. You and me think alot alike. Keep speaking up. The NEA really needs to change.

Tony


QUOTE(kev @ Jul 12 2007, 01:41 PM) View Post

I have been a member for 15 years. I have been president of our local association and chief negotiator. However, I too am very frustrated with this entire "Members Benefits" program. I am not saying there is never a deal to be had via this program, but as often (or more often) the "deals" they list are not that great. They can construct the paperwork any way they want, but to say that Members benefits is 100% seperate from NEA is just not true. THere is no way that they are just doing this out of the goodness of their hearts - they do it to make money, plain and simple. I joined the union for one reason, the representation in negotiating a contract to work under, and the continued support to uphold those conditions.

I am growing increasingly weary of the NEA's involvement in political issues and its newfound obsession with sending me some sort of insurance, investment or credit deal every day in the mail. I also grow tired of the area reps badgering us about membership and spouting off about the "value" of the union dues (which are going up significantly faster than our salaries) plus "all the great deals you get through the benefits program."

If I want "deals" I will clip coupons out of the sunday paper, not pay nearly $600 per year in union dues. If NEA really wanted to provide a service - negotiate a great health insurance program, and scrap all the other crap they throw down our throats.

As far as investments, they stink - a lot. Rather than endorse a single product, why not simply promote an intelligent investment philosophy that individual schools can implement. Why not come straight out and say: Annuities, sold by insurance companies, are bad nearly 100% of the time. It is important to set up options within your school that provide NO LOAD, NO SURRENDER, NO 12b-1, LOW FEE mutual funds.

The reason they don't say that is it would substantially upset the partnerships they have formed with insurance companies. There is NO othe



r reason. It is either that, or the possibility that they are so insanely stupid that they cannot recognize the difference between a good product and a ripoff. Take your pick. But in either case, it has nothing to do with the well being of individual teachers.



#19 sschullo

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Posted 12 July 2007 - 01:14 PM

Hi Kev,
This fight with NEA has gone on over Value Builder for ten years. NEA is absolutely relentless in its attitude that itís a good deal because "members need handholding."

I may be imagining (admittedly this has happened before) but this discussion was started by Ultra, who has either appointed himself or NEA has taken notice of this website and asked Ultra to address the whole sale bashing of Valuebuilder from this site and I believe more NEA members such as yourself are complaining. Who knows, there may be a break in their armor because of the legal hits that NY AFT has taken with their plan. I am sure that all teacher unions are watching over their shoulders and trying to cover themselves.

BTW, I was on the selection committee when AFT selected ING (over my dead body). It was the same argument that you state about these chronic relationships with insurance companies and "the members know nothing so the insurance company is the only ones that can help them..." CRAP. AFT already had a relationship with ING. Needless to say, I was disgusted with their decision.

Keep up the fight,
Steve

Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#20 kev

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Posted 12 July 2007 - 01:40 PM

Yep - There are few in my district that think a lot like I do, but it is sad that so many educated people can gloss over their finances so easily. We have a similar problem with health insurance in our school. We have a group of teachers who just "HAVE TO" have a full family, 100$ deductible plan. Our district only kicks in $500 per month for insurance, and this plan costs over $20,000 per year if an employee chooses it. It is a terrible deal, and I have (literally) drawn ###### showing people that even if EVERY member of their family maxed out their plan, they STILL LOSE money compared to lower premium, higher deductible plans. Their response - "I like not having to think about it."

So, the handholding argument has some merit. However, even if hand holding is needed. Go to Vanguard (or other low cost provider). Set up about 5 or 6 options ranging from:

50% money market/50% bond
to
50% bond/50% total market
to
33%bond/33% international/33% s&p
to
50% international/50% s&P

etc.
Put together several options of ###### index combinations which range from conservative to more aggressive. That way if you don't want to think, pick one to suit your risk tolerance and use it. I have little doubt the returns would FAR exceed whatever an insurance advisor could conjure up. If the NEA wanted nothing more than to help teachers put together a great retirement plan, it would take about a week to figure out the best way to do that - but again, that is not their goal, their goal is to make money for the organization at the expense of those they pretend to help.

Right now, our 403b plan is fine - we can literally pick ANYTHING we want. So, for those that don't want to think, they can give their money to insurance companies. For those of us who do like to think, we can go elsewhere. However, I am scared to death about these new regs. I know I have a fight coming my way when it is time to implement the new policies.

#21 Ultra

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Posted 12 July 2007 - 08:20 PM

QUOTE(sschullo @ Jul 12 2007, 02:14 PM) View Post

I may be imagining (admittedly this has happened before) but this discussion was started by Ultra, who has either appointed himself or NEA has taken notice of this website and asked Ultra to address the whole sale bashing of Valuebuilder from this site and I believe more NEA members such as yourself are complaining.


Now, now. Just because I have a slightly different view than others on the board doesn't mean you should insinuate that I am a plant. It's not nice to question another poster's integrity. If you read my posts you will see that, I have been bashing the NEA Valuebuilder product. It's a bad product because the expenses far exceed the industry averages. In my opinion, total expenses for NEA Valuebuilder should be below 0.75% with less than 0.1% of that spent on marketing and that should be in the next RFP. (Feel free to suggest your own percentages.)

What seems to be lost in the shuffle here is that I took concerns from this board and brought them up to a trustee of NEA MB (Secretary-Treasurer Lily Eskelson) at the NEA Representative Assembly in Philadelphia. In other words, keeping pressure on about the NEA Valuebuilder within NEA leadership. I reported back on how concerned NEA members can get the NEA MB reports from their NEA Board of Directors. (NEA MB trustees report out to the NEA Board.) Concerned members can also push their state NEA Directors to put effort into getting the NEA MB trustees to improve NEA Member Benefits. (It's an election year for the top folks.) I also brought word that NEA MB is investigating low cost options that hopefully will be available soon.

When JudyS was planning something similar last year she got lots of support from folks. I can't find what the outcome of all that was but if nothing changes then I'll meet up with you guys next year and we can pass out flyers at the Rep. Assembly in D.C. and at the finance meetings.

I'm going out of town on vacation for a few weeks so I'll close out here. When I get back I'll be working on helping my school district offer better 403(b) options and then we can all be friends again.

JMacDonald: Thanks for the link. I'm willing to pay 0.12% in order to be able to walk over and deposit checks/change and be able to get cash out same day. If the branch hadn't been so close I would have gone for an online bank. Bank of America branches are sprouting up like weeds where I live so it's a good fit for me.

#22 Anonymous Coward

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Posted 15 July 2007 - 12:07 AM

A great article on this ran in Forbes a few years ago.

==================================


http://www.forbes.co.../100_print.html

On The Cover/Top Stories
Costly Lesson
Neil Weinberg, 04.25.05



Some of the biggest names in insurance peddle lousy retirement plans with high fees and low returns. One and a half million teachers blithely signed up for these dogs--often with their unions' blessing.

Teacher Michael Cangelosi wandered into the faculty lounge of his grade school in Derwood, Md. at lunchtime one day nine years ago, and a well-dressed man on the sofa beckoned to him with a plate of cookies and an offer of free advice.

The adviser was a salesman for AIG Valic, the largest vendor of retirement savings plans for teachers. He later whipped out colorful charts illustrating how Cangelosi, then in his mid-20s and with only a few thousand dollars saved, could avoid a trip to the poorhouse by setting up a tax-deferred teachers' retirement plan. A brochure, listing some mutual funds, touted no initial sales commissions and fees as low as $3.75 a quarter.

Sold:In the next eight years Cangelosi put $14,200 into his retirement plan. Belatedly, last summer he addressed the question of whether he was doing as he hoped. By the time he bailed out and paid a $500 kill fee, he ended up with all of $13,655--$550 less than what he had invested over all those years. Why? One big reason was that he had been paying fees of 2% a year, two to three times the rate charged by big mutual funds. This during a time when a low-cost S&P Index fund would have returned 95%.

"It was a stinging feeling to realize that, for eight years, I could have been paying so much less for better investments," says Cangelosi. He has since switched his faltering retirement plan to TIAA-CREF, the giant investment firm set up for educators--for what he says is only one-fifth the annual AIG fees.

Cangelosi was attracted by the idea of investing in mutual funds but in fact had been lured into buying an insurance plan that can best be described as a coals-to-Newcastle investment. The AIGValic agent had sold the teacher a variable annuity, a basket of half a dozen mutual funds wrapped in a life insurance policy.

This type of insurance doesn't pay your surviving family a million-dollar jackpot if you die suddenly--it promises only to pay back the money you had put into it, plus any extra returns it earned. The main appeal of variable annuities is their tax deferral, yet Cangelosi already had that in his retirement plan. The main downside to annuities is stiff fees, often 2% or 3% a year. AIG Valic says it has revised its sales literature to more accurately portray the product.

Yet roughly 1.5 million teachers at the nation's public schools have put their retirement savings into insurance plans, for a total $120 billion in assets. The business is stoked by some of the biggest names in insurance:AIG, the world's largest insurer; ING; AXA; and MetLife. Some firms pay first-year commissions as high as 9% to agents, who troll school campuses for prospects.

"School districts don't provide education [about retirement accounts]," says Daniel Otter, a teacher and operator of a Web site, 403bwise.com. "So the first time most teachers hear of them is when a salesman shows up in the lounge selling annuities larded with high fees and surrender charges."

Teachers unions are complicit partners in this dubious pursuit. Insurers cut murky deals with labor unions to buy exclusive access to their members, sometimes paying the unions millions of dollars in fees in exchange for the unions' endorsement of their annuity plans. Invariably this foists on teachers some of the most expensive annuity products around.

"Unions play a very large role in teachers' decision making," says Michael Beczkowski, a consultant with Bolton Partners who evaluates retirement plans for school districts. "Some companies offering these plans make large union donations, so it's very difficult to get rid of them even if their products are substandard. The participants pay for it."

The National Education Association, with 2.7 million members; the American Federation of Teachers, with 1.3 million people in its ranks; and New York State United Teachers, with half a million members, all endorse high-cost annuity products. The NEA won't disclose the fees it receives from its retirement savings provider, Security Benefit, a firm in Topeka, Kans. But one source says the fee was likely $3 million. The New York union gets $3 million a year from ING, which gets the shop's exclusive endorsement as a provider of annuities for New York teachers. AFT says it gets less than $100,000.

At the center of this thriving scheme is the inelegantly named 403(b), which, like the private sector's 401(k), takes its name from an IRS regulation. Both plans allow workers to invest for retirement free from taxes until the money is withdrawn. The key difference: Private employers have a legal duty to run 401(k)s in the interests of employees and spell out the terms; 403(b)s carry no such burden.

All told, 6.8 million educators and other nonprofit employees have almost $580 billion in assets in 403(b) plans. Some 80% of this is in fixed and variable annuities, and the business is growing 9% a year, says Spectrem Group, which consults to insurers. Universities make up just under half the total and take a more patriarchal approach, limiting their 403(b) offerings to a few low-cost, solidly performing vendors selling low-fee mutual funds. The well-regarded TIAA-CREF controls nearly half of universities' $250 billion in 403(b) assets.

Public school districts, by contrast, view 403(b) plans as an add-on to traditional pension plans, and typically they offer teachers zero guidance.

When teacher Douglas Taylor called the Los Angeles Unified School District looking for a low-cost 403(b) plan in 1997, the district couldn't even provide him with vendors' names. Taylor had to guess at them until he came up with an acceptable choice. Today the Los Angeles school system retirement plan, with 32,000 403(b) contributors, publishes a list of 112 different firms, most of them annuity vendors.

But hey, it's the law:California statute requires schools to give access to any retirement firm licensed to sell a product. With so much traffic in the lunchrooms, face time is the key to closing sales. And face time is expensive, a cost that mutual funds can't afford to cover if they want to keep their fees low. "If you're a company like TIAA-CREF with low costs and noncommission distribution, you really can't get any traction [in public schools]," says Richard Hiller, a vice president in the firm's institutional division.

Insurers and unions argue that, with 70% of teachers failing to save for retirement, they need a lot of handhold-ing to get them started. Cheaper plans offer no adviser, and variable annuities are best for "people who are uncomfortable performing self-directed retirement planning," says an official at Security Benefit, which runs the NEA program.

Insurers insist their brochures disclose all costs, as legally required, and that their agents discuss the negatives in face-to-face meetings. "We're proud of the way we deliver products to that market," says Brian Comer, a senior vice president at ING. "We look at it as a question of needs versus the costs to provide for those needs."

Others counter that the shoddy sort of "financial planning" Michael Cangelosi received in Maryland is all too common. "Arguing it's better to have high-cost brokers than nobody is like saying Harlem is better off with ###### dealers since there aren't enough pharmacies," says Edward Siedle, president of Benchmark Financial Services, which investigates money-management abuses on behalf of pension plans.

FORBES has written plenty about the many drawbacks of variable annuities, from "The Great Annuity Ripoff" in the Feb. 9, 1998 issue to "Annuity Gratuity" (Feb. 19, 2001) to "No Surrender" (Nov. 29, 2004). Even the National Association of Securities Dealers says the insurance "may not be a good idea" in tax-sheltered accounts. "It will, however ?generate fees and commissions for the broker or salesperson."

Some plans are horrendous. General American Life Insurance sells an annuity that hits teachers with a kill fee of 18% if they bail out in less than a year; lower "surrender fees" are charged even if an investor sticks around for 14 years. At PlanMember Services annual fees can run as high as 3.7%, plus $25. For one AIG Valic plan, only 3 of 16 actively managed equity funds have beaten their indexes over ten years or the life of the funds.

Occasionally insurers' sales pitches to teachers run afoul of the law. CGULife Insurance agreed to an $8.1 million 2002 settlement in a class action involving 14,000 Texas teachers. It also agreed to an injunction barring sales materials that don't clearly state that its reps are insurance agents and banning false statements that its products are endorsed by school districts, unions or others.

The NEA is a good example of how unions play the 403(b) game. It exclusively endorses a product labeled NEA Valuebuilder, sold by Security Benefit. The NEA says it selected the firm for "unsurpassed service coupled with innovative financial products."

One person familiar with the NEA's previous contract says insurer Nationwide paid the NEA $3 million annually until around 2000. The NEA then put the contract out for bid. One respondent, Great-West Life, offered an attractive option:no variable annuity, and a mutual-fund-only product with a slim 0.15% annual fee and no surrender charges. But Great-West was unwilling to pay the NEA for an endorsement. The NEA says it chose Security Benefit because its members want in-person consultation, while Great-West provided service by phone and Internet.

NEA Valuebuilder investors pay annual fees of up to 5.6% of their fund balance, including a "mortality and expense risk" charge of up to 0.9% (TIAA-CREF charges less than 0.1%) and mutual fund charges of up to 3%; cancel in the first year and you take a 7% hit.

To get independent agents to flog this dud, Security Benefit pays first-year commissions of up to 8%. That is in addition to overrides, expenses, bonuses and trailing commissions, not to mention "expense-paid due diligence trips and educational seminars." Security Benefit defrays the cost by itself taking kickbacks of up to 0.4% of assets from the mutual fund firms whose funds it offers to teachers. The good news: Only 60,000 NEA members own Valuebuilder, and 40,000 of them are in a mutual-fund-only product that spares them insurance fees.

ING also pays unions for endorsements and access. It runs a program for the American Federation of Teachers but pays that union only enough to cover related expenses. In a separate deal, ING pays the Oregon Education Association only $144,000 annually for an exclusive endorsement of its "tax-sheltered annuity" and the right to run "financial planning" seminars for members.

ING's biggest deal likely is with the New York State United Teachers Benefit Trust, which spans 500,000 people and has $2.3 billion in assets, most of it in annuities. The prospectus states ING will pay the union trust $6 for each of its members, or $3 million in 2005; never mind that 140,000 members are barred from the plan and must choose a rival plan from the affiliated United Federation of Teachers in New York. Still, "We got a pretty good deal with ING," says union spokesman Dennis Tompkins.

For union members the deal includes variable annuity expenses as high as 3.56% and cancelation charges of up to 7% of assets. A teacher who puts in $10,000 for a decade and earns 5% annually will forfeit at least $3,976, or 63% of his returns, in fees. The union's 300 staff people save through a separate, cheaper 401(k) run by Fidelity.

Mutual back-scratching between insurers and unions is ubiquitous with 403(b)s, says Daniel Puplava, who sold the NEA's Valuebuilder in California when it was run by Nationwide. "When I did work at the union, I had to pay for tables, provide door prizes and dine labor people to market in their territory," he says. "I felt like a ######." These days he runs a 403(b) plan he devised for San Diego County's Office of Education. It charges a reasonable 0.3% administrative fee on top of fund fees and has no surrender charges or loads.

The WEA Trust, a unit of the Wisconsin Education Association Council, has shunned the standard model in which unions pawn off on their own members insurance salesman disguised as financial planners. The plan's six certified planners offer teachers retirement planning purely for a salary to avoid dispensing conflicted advice. The total cost to teachers of investing in mutual funds through the trust runs as low as 0.36% per year, or one-tenth that of the most expensive products on the market. Its fixed-return investment option is also paying a guaranteed 4.5% over the next year, at least 1.5 percentage points better than its closest rival, says Randolph Mullis, assistant executive director of the trust.

Teachers' advocates recently sponsored legislation in California aimed at forcing school districts to cap 403(b) fees. Insurers lobbied hard against them. Fliers anonymously appeared at schools comparing the proposal to limit high-cost choices to Hitler and the Holocaust. Web sites with addresses similar to 403bwise.com popped up to transport visitors to pro-insurer alternatives.

The proposal to limit sales of expensive 403(b)s was itself limited to improving disclosure. California now requires that vendors list plan basics on 403bcompare.com. That may help teachers protect themselves by doing their homework. Just like the rest of us.


#23 tony

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Posted 15 July 2007 - 06:22 AM



Thank-You for this article. I hope every teacher in America would read it.

Tony

#24 JMacDonald

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Posted 15 July 2007 - 06:43 AM

Hi,
Here is a quote from the article:

"NEA Valuebuilder investors pay annual fees of up to 5.6% of their fund balance, including a "mortality and expense risk" charge of up to 0.9% (TIAA-CREF charges less than 0.1%) and mutual fund charges of up to 3%; cancel in the first year and you take a 7% hit."

There is no way NEA can defend this turkey! Best Wishes.

Joe

#25 apteacher

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Posted 15 July 2007 - 08:33 PM

Here are some other quotations worth mulling over:

1) "We're proud of the way we deliver products to that market," says Brian Comer, a senior vice president at ING. "We look at it as a question of needs versus the costs to provide for those needs."

Comment: Easy for ING to not worry about costs, isn't it? Of course, they are not paying the costs.

2) "The NEA won't disclose the fees it receives from its retirement savings provider, Security Benefit, a firm in Topeka, Kans. But one source says the fee was likely $3 million."

Comment: Actually, I think that the fee is $2 million, but no matter: Security Benefit pays $2 million to NEA MB, and NEA endorses Valuebuilder. Now isn't that just cozy?

3) "The NEA says it selected the firm for 'unsurpassed service coupled with innovative financial products.'"

Comment: Um, the choice had nothing to do with the $2 million fee that NEA MB collected from SB?

4) "NEA Valuebuilder investors pay annual fees of up to 5.6% of their fund balance, including a "mortality and expense risk" charge of up to 0.9% (TIAA-CREF charges less than 0.1%) and mutual fund charges of up to 3%; cancel in the first year and you take a 7% hit."

Comment: This is why I call the plan Valuekiller.

All of the rationales in the world that NEA comes up with will not justify this product.

#26 kev

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Posted 16 July 2007 - 10:13 AM

QUOTE(apteacher @ Jul 15 2007, 08:33 PM) View Post


3) "The NEA says it selected the firm for 'unsurpassed service coupled with innovative financial products.'"




Wow, that takes some guts to call it an "innovative financial product." Innovative for who? I suppose it is innovative from the perspective of those selling it - I mean, to be able to rip so many people off (and get praised for it) is actually rather innovative.

If the NEA has so little knowledge about the processes of investing as to promote this product, they should really stop dabbling in the area. Seriously, if you were to ask 10,000, unbiased, financial experts to rate this plan on a scale of 1 to 10 - they would unanimously declare it an utterly miserable choice. As I said previously, the NEA is either making decisions to line its pockets, or they are completely incompetent. But, it is one or the other.

#27 apteacher

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Posted 18 July 2007 - 11:44 AM

Ultra,

In your original post, you said that,

"The key point here is that NEA isn't receiving kickbacks from Security Benefits."

The recent lawsuit calls this into question.

#28 JudyS

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Posted 18 July 2007 - 01:11 PM

Ultra --

You write beautifully; it is a pleasure to read your posts.

I have been a member of NEA for years and continue to be so; I believe that NEA has important functions and in no way would I want to be an educational staff member without them there.

That said, we are educators and NEA is there to SUPPORT us, right? So, it would seem reasonable that NEA should engage in EDUCATIONAL practices that specifically benefit us. Instead of doing that, they have taken the easy way out and offered a product instead, when nearly anyone with a solid understanding of basic personal investment principles would see that product as deeply faulty in a number of ways.

We need to ask our state, local and regional NEA affiliates to provide an educational service for us instead. They will listen -- maybe now more than ever. To begin, I have ask our regional office to provide a speaker for teachers in the area -- like maybe Dan Otter?

Give it a try.

Judy Schneider