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Open Letter To California State Insurance Commissioner

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September 25, 2017

The Honorable Dave Jones
California Insurance Commissioner
300 Capitol Mall, Suite 1700
Sacramento, CA 95814


Dear Commissioner Jones:


I am very excited to write this letter as one consumer advocate to another. My name is Steve Schullo, a retired Los Angeles Unified School District (LAUSD) elementary teacher. For 11 years, I have served as a Member-at-Large on LAUSD’s 403(b) and 457(b) oversight committee, known as the Retirement Investment Advisory Committee (RIAC). My 403(b) advocacy with K12 educational establishment goes back twenty years. My advocacy friends and I request a meeting with you or one of your advisors on how we can fix this mess. The current self-conflicted system of tax-deferred plans has hurt one group of consumers since 1961—public K12 educators.


The retirement planning world is changing! For years, I have witnessed and discovered that low-cost, index investing strategies for retirement planning has been evolving for us consumers remarkably fast. All of it is wonderful--full transparency, reasonable stock and bond market returns, and lower investment costs. Investing directly in the stock and bond market is nothing radical. Pensions, endowments, and foundations invest in genuine stock and bond markets because of their returns. However, the 403(b) world with my public K12 colleagues is frozen solid in the self-conflicted and wholly outdated 20th-century model. The clear majority of my educational colleagues are still sold a tax-sheltered annuity (TSA), a costly and complicated insurance contract (not an investment) with pathetic returns that attorneys are hard pressed to understand. The 403(b) high costs, complexity and opaqueness is, by comparison, the exact opposite of what is evolving in the fiduciary mandates for the 401(k) world.


Mr. Jones, if ever there was a consumer issue that you should seriously look at is in the enclosed materials:

  • A letter to you from our former LAUSD benefits administrator, George Tischler
  • Four K12 403(b) horror stories published 11 months ago in the New York Times
  • My book, Fighting Powerful Interests
  • Shark Attack, a 17-year-old article published by my former national teacher’s union, the American Federation of Teachers

These materials explain how and why my profession got to where we are now in excoriating detail, and after two decades of publicity, nothing has changed. The answer is rather simple on what needs to be done to bring my profession’s volunteer retirement plans into the 21st century. AB1398, authored by Assemblyman Ash Kalra, is great news and one example of going in the right direction. This bill acknowledged and addressed one big problem with annuities—illiquidity.


Over the years of my advocacy and research, I have discovered that states’ rights over the new Department of Labor’s ERISA federal fiduciary regulations damaged our public K-12 403(b) retirement savings. Naive educators purchase inappropriate insurance products believing the phony bonuses are beneficial and not knowing the underlying surrender and ongoing costs and years of illiquidity. AB1398 addressed a small part of a much bigger problem with annuities—80% of K12 educators own some type of 403(b) annuity, according to PlanMember Services. Costs are enormous and hidden, and 100% in one type of any product or investment is not diversification.


Think about this: no genuine fiduciary financial adviser would ever recommend a fixed or variable annuity to a 22-year-old teacher. Furthermore, fiduciary advisers would not recommend to an older teacher who saved a bundle of money in a Tax-shelter Annuity (TSA) to exchange it for another TSA. Exchanging one TSA for another makes no sense what-so-ever. Both of these unethical and unwise practices are completed routinely by salespeople who only have their pocketbooks in mind.


These terrible practices are not about full cost transparency, lowering costs and making it simple. I think you would agree as a consumer advocate that "Best Practices" are nowhere to be found--the annuity sales world has enjoyed lucrative profits from a perverted motivational environment of collecting commissions and ongoing rip-off costs that teachers pay through their entire careers. This deep-rooted 20th-century model with little or no transparency and inappropriate products is discouraging and destructive to the financial health of our public educators.


Why is this happening? Enter California’s state insurance code 770.3 which regulates insurance retirement products that have been overwhelming sold to our state’s K12 teachers since 1961. 770.3 not only allows these terrible practices but protects insurance agents who can say just about anything to get a sale. The most glaring evidence of this is the new Department of Labor’s ERISA fiduciary regulations working its way through DC. The new ERISA regulations protect the entire working world EXCEPT for our four million public K-12 educators. As you are aware, the reason for this unfortunate and unintentional situation is state’s rights over federal pension fiduciary mandates—public K12 403(b)s are exempted.


Mr. Tischler outlined the problem of 770.3’s ruthlessness and anti-consumer implications in technical and regulatory detail as to the reasons to amend this terrible law. The “any willing provider” is one of the most perplexing, negative and anti-consumer laws ever to come out of legislation. Allow me to update Mr. Tischler’s great letter: since 2011, the 403(b) world with public K12 Districts HAS NOT CHANGED-- K12 teachers have zero protection from the sharks, and there is absolutely no regulatory help coming from DC.


Three unintended consequences of 770.3:

  1. Some school districts have low-cost options, but few employees know. School district benefit departments will not inform their employees that these options exist because districts and the teacher’s unions are afraid of litigation for violating 770.3. Yeah, I know it's not accurate, but that is a major part of the institutional and cultural problems I alluded earlier in my letter. The insurance industry has been warning district school boards, their legal counsel, and benefits administration for decades about providing financial education and objective information, and the unions have also listened to these stock market scare tactics and threats of litigation for violating 770.3.
  1. About the 770.3 “all willing providers” clause, allow me to provide a related idea of just how anti-consumer this feature is. What if our school districts were required by a similar law when choosing book publishers? Districts would have to allow “all book publishers” on their campuses. School boards would lose their authority over costs, and not knowing what principals and teachers are teaching at each school. The “any willing provider” would result in instructional mayhem. But that’s precisely the status of the 403(b) vendors. Our RIAC committee has no control over what is being sold to teachers, no disclosure of costs or product appropriateness, and there is no public discussion of insurance products where teachers could get additional information (again, it’s K12 cultural and institutional resistance).


  1. I realize this deplorable situation is out of your control, but here it is FYI. To my knowledge, 403(b) vendors are the only outside private company reps who can roam campuses with impunity, and nobody can stop them. They walk into classrooms during recess and interrupt teachers’ prep time. For example, a salesperson walked into one of our RIAC member’s classroom during recess. The teacher took his business card, escorted him to the school office and called school police. A week later, this same committee member saw this same salesman at a professional development workshop at a different LAUSD location! School police told our committee that the police have no authority to remove these people even though LAUSD has a policy in which 403(b) sales people are not allowed on district property.

Fighting Powerful Interests is my story about how a few of us LAUSD educators went from knowing nothing to earning an award-winning, low-cost 457(b) plan for all LAUSD employees (we are grateful for George Tischler and David Holmquist who pioneered the 457(b) with LAUSD). The 457(b) plan has no annuity products, and the oversight committee has control over the investment choices and costs (but not the 403(b) side). While my story in Fighting Powerful Interests has a happy ending, it only applies to our LAUSD’s 457(b) plan, as the struggle for 403(b) reform continues across our state and the nation (Many school districts also have 457(b) plans but they don’t have a consumer-savvy advisory committee and like 403(b) plans fiduciary, mandates are not required). Aggressive insurance agents have ex-ploited far too many of our public K12 teachers’ naivete and have nowhere to turn for a 2nd opinion. Did you think this is right, Mr. Jones?


These enclosed materials are for your information. The answer is simple—competitive bidding. 403(b) reform is competitive bidding for 403(b) vendors, as with all other companies seeking business with districts (computers, books, desks, supplies, etc.). But this reform has been stalled despite our best efforts and since Mr. Tischler wrote his 2011 letter to you.

Some of my RIAC colleagues and I would like to meet and discuss this in more depth. Mr. Tischler never mentioned to the RIAC if you responded to his letter as he retired in 2012. I enclosed it again, because as I said before everything he says in the letter has not changed one iota. We would like to collaborate with you on a plan to make the 403(b) 100% consumer friendly.


Thank you for your time and consideration. I look forward to your response.




Steve Schullo, Ph.D.
Rancho Mirage, CA 92270

Email: steve.schullo@latebloomerwealth.com
Member-at-Large, LAUSD Retired Investment Advisory Committee (RIAC)
Retired LAUSD elementary teacher


Author of Fighting Powerful Interests: Educators Challenge Tax-shelter Annuities and Win!
Co-Author of Late Bloomer Millionaires: A Financial Story and Investment Guide for Late Starters.
Both books are FREE, a free pdf download from my blog: www.latebloomerwealth.com



Robert Herrell, Deputy Commissioner & Legislative Director
Melissa Gear, Chief Deputy Legislative Director
Josephine Figueroa, Deputy Legislative Director
Kendra Zoller, Deputy Legislative Director
Khlement Hodge, Deputy Legislative Director
Mario Vasquez, Legislative Analyst
Ash Kalra, California Assemblyman
Jack Ehnes, CEO, California State Teachers Retirement System
David Holmquist, Office of General Counsel, Los Angeles Unified School District

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The last Open Letter was to California Teachers Association President back a few years. Never got a response from CTA.


But I called the commissioner's office and acknowledged they received my package and letter.


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From my experience on this board things must really be rotten in California when it comes to pedaling bad 403b plans because so many posters here past and present seem to be disproportionally from California. Or is it because Californians are just more vocal? The annuity industry must be particularly hyperactive there. I know annuities are sold everywhere to teachers but I always thought California was more progressive than many states and that state governments and school districts would have stepped in to stop this annuity selling nonsense and protect their teachers from this stuff.


Steve, again thank-you for your continuous advocacy on behalf of teachers everywhere. We need to clone you and make sure every state in the union has at least ten of you.

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When it comes to setting social trends and having a genuinely happy life with a calming conscious, there is nothing like California. If you have any type of physical, ###### or emotional problem it is very acceptable for people to suggest Alcoholics Anonymous, or some other ###### rehab, or to see a shrink or counselor, or to attend a group and nobody would raise an eyebrow. It is OKAY to get help. I noticed in my home state Wisconsin, where I love my family to death, they are still not huggers or open about getting help, they still adhere to the radical individualistic mentality.


But the 403b, you ask???? No way, California is stuck back in the middle of the 20th century. Nobody talks about this stuff. CTA is awful. I think it because there are so many insurance companies here and so they have a massively powerful presence at the state capital. I know, I was there and how vicious they were towards TIAA when TIAA teamed up with us to reform the insurance code. Even CTA and my local hated TIAA. As you might remember because I suggested that TIAA should be a union-approved 403b vendor, my local union accused me (I was a nobody elementary teacher) of being a "paid TIAA rep who would stand to benefit economically from being union approved!!!!!!!!!!!!!!!!!!!"


California is AWFUL and has been totally indifferent to the 403b mess. The education system itself has numerous factions, each with its own agenda.

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Bravo, Steve!


One question: is there some reason that you identify the beleaguered group as K-12, rather than K-14? I'm at a California community college, and it seems like a very similar state of affairs: Calstrs pension plan, a long list of 403b options, mostly insurance companies peddling annuities. (I don't hear about salespeople walking into classrooms, but they have been known to come on campus and some outside agents send misleading emails to the faculty and staff, trying to pull us in for an "Annual retirement planning" appointment, or some such. These emails are framed in such a way that they can easily be mistaken for something coming from Calstrs or from the college benefits office.)


In short, I think the cc's could use the exact same reforms.


Keep up the good work, and please keep us posted here if the Commissioner's office responds.

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is there some reason that you identify the beleaguered group as K-12, rather than K-14?



That is a good question about higher education in general. Although doesn't higher education in general have better choices?


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Hi Tony,


In California, the UC system has it's own pension and supplemental retirement plans which are better than the offerings K-14 deal with. I believe their 403b's pretty much all go through Fidelity, and the plan includes some very low-cost target date options (lower cost than the retail products).


The Cal State University system is yet another different layer of the state educational system--I'm not certain what their 403b options are.


"Higher education in general," yes, I think most colleges and universities are not stuck in the annuity salesperson mode.

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is there some reason that you identify the beleaguered group as K-12, rather than K-14?



That is a good question about higher education in general. Although doesn't higher education in general have better choices?




Tony and whyme,

The fight I had with my union when I was trying to get them to at least hear their presentation was appalling. My union would have nothing to do with TIAA, meanwhile, right next door the Los Angeles CC district with their union's help happily selected TIAA to record keep their plan! Carolyn Widener, a very smart CalSTRS board member, came to one of my amateurish monthly meetings at a restaurant and was very happy to see what I was doing (Way back in the late 90s and early 2000s I held informational meetings to help teachers weave through the 403b mess. I met Dan Otter and Scotty through my meetings at that time. Anyway, Carolyn was appointed by Los Angeles CC union to be on the CalSTRS board! In fact, their entire LACC union from the president on down liked what I and others at my union were doing. My union president by, by contrast, told a colleague that "Schullo is not welcome around here!" What a jerk. I was NOT intimidated. He and other officers were convinced that I was going to economically benefit from TIAA being union approved.


Here in California, higher education has 403b plans we dream about in k12. I cannot underestimate the utter difference in the cultures that are reflected in the unions.



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Hi, Steve.


I'm in a different district from LACC, with a different union. Our union doesn't seem to have 403b issues on their radar at all. Once they invited a speaker from Calstrs who talked about Pension 2, that's the only mention I can remember in the past decade+.


While we do have a few good 403b options (Vanguard, after being off the list for years, recently appeared again), there is no guidance to faculty about their choices, except from salesmen and reps from the TPA.


Below is the list of "approved" vendors that greets employees at my school. Is this fundamentally different from the k-12 situation?



American Fidelity

American United Life



Annuity Investors


CalSTRS Pension2



Foresters Financial Services

Franklin Templeton

FTJ FundChoice


Great American Advisors

Great Southern Life



Horace Mann

Industrial-Alliance Pacific

Legend Group

Lincoln Investment

Lincoln Nat'l Life


MetLife Travelers

Metropolitan Life

Midland National

Modern Woodmen

National Health

National Life Group

New York Life

North American


Pacific Life


Plan Member


RSG Securities

SchoolsFirst RBP

Security Benefit

Thrivent Financial

Thrivent Investment


USAA Investment






Waddel & Reed

Western National Life

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WOW! 51 providers on the list qualifies as just as ridiculous as the lists of K-12 schools. Whyme you are making a very good point. I'm going to check out the 403b provider list of a few community colleges here in WA. I guess both CA and WA have the state law prohibiting any restriction to the list. I noticed that Ed's state of FL insnares their CCs in the same 403b setup as the K-12 schools.

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My district used to have 150 403b vendors, but since the IRS changes its dropped to 27. The only decent companies are TIAA and Pension2, and some index funds from USAA.

Here is a table I created to show Los Angeles Unified School District employees how these companies are categorized into either insurance annuities or custodial accounts with mutual fund companies:




When a salesperson comes calling, they can whip out the above form and look for the company they represent and know a LOT more about the company.



Here is our 457(b) Award Winning plan:



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23 hours ago, krow36 said:

WOW! 51 providers on the list qualifies as just as ridiculous as the lists of K-12 schools. 

Believe it or not, the actual list employees see is much longer!  I cut out the smaller but still long list of providers whose name begins with ROTH (all of the companies are duplicated on the list above) stuck in the middle of the list.  That group adds to the confusion.  Also, Voya is on the list twice under two separate code numbers, for some reason.  It's an absurd set-up.

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The IRS changes had a huge effect on K12 in reducing that number of vendors. The primary reason why the IRS had to reform the 403b because of the huge number, and so it became an auditing nightmare with so many accounts with numerous vendors. 

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