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Brief in University of Pennsylvania 403(b) Lawsuit Points Out Differences From 401(k)s

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I thank Steve Schullo for sharing this article.

Brief in University of Pennsylvania 403(b) Lawsuit Points Out Differences From 401(k)s
An amici curiae brief filed by the American Council on Education and other higher education associations details the history of higher education 403(b) plans.

My Take: It’s an interesting argument being made by the American Council on Education: original design of University retirement plans permitted/acknowledged movement of faculty + 403(b) plan just different than 401(k). On one hand, I fear defendants in any K-12/non-ERISA lawsuits could use a similar argument: plan is different; high fees are part of the culture, but other argument would not fly: plan designed for employee movement. I suspect most K-12 teachers stay in place or move among one state. - Dan 

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Interesting read about the differences between 401(k) with fiduciary requirements vs 403(b) with higher education without 401(k) type fiduciary requirements.

Here is my amateur explanation. I agree that the problem is not the 403(b) with higher education but the explanation contains too much legalize as it's for other plan sponsors not  employees. I did see their bias because it IS so obvious. The manner in which Plan sponsor talks about the differences between the plans with regard to how fiduciary duties will be practiced in higher ed with a 401K type plan as the model is hilarious! The author turned it over to an attorney to explain. Also, ludacris, is that fiduciary duty is fiduciary duty is fiduciary duty no matter where employees and financial advisers meet. 

However, the legal system needs a genuine case that has a glaring and clear breach of fiduciary standards such the area that we are ALL FAMILIAR WITH: The hideous 403(b) with public k12 school districts! Not simply demanding a 401(k) type plan for higher ed because TIAA has been doing the right thing for 100 years. Give me a break. The plaintiffs are not going to get fiduciary requirements because the 403b world with higher ed already has it, such as choice, oversight committees, and low cost products. Lastly, higher ed TIAA annuities are appropriate products. Most but not all TIAA returns are similar to mutual funds. 

We know this problem all too well, for years. All other insurance carriers 403(b) annuities are not appropriate products. They are not genuine investments, but contracts with punishing low returns. The lure of never losing money is too much temptation for our k12 colleagues. The majority of the problem is that our colleagues have nobody they can trust to provide a 2nd opinion on the sales force. No teachers union or district official will touch the 403b and will never inform their employees both high cost and low cost, annuity contracts or custodial accounts with mutual fund companies are both available. Our colleagues also do not know that getting 4% or 5% for years and years is losing money to taxes and inflation. And of course annuities from the large regular insurance companies charge outrageous costs, are illiquid for years, punishing surrender costs, and the practice of aggressive sales to of index annuities for new teachers, and for older teachers who have several tens of thousand in an existing annuity are being told from agents to transfer to another annuity!!!!!!!!!!!

WHY? because the agents get a big fat commission! Transferring from one annuity to another MAKES NO SENSE AT ALL! In the 401k world, any adviser will be subjected to breach of fiduciary duty big time. In our 403b world, these practices are everywhere on school campuses all over the country and the agents are protected by state insurance codes. 

I think any judge will raise their eyebrows at the glaring conflict of interests found in OUR 403(b) world. 

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