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Hi Dan,

 

FANTASTIC article! Kathy Kristof has done it again. The featured investor, LAUSD teacher, Crystal Mendez, showed up at one of our 403b Aware meetings (An LAUSD watchdog and informational group) over a year ago. She really dug her heals in and has now straightened herself out of a horrible mess. After 20 years when on of those sales people sold two fixed annuities to me, they are still doing this crap and it is about time it got on the front page of two major newspapers, LA and Chicago. What a fantastic day for 403b reform and how the ten or so educators on this great website are vindicated again but this time the vindication is permanent.

 

Dan, have there been more hits?

Best regards,

Steve

 

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"NEA received $49.6 million from Security Benefit ... the provider of Valuebuilder, and other endorsed companies in 2004."

 

Wow. The speculation was that NEA took between $2-3 million for this sweetheart deal. It turns out that it took nearly $50 million to plug an investment vehicle that charges up to 4.85% per year. I always wondered why NEA would endorse such a bad product. NOW I find out why.

 

The article is replete with examples of vendors paying for NEA's conference fees, NEA booths at conferences, dinners at fine restaurants for union leaders, ads in union publications, and so on. And in return, the vendors get the NEA seal of approval for products that charge teachers -- the very members whose interests NEA is supposed to represent! -- up to 4.85%!

 

As bad as Security Benefit is, and as bad as Valuebuilder is, I'm more angry at NEA. Security Benefit does not purport to represent the interests of teachers. NEA does. Shame on you, NEA. Shame on you.

 

I sent the article to teachers at my school through our e-mail system. I am speaking to our union vice president today about Security Benefit, which runs our 457 plan.

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Looks like a kickback to me. I thought that was illegal. AP, Steve Schullo & other teachers, why is this allowed to happen? No wonder agents feel so free not disclosing fees! Sounds like that approach is just business-as-usual in this (K-12 403b plan) environment.

 

Mr. Schullo, would you please provide an explanation that the LA Times article did not: The reason why this abuse is allowed to persist? Is this just an accepted, better way to assess Union/Association Fees to Members? Sierra, I'd like to hear your opinion as well!

 

Kind Regards,

 

Danc

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Steve Schullo has inspired me to send the following letter to my union leadership:

 

"Hi, folks.

 

I would like to draw your attention to a disturbing page one article in today's (Tuesday's) Los Angeles Times. Kathy Kristof shows what, in effect, is an unholy alliance of teacher unions and financial institutions. As you read the article below, you will see that financial vendors such as Security Benefit and ING contribute money and resources to teacher unions in return for the unions' endorsement. For example, the article points out that Security Benefit provided nearly $50 million dollars to NEA in exchange for NEA's endorsement of Valuebuilder and its other programs.

 

The problem is that this endorsement gives a seal of approval to union members, who expect Valuebuilder to be a solid program. However, Valuebuilder in truth is a pathetically inferior and unbelievably expensive program. Its fees to teachers are many, many times what they are in comparable programs. In some cases, annual fees are as high as 4.85%, when comparable programs are well under 1%. I have a 403b account with Vanguard, and its expense ratio is .21%. Valuebuilder therefore charges up to 23 TIMES what Vanguard charges. One does not have to be a mathematical genius to figure out that, over time, these fees are a horrendous drag on returns.

 

My reasons for calling this to your attention are as follows:

 

1) If a union is going to endorse a financial program, that program should have the best interests of members in mind.

 

2) If a union is going to endorse a financial program, it should not take unseemly kickbacks in return, as NEA has done.

 

3) Our association has endorsed for our 457 plan the same vendor -- Security Benefit -- that runs Valuebuilder. The fees charged by Security Benefit are exorbitantly high. I know that the reason for choosing Security Benefit was so that "we would have some type of recourse" if something should go wrong. Well, I would suggest that something HAS gone wrong. Security Benefit charges ridiculously high fees. Unfortunately, most teachers do not know any better, and are being taken like lambs to the slaughter.

 

4) The federal government is proposing new regulations that will be affecting 403b plans. This could impact the offerings that our district provides through the LA County Office of Education. If the district asks the association for any input (or even if it doesn't!) in dealing with these upcoming regulations, I would love to participate.

 

5) When Security Benefit's 457 contract comes up for renewal, I would also like to participate in that process.

 

Thank you for reading all of this! It is the longest e-mail I have ever written, but it concerns a topic that is important to the financial well-being of our members. The trend in retirement programs is to put more and more responsibility on the individual. I would argue that unions have a responsibility to avoid unseemly conflicts of interest with vendors, and to provide solid investment choices for their members.

 

Here is the link to the Times article:

 

http://www.latimes.com/business/la-fi-reti...dlines-business

Edited by apteacher

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AP.........excellent e-mail ..I think that copies need to go to the every law enforcement agency that regulates financial institutions in Fed., State, City, also to every school district head, to the LA Times and anybody else you can think of............I think that because of the news article, the 403b financial world will change for the better. I also think that if the proper authorities get involved, which they should there will be a major shake up in the industry, with many arrests. ...........Ira

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Guest Sierra

The unions take the position that they have negotiated the ideal plan for their membership. They feel they have acted in the best interests of their members and have done everything right and nothing wrong. This crowd is one great bunch of "spinners". They could give the DC politicos a lesson in how to turn dog food into a rib eye.

 

What a sad day in the teacher union movement when the union representing Wisconsin teachers is forced to give a lesson in elementary ethics to its national affiliate, the NEA.

 

These endorsement agreements may very well be in violation of the securities laws of the nation.

 

Peace and Hope,

Joel L. Frank

Edited by Sierra

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Guest Sierra

It is also noteworthy to mention that in both the Wisconsin situation, where the union established a 403(b) Trust to offer a no-load investment plan and the New York situation, where the union signed an endorsement agreement with ING never asked the membership in a formal way what kind of plan they would like to have. Yet they both stipulate that each of their plans is what there respective members need and want. Which union do you think is intentionally lying?

 

Moreover, the EMPLOYEES of the NY teachers union enjoy a no-load 401(k) Plan (the unmitigated gall of an employer in deciding not to offer a commissioned based investment menu!!). It would be good if we could disclose if the same holds true for all the other unions that have endorsed commissioned based 403(b) plans for their dues paying members.

Edited by Sierra

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Follow up to the letter to my union leadership: I received a reply from our union president today:

 

I was gratified to find out that our local association does not give kickbacks to endorsed providers. CTA and NEA could take a lesson here.

 

However, the association president still stood by his position of selecting an NEA-endorsed provider for our 457 plan by using the rationale that it would give us recourse if something went amiss. He stated that members are under no obligation to select programs that have been endorsed by CTA or NEA.

 

I am still unpersuaded by this. While they of course are under no obligation, teachers wil naturally gravitate towards a union-endorsed product, and that is why providers pay milllions of dollars to receive such an endorsement. Who are the winners in this cozy relationship? The union, because it receives the kickbacks. The provider, because it receives the business.

 

And who gets hosed? The teachers, who assume that awful products like Valuebuilder are worthwhile because their union endorsed them.

 

Again, shame on you, NEA.

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Guest Sierra

Isn't there one union member out there that believes the unions' advice is NOT failing teachers? Why don't you step up and defend your union?

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Isn't there one union member out there that believes the unions' advice is NOT failing teachers? Why don't you step up and defend your union?

 

 

I've served this function in the past. Answer honestly, Joel: how far did that "discussion" get us?

 

I read the LA Times article with interest. I can't speak for California, of course, since I'm not familiar with the situation there. But the reference to ING in New York appears to feature at least a little hyperbole. I'd love to speak with the Middletown teacher who claims to have paid 3.59% annually in fees. That figure seemed high to me, so I looked in my prospectus for the fees paid. According to the one I have (dated May 2005), the highest-cost investment available in the ING program is something called Oppenheimer Developing Markets, with an annual expense of 2.77%, which is considerably lower than 3.59%. (I got this information from pages 172-73 of the prospectus.) Even so, to be paying that amount on the entire account, this teacher would have had to be 100% allocated in what sounds like an emerging-markets fund. And if THAT were the case, then his claim of annual returns less than 2% would ring a bit hollow, since the fund in question is listed in the prospectus as having a five-year annual average return of 10.83% (page 154).

 

So either the teacher is mistaken, or the LA Times is guilty of using accurate but outdated information. Either way, the article implies things about ING in New York that simply aren't true.

 

One last point: I noticed that this site and its scribes chose to feature this article from the LA Times, yet remained strangely silent on an article that appeared in Monday's Wall Street Journal that was HIGHLY critical of the low-cost darling, TIAA-CREF. Among other things, the WSJ article cited...no kidding, folks...ongoing problems with the SERVICE that TIAA-CREF investors get (or, apparently, DON'T get). I wonder if it's possible that, at least sometimes, you get what you pay for?

 

 

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Guest Sierra

Oh, that's right I forgot about the French Teacher. I should have stipulated that we are looking for another, just one more teacher, that believes his/her union is NOT failing the members.

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Guest TR1982

"One last point: I noticed that this site and its scribes chose to feature this article from the LA Times, yet remained strangely silent on an article that appeared in Monday's Wall Street Journal that was HIGHLY critical of the low-cost darling, TIAA-CREF. Among other things, the WSJ article cited...no kidding, folks...ongoing problems with the SERVICE that TIAA-CREF investors get (or, apparently, DON'T get). I wonder if it's possible that, at least sometimes, you get what you pay for?"

 

Thank you FT, for bringing this up. I have often wondered whether the people who run this site would ever be critical of their favorites. I guess it's not unlike the union issue. When advertisers or vendors pay the freight, they are pretty much immune to any kind of criticism here. This article is not the first in the WSJ in the last year, but we haven't heard a from 403bwise. I guess people are the same wherever you go.

 

 

 

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"One last point: I noticed that this site and its scribes chose to feature this article from the LA Times, yet remained strangely silent on an article that appeared in Monday's Wall Street Journal that was HIGHLY critical of the low-cost darling, TIAA-CREF. Among other things, the WSJ article cited...no kidding, folks...ongoing problems with the SERVICE that TIAA-CREF investors get (or, apparently, DON'T get). I wonder if it's possible that, at least sometimes, you get what you pay for?"

 

French Teacher,

 

I have no problem at all criticizing TIAA-CREF, Vanguard, Fidelity, or any other company that does a poor job of service. I'll also put in my two cents and criticize TIAA-CREF for raising fees on some of its funds.

 

I'm in favor of looking out for the interests of investors. Companies that do a good job deserve commendation, and those that do a bad job deserve criticism.

 

Having said that, I have had absolutely no problem with service from Vanguard, T. Rowe Price, and Fidelity. Without exception, they have been terrific. With these companies, I have paid very low fees and have gotten excellent service.

 

By the way, I had lousy service from AIM (which charges a nice heft sales fee for its former INVESCO funds). In that case, I certainly did not get what I paid for. Those morons could not even provide average cost basis when I redeemed some shares.

 

My experience with GALIC was even worse. No service at all would have been far better than the service I got from my sales agent.

 

I cannot make generalizations for all investors, but in my case, the low cost companies provided much better service than the high cost providers.

 

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"I guess it's not unlike the union issue. When advertisers or vendors pay the freight, they are pretty much immune to any kind of criticism here."

 

TR,

 

That's a real cheap s. You and the other agents are perfectly free to criticize any company you want on this site. If you knew of WSJ articles that were relevant, why didn't you just start a thread and bring them up?

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