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P.a.g.e. Tsa Endorsement

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As a member of P.A.G.E. (Professional Association of Georiga Educators) I am interested in who we choose to endorse as a TSA provider. Last year we endorsed Valic. Last year I sent the following email to a P.A.G.E. representative who is involved in the TSA endorsement process. (This email included a spreadsheet; it is not included with this post.)


The email read:


Mr. Callahan,


Thank you for your response. I look forward to seeing which company P.A.G.E. endorses after the next evaluation phase. I hope a cost-efficient, customer-friendly company receives our endorsement. As someone with input in the endorsement process, I am sure you realize that many P.A.G.E. members base their decision to invest with VALIC by virtue of its P.A.G.E. endorsement. Many of these same members do not understand how high fees and surrender charges negatively impact their retirement investments. Like you, I value the freedom of choice when selecting a retirement investment. However, restricting investment choices is not the issue; the issue is the endorsement of a 403b/TSA product that is in the best interest of P.A.G.E. members.


You and all those involved in the endorsement selection have an awesome responsibility before you. Your decision will influence where thousands of P.A.G.E. members will invest for their retirement. For better or for worse, they base their choice on whichever company receives P.A.G.E.'s endorsement. Presently, VALIC offers no low-cost options; their least expensive fund is about 1.1%. I believe that in order for VALIC to maintain P.A.G.E.'s endorsement, they should do the following:


First, they should provide a number of low-cost investment options with expenses from .2% to .3%. These fees are along the lines of Vanguard and TIAA-CREF products. Second, they should drop all surrender charges and make this change retroactive for all existing accounts. Third, they should make all expense and surrender-charge information readily available to all those who ask for it. Finally, any new products promoted to P.A.G.E. members must have straight-forward, easy-to-read prospectuses.


With our 54,000 members we have the strength in numbers necessary to leverage these changes. I sincerely hope that P.A.G.E. will make these demands of VALIC. With VALIC's current fee and surrender-charge structure, many P.A.G.E. members find themselves in substandard retirement plans. Do these plans underperform their private-sector counterpart, the 401k, due to poor fund performance? Generally, no. The main factor in their substandard performance is their high costs. Later, when an investor decides to move his money to a more fee-friendly company, more money is extracted from the account in the form of surrender charges. As it stands, VALIC stands to make their money regardless of performance or service. During this process P.A.G.E. members bare all the risks associated with the investment.


Without knowing it, many P.A.G.E. members investing with VALIC have "silent partners" in their retirement accounts. What do I mean? With the average expenses of about 2% (see attached spreadsheet), a return of 8% would net 6%. This seemingly small fee of 2% actually represents 25% of all investment earnings over the period (2/8=.25). In short, VALIC's fees are beneficial to VALIC and detrimental to P.A.G.E. members' investment return. This fact is undeniable. Unfortunately for VALIC investors, these fees are also extracted during periods of negative investment return. Once again, VALIC gains while P.A.G.E. members lose.


Let me close by saying that I am not singling out VALIC. VALIC benefits greatly from the present 403b structure, but they are not alone. As the spreadsheet indicates, other companies are selling even more expensive annuity products to investors. As a member of P.A.G.E., I hope you will take expenses and surrender charges into account during the upcoming endorsement process. There are a lot of members depending on your judgement.




Gerry Born

LaGrange High School

LaGrange, Georgia



Today, I found out that P.A.G.E. is considering the following companies for our endorsement:



ING Life Insurance & Annuity Company

Fidelity Investments

Horace Mann Insurance

Lincoln National Life Insurance Co


Citistreet, LLC

Relistar Life


I only know about the Valic and TIAA-CREF plans. I know about T-C because I lead a petition to get them added to the 403b provider list in Troup County. How do these other plans compare to Valic and T-C? With the exception of Fidelity are the all annuity products? Which ones are real dogs suffering bloated fees and surrender charges?


Gerry Born


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Here is my take on the ING Variable Annuity: It takes millions of dollars to operate a union the size of the NYSUT (NY State United Teachers) with its 500,000 members. Unions are always looking for sources of revenue to augment their reliable dues flow. Recognizing that pre-tax retirement savings plans funded through convenient payroll reduction is by far the most popular fringe benefit offered to teachers by the 620 school districts in the State, the NYSUT saw an opportunity in 1989 to use section 403(b) of the Internal Revenue Code as a means of raising revenue. All it had to do was find an investment provider willing to buy advertising space in the union newspaper, the 'New York Teacher'. Once it found a willing investment vendor it would be more than willing to “endorse” its products.


At first glance one might assume that the 'Opportunity Plus' and 'Opportunity Independence' plans must be outstanding programs lest they would never get the union’s “endorsement”. To the contrary, the union’s “endorsement” means they are inferior programs. One just has to look at the expense ratios of the 50-60 investment funds (sub-accounts) to see how expensive the program is. Nearly all of the funds have expense ratios of 1-2 percent that include the notorious 12b-1 fees. All of the funds charge a sales commission on withdrawals made within 5 years of purchase (contingent deferred sales charge). In addition to the expenses charged by the individual investment funds the teacher is charged 1 percent for insurance expense (Mortality and Expense Fee) by the Separate Account maintained by ING. With such a large number of investment options you would think pre-arranged portfolios would be readily available. They are not. Remember, all of the expenses to maintain the investment are paid for by the teacher/investor, not the school district and not the union. Expenses translate into smaller account balances and less retirement income.


Why didn’t the union negotiate with a superior low cost investment provider along the likes of Vanguard, T. Rowe Price or TIAA-CREF? Low cost (direct distribution) providers cannot afford to pay for advertising along the lines of high fee vendors like ING because the fees they charge are much less. So being hell bent on using section 403(b) to enhance its revenue the union was fast to partner with ING who in return for a union endorsement agreed to use some of the high fees collected from teachers to pay for advertising 'Opportunity Plus' and 'Opportunity Independence' in the New York Teacher. It is an outrageous and immoral use of unbridled union power and arrogance. Let’s do some arithmetic to knock the point home. A low cost investment provider like the Deferred Compensation Plan of the City of New York charges its participants 0.34 percent or $102 a year to manage $30,000. Assuming a 2.20 percent expense ratio (1.2 percent paid to the investment fund plus 1 percent paid to the Separate Account of ING) it costs the Opportunity Plus participant $660 a year, or 6.5 times as much, to have $30,000 managed by ING. If we start with an initial investment of $30,000 (with no additional contributions) and earn an average 8 percent a year for 30 years the Citywide Deferred Compensation Plan participant sees his $30,000 investment grow to $274,633 while the Opportunity Plus/ING plan participant sees his $30,000 grow to $162,814. The difference of 1.86 percent in the expense ratios (2.2 percent minus .34 percent) results in a 40.7 percent smaller account balance. An expense ratio in excess of 1.5 percent makes pre tax investing inferior to after tax investing. Opportunity Plus participants would be better off to forego their high cost tax-deferred annuity investment in favor of investing after tax dollars in a tax efficient no-load mutual fund.


All concerned participants should arrange a meeting with their school district’s benefits director. Tell him/her how outraged you are that you do not have a low cost program. Make the same statement at a Board of Education meeting. Write a letter to the editor of your local newspaper. The employer is a fiduciary and as such owes a duty to its employees to offer a low cost 403(b) program. Remember you, your employer and ING entered into the salary reduction agreement, not the NYSUT. Send a letter detailing your outrage to Walter Dunn, Chairman of the Board of Trustees of the NYSUT Benefits Trust, Inc. You may want to include a copy of my postion.


Peace and Hope,

Joel L. Frank

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