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Florida "model" 403(b) Plan

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Guest Skeptical

Brief comments on the few relevant things you posted:

 

1. Smaller vendors will not drop out completely from the 403b market. They will cease taking new 403b contributions after 12/31/08 which will preserve revenue for amounts contributed as of that date. Watch for these announcements in the near future.

 

2. As for your claim that a 403b plan impacts recruiting I had a recent conversation with a senior official of a growing SD in a large affulent western city who explained that the reason why only 10% of the teachers contributed to the 403b plan with 30 options was that most dont make enough money to be able to contribute to a 403b plan. Only the veteran teachers contributed. This in turn explains why unions are not interested in supporting better 403b choices because it doesnt make sense to negotiate for better investment options if most of the members cannot take advantage of the program. Therefore unions will negotiate for higher pay for all teachers. Teacher recruiting is affected by pay not by the availability of investment choices in a 403b plan. In suburbian SD around NYC where unionized teachers make over 100k there are as many as 50 qualified applicants for each vacancy.

 

3. The reason why CT's low cost 403b program may not work in FL is because CT has abolished county government in the 8 counties in the state whereas as FL has created strong county governments in each of its 67 counties in which the SD are located which generates strong political influence.

 

1. I didn't say vendors won't drop out. I said that SDs will not discontinue offering these DC plans. I can't find a source but I'm guessing that virtually 100% of SDs offer a plan versus 60%+ of private employers. I'll keep looking for a data source.

 

2. Older employees always participate at higher level without regard to plan type. Younger employees are however more likely to join a private employer sponsored plan with a MATCH. Also participation in the south & west lags far behind participation in the north east. The unions? They can and should do more, no question. Keep in mind that these retirement plans have often been a revenue source for the unions, so there is little reason for them to change behavior. It's all business.

 

3. I think you are 100% correct about the FLA political environment, which in all fairness is pretty common across the country. But I think CT proves that reform is possible. That said, I'm not too keen on the Wisconsin situation as it appears they subsidize a low cost plan through the sale of supplemental financial products. In addition they have a human infrastructure built by the billions in cash flow from running the health insurance program. I read that several SDs were attempting to bail due to what they considered excessive rates for healthcare. In other words, the claim was that the HC plan was being used to generate profits, with little benefit obtained through the group's huge buying power.

 

Cheers,

Jim

 

EDIT: Link for WEA Insurance Analysis: (PDF)

 

Excerpt- "The cost of obtaining health insurance through WEAIC is demonstrably higher than other carriers. Yet, in spite of costing more, WEAIC is the carrier of choice for 78% of Wisconsin school districts. It is apparent that WEAIC owns a significant and unfair advantage over other insurance carriers. Unlike other public and private entities in Wisconsin, school district choices of health insurance carriers is affected by the relationship between WEAIC (thehealth insurer) and WEAC (the teachers’ union)."

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2. As for your claim that a 403b plan impacts recruiting I had a recent conversation with a senior official of a growing SD in a large affulent western city who explained that the reason why only 10% of the teachers contributed to the 403b plan with 30 options was that most dont make enough money to be able to contribute to a 403b plan. Only the veteran teachers contributed. This in turn explains why unions are not interested in supporting better 403b choices because it doesnt make sense to negotiate for better investment options if most of the members cannot take advantage of the program. Therefore unions will negotiate for higher pay for all teachers. Teacher recruiting is affected by pay not by the availability of investment choices in a 403b plan. In suburbian SD around NYC where unionized teachers make over 100k there are as many as 50 qualified applicants for each vacancy.

 

3. The reason why CT's low cost 403b program may not work in FL is because CT has abolished county government in the 8 counties in the state whereas as FL has created strong county governments in each of its 67 counties in which the SD are located which generates strong political influence.

 

Now here (#2) I think that you are making a valid point. I just don't see a whole lot of teacher interest in 403b plans. Heck, most of them have never even HEARD of 403b. As for union interest, I have not seen a whole lot of that, either, and when the "interest" is there, it's not so good for teachers (e.g., NEA's endorsement of Value Killer).

 

The strong political influence that you note in #3 is the very reason why state governments should take a strong position and offer plans comparable to that of CT.

 

 

AP: what Fl state legislators are going to vote in favor of a CT type plan if the county govt officials who supported their campaigns and on whom the legislators depend on for reelection object to a CT type plan?

 

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AP: what Fl state legislators are going to vote in favor of a CT type plan if the county govt officials who supported their campaigns and on whom the legislators depend on for reelection object to a CT type plan?

 

I'm not an expert in Florida politics, but county officials typically do not have as much influence on state legislative campaigns as campaign contributions from interest groups. Legislators want money because money means votes, and votes keep them in office.

 

So I don't think that a state legislator's endorsement from a county official would have much impact on a vote for a CT type plan, but I think that a campaign contribution from an insurance company, an investment company, a consulting firm, or a teachers union might have some impact.

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AP: what Fl state legislators are going to vote in favor of a CT type plan if the county govt officials who supported their campaigns and on whom the legislators depend on for reelection object to a CT type plan?

 

I'm not an expert in Florida politics, but county officials typically do not have as much influence on state legislative campaigns as campaign contributions from interest groups. Legislators want money because money means votes, and votes keep them in office.

 

So I don't think that a state legislator's endorsement from a county official would have much impact on a vote for a CT type plan, but I think that a campaign contribution from an insurance company, an investment company, a consulting firm, or a teachers union might have some impact.

 

 

Or as Tip ONeil said "All politics is local."

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Guest Sierra

 

 

Joel's Question.: If the Trustees of the PEORP felt that the only way to go---to truly execute its fiduciary duties was to offer a single low cost plan---not two additional higher cost options---why was this standard not good enough for the guys/gals that put this 403(b) Model Plan together?

 

Joel's Answer.: They were giving into the retail distributors' lobby. It doesn't take brain science to figure this out.

 

Fred: I would like to hear your answer.

 

Thanks,

Joel

 

 

one is a state mandated plan

the other is a District opt in

 

Fred,

 

I need some clarification and emphasis. Thank You.

 

Having said that, are you asserting it would be a breach of fiduciary duty to offer a variable annuity option to participants of the PEORP solely because it is a state mandated plan but it is within the discretionary authority of the Trustees of the IBC Model 403b Plan to offer a variable annuity option solely because the Model Plan is a supplemental plan?

 

Peace and Hope,

Joel L. Frank

 

 

Fred, you might have skipped over this one. I await your reply.

 

Joel

 

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