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MNGopher

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A couple of times a year our union representatives at my school district get together with the Superintendent for an event called "Meet and Confer" to discuss non contractual issues, grievances, concerns, etc. that employees can submit anonymously.  Usually it involves things like supervision times, staff dress code, leaving the work place during working hours and things like that.  I thought I would submit something about improving 403Bs.  Please give honest and brutal feedback.  I won't submit it to my union rep for a day or 2.  If the graph on page 2 doesn't display, it is just the one from Dan and Scott's power point presentation provided for us on this site about why fees matter.

 

 

 

                                                       Meet and Confer Topic                                                 November 2019

 

     I submitted a similar topic a couple years ago, but since then we have had changes in the Superintendent position as well as union leadership, so I will throw it out there again.

 

     I would like to see Monticello become a leader in 403B reform at the K-12 level.  This is an issue for thousands of school districts at the state and national level.  The problem is that since its inception, almost 60 years ago, the K-12 403B market has been dominated by high priced and complicated insurance products usually called variable annuities, tax sheltered annuities, indexed annuities, etc.  The salespeople that sell these products are allowed access to our buildings, often during school hours, calling themselves “financial advisors”, even though they have no fiduciary standard to follow and often no training or certification in financial planning.  Unlike its cousin, the 401K, which is regulated by ERISA (Employee Retirement Income Security Act of 1974), K-12 403Bs are only regulated by the less rigorous insurance industry standards.  As a result salesman push high priced, complicated insurance products on educators that limit their ability to effectively save for retirement.

      The biggest misconception that the insurance salespeople push is that you need an annuity to get the tax deferred benefit of the 403B.  This is absolutely false.  The 403B tax code itself allows for deferred income if the employer allows it.  Purchasing an annuity within a 403B plan  is expensive, redundant, and unnecessary.  It’s akin to wearing a raincoat inside your house (double tax protection that you don’t need).  The 403B(7) is the specific code for deferred income that can be invested directly in the underlying assets like mutual funds, bonds, CDs, etc., without the insurance wrap-around.

      This issue has been in the news again the last few weeks as the SEC (Securities and Exchange Commission) investigates the predatory sales tactics of the insurance industry directed at school employees.  One of the companies under investigation is one of the most widely used and visibly present in the Monticello School district (see links below).  The Barron’s article is shorter,  https://www.barrons.com/articles/sec-looks-at-aigs-sales-of-annuities-to-teachers-51572426001  and the Wall Street Journal goes into more detail:  https://www.wsj.com/articles/sec-launches-investigation-of-practices-in-retirement-plans-for-teachers-government-employees-11570651944   

      The price difference for the investor, between annuities and investing directly with a low cost vendor is staggering, with annuities often being 10-20 times the annual cost.  I had an annuity product for many years that had expense ratios averaging over 2% (200 basis pts.) annually.  Low priced vendors can give you the same exposure to investments but averaging only about 0.14% (14 basis pts).  These fees are assessed every year on your entire account, not just on money going in.  See chart below to see how fees make a huge difference over time.

image.png.cc077dfefaa129d4f44196be7ea5b8d1.png

 

*The chart above, which compares the average variable annuity, to an actively managed fund, and an indexed fund, makes the following assumptions: 35 year career, $250 invested monthly ($125/pay period), and a 6% nominal return.  If you contributed more than this small amount over your career the differences would be obviously much greater.

     

      So, what is the solution on the local level?  The good news is that the Monticello School District does have some low cost vendors on our approved list that do offer non-annuitized options for employees.  That is great, but I feel like we can do better.  Here are some ideas that I have.

1.      Explain and promote our great options at new teacher orientation.  Let new teachers know that we have low cost options for tax deferral, since they are the ones most often targeted by insurances salespeople.

2.      Cut down some of the names of insurance companies on our approved vendor list.  Experts at 403Bwise.org (a non-profit organization) will tell you that more choices are not better for employee participation rate.

3.      Put more restrictions on allowing salespeople into our building.  Make them sign a fiduciary agreement, disclose all fees on their products (including commissions, load fees, expense ratios, and surrender charges), disclose their education and or certification that allows them to give financial advice.

4.      Provide educational opportunities for current employees that maybe haven’t started savings, or that could use help switching from a high cost plan to a better option.

 

     Better retirement savings options are a benefit for employees, employers, and students.  Financially secure employees are more satisfied employees that can retire sooner, ultimately saving the district money.  Teachers that need to teach until full retirement age in their late 60’s probably don’t benefit students, and certainly cost the district more in terms of salary.  With somewhat stagnant wage increases and the future of defined benefit pensions in question, it is all the more important to allow employees to take more control of their future.  Lastly, what a great recruitment and retention tool for the district, to be able to brag about our great 403B program to perspective employees.

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MN

Good ideas but in my opinion the change will have to come from the bottom -up. Get a bunch of teachers to sign a petition of sorts endorsing your recommendations.The more the better. Most school systems won't feel the urgency to make changes when they don't perceive a problem. While your ideas are good, most folks have such a low financial IQ that it might not stick unless you show broad teacher support for your recommendations. Good luck.

 

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I also want to  add that you propose to have advisors sign a fiduciary standard but they by law (or lack of)are not required to do so. So who is going to monitor the advisors? Unions won't and The district won't . So its  business as usual.

Also. Handholding is a big reason school systems won't stop advisor contact imperfect as it might be. Teachers don't know enough to proceed on their own and that is the advisors way in. We know what happens then.

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Thanks Tony,

Our meet and confer suggestions are supposed to be non-confrontational suggestions to improve the school climate.  I don't feel comfortable submitting a petition, because they always feel confrontational to me.  I just want to raise awareness to the issue.  Two years ago I sent a similar proposal and got positive response from both the union representative and our districts business manager, who both said they shared my concerns.  At the time we had an interim superintendent who had a one year contract, and never responded.  So I just want to basically raise awareness to the new Superintendent.  Maybe I should leave out the part about signing the fiduciary responsibility?  To me it just blows my mind that insurance salesman can just wander into our school and peddle their crap investment products.  Why don't we just let car salesmen, time share, and Amway people in too.  

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10 minutes ago, MNGopher said:

  Why don't we just let car salesmen, time share, and Amway people in too.  

funny   all three of those  though would be less damaging.

Well maybe a petition isn't what I meant. Maybe just a list of teachers interested in new 403b options?  I know when we added better options, the personnel guy asked me that my desire to add Vanguard would be taken more seriously if I had others interested too. I came up with about 75 signatures which helped push our 403b toward Vanguard.  I was a little deceptive in that I asked folks to sign it who frankly didn't always really know what they were signing but did it ,to help me out.  I guess in that instance I was acting as bad as insurance salespeople. But my intentions were good.

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We already have Vanguard and Fidelity as options, since 2015. We don't need any administration action.  I just want to help my millennial  colleagues get their act together.

 

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23 minutes ago, MNGopher said:

We already have Vanguard and Fidelity as options, since 2015. We don't need any administration action.  I just want to help my millennial  colleagues get their act together.

Oh . Sorry didn't make the connection and didn't remember you had these options. You are in a much better place than most school systems. Its just a matter of getting the word out.

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I certainly admire you for your efforts to improve your district’s 403b plan!

I wonder if you shouldn’t feature the graph more prominently in your presentation? After all, it shows the result of the present state of the K-12 403b world, doesn’t it? Maybe start out with the graph and ask the audience, which would they prefer? Maybe say, how can this be?? What’s going on? Explain that the magic of compounding the 6% assumed growth is also compounding the costs. The difference between the top and bottom graph of $158,083 is due to the compounding costs. That difference is going to the insurance company instead of to the teacher. I think that if you could get this point, and only this point, over to the audience, that would be great!

The 2nd paragraph is a tough one to condense down to the important basics. It’s worth a chapter! I think it could be improved, maybe by emphasizing the 2 basic types of 403b plans? 

I’m not sure that the 3rd paragraph on the SEC investigation deserves the space. It doesn’t seem to relate very strongly to any of your goals. The WSJ article will have the subscription wall.

I wonder if your audience is no more informed about the 403b than most of the district’s teachers. You might be throwing way too much information at them? Do they all know about the vendor lists? Although reducing the number of annuity vendors is an admiral goal, it seems to me to be too difficult to have as a beginning goal. Likewise the fiduciary requirement. If you focused on proposition 1 and 3 (especially fee disclosure), you’d be less likely to overwhelm your audience. Even just that will be a challenge I suspect. Maybe the 403bcompare.com website is worth a mention?

Nitpick: 403b, not 403B? Scott prefers the correct 403(b) but I'm too lazy to use that on the forums. I guess it might be better for a handout though.

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Got for it. You are providing information that is totally unfamiliar because there is no discussion anywhere else. It's a dirty rotten job, but somebody has got to do this. Someday, when enough of our colleagues get it, then reform will happen. 

You have a grasp of the historical reason why annuity salespeople are everywhere on district turf and no other companies. The sales force is powerful and has a deep historical connection with everybody in educational institutions, from school board members to custodians, they do not leave any stone left unturned.

I have a PRIME EXAMPLE of leaving no stone left unturned!!! Just a few months ago, I was at a political fundraiser at a private home in the San Fernando Valley in Los Angeles. As the school board member spoke about what he would do if re-elected to the school Board, a very tall good looking gentleman came in late. He introduced himself as such in such and was a TSA salesperson. I KID YOU NOT! This meeting was on a Saturday afternoon! We alerted the school board member about this.

This is a prime example of what we are up against, an entire profession with a casual acceptance of the annuity sales force with smiling faces and phony overly safe but hideous products.

Thank you for trying to save your colleagues from a career of getting ripped off slowly and legally. 

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4 hours ago, sschullo said:

 

Thank you for trying to save your colleagues from a career of getting ripped off slowly and legally. 

I’ve been advised against making any effort of saving my colleagues.  My union has told me to stay away from anything that might seem like financial advice for my fellow teachers.  They’re worried I’d somehow be held liable if teachers were not satisfied with the results of my advice or, I would not be protected from any retribution from the insurance companies I’m trying to steer my colleagues away from.

their advice was, it’s up to each individual to research their options and, it’s their fault if they don’t put the time in to pick the best option.  It’s been very frustrating.

any way, I really admire the effort you’ve put into this and I think you’ll help a lot of teachers 

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1 hour ago, jebjebitz said:

I’ve been advised against making any effort of saving my colleagues.  My union has told me to stay away from anything that might seem like financial advice for my fellow teachers.  They’re worried I’d somehow be held liable if teachers were not satisfied with the results of my advice or, I would not be protected from any retribution from the insurance companies I’m trying to steer my colleagues away from.

their advice was, it’s up to each individual to research their options and, it’s their fault if they don’t put the time in to pick the best option.  It’s been very frustrating.

any way, I really admire the effort you’ve put into this and I think you’ll help a lot of teachers 

But what you showed us in your post what you are going to present. I don't understand.

Anyway, don't trivialize your efforts. Some of your colleagues will take notice but they will probably not tell you. There are many savvy investing teachers but they remain quiet and go about their business. 

All of us in education are warned against saying anything. That's why the insurance industry has such a stranglehold on teachers. For decades, the industry has warned districts to not say anything for the same reason you said. Thankfully that has changed as most districts show what is available. Its a start but we should not expect teachers to do much more than roll their eyes because we cannot be specific. 

What I do is share what I do and one of the primary reasons why I share my portfolio here every quarter. 

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Thanks for the feedback everyone.

Just to be clear, this is not a presentation that I am making to any person or group.  I just give my written concern to a union rep. and they bring it up to the superintendent in a meeting that is meant to be the first step in discussing issues of concern.

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3 hours ago, MNGopher said:

Thanks for the feedback everyone.

Just to be clear, this is not a presentation that I am making to any person or group.  I just give my written concern to a union rep. and they bring it up to the superintendent in a meeting that is meant to be the first step in discussing issues of concern.

Which from my experience means ...... it  will never be discussed at all past the first step but i hope I am wrong. 

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5 hours ago, jebjebitz said:

My union has told me to stay away from anything that might seem like financial advice for my fellow teachers.  They’re worried I’d somehow be held liable

But advisors can 't be held liable for doing the same.

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