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Dan Otter

Time To Stop Blaming Agents?

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CONGRESSIONAL INTENT CAN ONLY BE MEASURED BY THE MOST RECENT LAW ENACTED. IT IS SIMPLE LOGIC THAT THE 403(b) MODEL WAS THE INTENDED MODEL UNTIL THEY ENACTED 457(b)/401(k) WHICH ARE FUNDAMENTALLY DIFFERENT MODELS. MOREOVER, WE ALL AGREE THAT THE NEW REGS REQUIRE THE 403(b) TO OPERATE MORE LIKE A 401(k). THIS IS PROOF POSITIVE THAT THE CURRENT 403(b) MODEL IS NO LONGER THE INTENDED MODEL.

 

 

The most recent law enacted speaks only to the intent of the most recent Congress...NOT to the overall wisdom of the law in question. Again, I'll use "No Child Left Behind" as an example. The perceived problem of a lack of standards for teachers was "addressed" by a deeply flawed law that imposes arbitrary and, in some cases, unreasonable standards, and accompanies it with a budget that severely (fatally, I would argue) underfunds the entire enterprise. Future legislation will, I'm quite certain, return control over educational standards back to the local governments, where it belongs. As it stands now, it's an unfunded mandate.

 

As for the 403(b), if 401(k) plans were intended as a cure to address the shortcomings of the 403(b), as you assert, surely it would have reshaped the 403(b) plan as well. Instead, we have overall reform now that purports to impose fiduciary responsibility on the employers, but may well in reality COST thousands of teachers in hundreds of districts the opportunity to do any pre-tax retirement savings at all, depending upon their reaction to the law that is ultimately passed. Either way it works out, the fact that it is Congress' most recent piece of...legislation is in NO WAY an indication of its wisdom. Given what the Federal government is asking districts to take on in the way of fiduciary oversight, this too is an excellent example of an unfunded mandate! And many districts are likely to respond by simply dropping the entire program. What a shame.

 

 

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I think the federal government sees flaws in all of the the retirement plans which is why for the past three years they have been advocating the Employer Retirement Savings Account (ERSA) for all employees. I am not saying I'm totally supportive of this measure, but I think the 403(b) in its current form is so badly flawed that something is going to eventually give.

 

Dan Otter

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I think we keep missing the point which as to do with the issue of "dual agency." My surgeon may be wonderful, ethical and in fact selling the best heart valves, but the fact remains that he shouldn't be selling heart valves at all because of a POTENTIAL conflict of interest.

 

My Realtor may be Mother Theresa, but she shouldn't represent BOTH sides of the transaction.

 

My ATTORNEY shouldn't be representing both clients, the defendant and the plaintiff, ( even though he might be able to competently wear two hats) because of a POTENTIAL conflict of interest.

 

That is the real issue that other professions understand...we must take away the POSSIBILITY of a conflict of interest and that is why EDUCATION must be separated out from the SALE of those PRODUCTS.

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Guest Sierra

Gadfly:

 

I could not agree with your more! Another way to express the principle is to say that a servant can serve but one master. THIS IS THE BASIC LAW OF AGENCY.

 

So if Aaron Agent is being paid by ING to sell ING products to Ted Teacher, Aaron owes his undivided loyalty to ING not to Ted Teacher.

 

It is interesting to note that we use the term "agent" which in fact is the legal term when one represents another, the "other" being the "principal". In the above example ING is the principal.

 

Peace and Hope,

Joel

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That is the real issue that other professions understand...we must take away the POSSIBILITY of a conflict of interest and that is why EDUCATION must be separated out from the SALE of those PRODUCTS.

Bingo! Unfortunately, for the newbie teacher who ventures into his staff lounge, the only education he might have regarding 403(b) plans is the agent. The school system is unlikely to offer advice about vendors. The teacher probably doesn't have the time to visit web sties and download 80 page prospecti. The teacher's colleagues are likely to be as in the dark as he is (except for the staff know-it-all-about-finances who's encouraging everyone he meets to drop 15K on some up-and-coming stock.)

 

More than likely, the teacher is going to react positively to the friendly agent, his cookies, the colorful charts, and the persuasive brochures.

 

If school districts are allowing agents into the staff lounges, then the districts should provide an objective education component. Perhaps all agents should be required to say something like:

 

-- Hi, I'm Bob from Valic. Before I begin, the school system requires me to hand you this chart which compares the services, fees, and contact information of all of the county's vendors.

 

-- Hi, I'm Sylvia from Met Life. Before I begin, the school system requires me to hand you this note: "Before investing in any financial product, it is highly recommended that you speak with a financial advisor who does not sell financial products, who does not work for a company that sells financial products, and does not receive any financial benefit for his/her recommendations of the products of others.

 

In lieu of a substantial educational component provided by the employer, this might be an acceptable starting point. If school system's didn't want to go this route, then the agents should not be allowed in schools at all.

 

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I could not agree with your more! Another way to express the principle is to say that a servant can serve but one master. THIS IS THE BASIC LAW OF AGENCY.

 

So if Aaron Agent is being paid by ING to sell ING products to Ted Teacher, Aaron owes his undivided loyalty to ING not to Ted Teacher.

 

It is interesting to note that we use the term "agent" which in fact is the legal term when one represents another, the "other" being the "principal". In the above example ING is the principal.

 

 

Extended logically, this is not just a discussion about ING. This is a wish to reform the entire financial services industry. Without agreeing or disagreeing with you, the simple fact is you're not going to remove commissioned salespeople from the financial services industry. We should keep our goals realistic here, no?

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I think we keep missing the point which as to do with the issue of "dual agency." My surgeon may be wonderful, ethical and in fact selling the best heart valves, but the fact remains that he shouldn't be selling heart valves at all because of a POTENTIAL conflict of interest.

 

My Realtor may be Mother Theresa, but she shouldn't represent BOTH sides of the transaction.

 

My ATTORNEY shouldn't be representing both clients, the defendant and the plaintiff, ( even though he might be able to competently wear two hats) because of a POTENTIAL conflict of interest.

 

That is the real issue that other professions understand...we must take away the POSSIBILITY of a conflict of interest and that is why EDUCATION must be separated out from the SALE of those PRODUCTS.

 

When you say that "education" must be separated out from product sales, I'm not sure I understand what you're saying. If you're suggesting that employers should not be telling their employees where to invest, then I agree with you, especially since employers in the current 403(b) market lack the fiduciary responsibility mandated in other forms of retirement plans (i.e., the 401(k)).

 

If you're suggesting that unions shouldn't endorse a carrier, then I couldn't disagree more, and I would strongly argue that that's the central role of a union: to advocate for its members. I, for one, am incredibly glad that my union is intimately involved in the process. I'll also wholeheartedly agree that there are unions out there who do the job wrong, as the Forbes article illustrated. If the NEA's work on behalf of its members results in as lame a product as Valuebuilder, then they SHOULD be chastised. But let's not throw the baby out with the bath water. Some unions do a good job at this.

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Guest Sierra

I could not agree with your more!  Another way to express the principle is to say that a servant can serve but one master.  THIS IS THE BASIC LAW OF AGENCY. 

 

So if  Aaron Agent is being paid by ING to sell ING products to Ted Teacher, Aaron owes his undivided loyalty to ING not to Ted Teacher.

 

It is interesting to note that we use the term "agent" which in fact is the legal term when one represents another, the "other" being the "principal".  In the above example ING is the principal.

 

 

Extended logically, this is not just a discussion about ING. This is a wish to reform the entire financial services industry. Without agreeing or disagreeing with you, the simple fact is you're not going to remove commissioned salespeople from the financial services industry. We should keep our goals realistic here, no?

FT: You got my wishes all wrong. I have never advocated nor do I currently advocate the elimination of the commissioned financial services industry. I advocate the lawful elimination of retail pricing when it comes to salary reduction retirement plans. Do you pay retail or wholesale for your employer sponsored health insurance? Why do you insist that you are getting a good deal by paying retail for your 403(b)? EXCEPT FOR YOUR ING AGENT, WHO JUST BY CHANCE IS ALSO A CFP, I CHALLENGE YOU TO FIND ANOTHER CFP THAT WOULD ENDORSE THE PRICE YOU ARE PAYING FOR SALARY REDUCTION INVESTING.

 

Peace and Hope,

Your buddy Joel

 

 

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Guest TR1982

Sierra,

Been away for a few days so I couldn't reply.

 

"Decades before ERISA'a enactment in 1974 qualified plans existed under section 401(a). Qualified plans of governmental and tax exempt entities are not exempt from section 401(a). So why in 1958 did Congress enact section 403(b) just for public educational institutions and tax exempts and exempt them both from the rules and regs of a qualifed plan under section 401(a)? The insurance lobby asked for the exemption and got it because only a sole insurance product would be available for sale----the fixed interest rate annuity with principal and interest guaranteed by the full faith and credit of the issuer. If not for the payment of an upfront load this arrangement was akin to buying US Savings Bonds via convenient payroll deduction. So on January 1, 1959 the insurance companies launched section 403(b)1 by selling fixed annuities. The VAs were not marketed until the mid 1960s and were already authorized to be sold under the original 403(b)1 legislation. Even though the VA was available in the 1960s it was a hard sell so most agents sold the fixed product. ERISA changed all that with the addition of section 403(b)7 authorizing the sale of mutual funds. Now insurance companies which had a monopoly were faced with competition and began selling its VA in earnest. So the old line life insurance agent that sold fixed annuities from 1959-1974 suddenly became licensed to sell variable annuities and mutual funds in the mid to late 1970s.

 

If this salary reduction model was working so well why wasn't it extended to the rest of the public employee workforce as well as the private workforce? Surely the financial services industry would have loved to sell an individually owned annuity contract or custodial account to the balance of the nation's workforce. Why didn't they get the Congressional authorization to do so? Because Congress knew of the 403(b) abuses and did not want to extend the abuse to the rest of the nation's workforce. So when the salary reduction concept was finally extended to the private sector the Congress made sure it operated as a qualified plan under section 401. The new section became known as section 401(k)."

 

You make this sound as if it was the great conspiracy of the middle of the 20th century.

1) VA's didn't even exist as you correctly point out until the early 60s. Guess who was the early innovator for the VA? TIAA-CREF. CREF was the first such vehicle. If you are going to blame this conspiracy on anyone they should be 1st in line.

 

2) Section 401a of the Code establishes that employers can create retirement plans for the benefit of employees and thus deduct the cost of these benefits. That's all. ERISA was the first piece of legislation that created safeguards on how employers ran retirement plans, etc. Section 401a did not do this. That's why ERISA was passed. Many governmentals and tax exempt organizations have established retirement plans under section 401a. They are still exempt from the rules of ERISA. That means, for example, that your state retirement system can have a 10 year vesting schedule if it wants to. This is not allowed under an ERISA covered plan. The key issue in exemption is this: Congress always exempts itself from the rules that it requires the private sector to play by. Sometimes that has a positive result, sometimes negative, it depends on whose ox is being gored.

 

3) Let's be clear about why 403b7 was created: the mutual fund industry wanted it and got it. That is also the power of a lobby.

 

4) You again claim to know why Congress passed 401k in the form it did and did not establish it in the same way as 403b. You claim it was because of the abuses of the 403b market. What abuses are you talking about and can you point to Congressional testimony that pointed this out and the influence this had on policy writers in 1978? I don't think you can because there isn't any. Also, 457 was set up for governmentals and the employer owns all these assets and the assets were subject to claims of creditors if the employer went bankrupt. Doesn't sound better than 403b or 401k to me. Talk to employees who worked for Orange County CA a few years ago.

 

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Guest TR1982

Sierra,

 

"You got my wishes all wrong. I have never advocated nor do I currently advocate the elimination of the commissioned financial services industry. I advocate the lawful elimination of retail pricing when it comes to salary reduction retirement plans. Do you pay retail or wholesale for your employer sponsored health insurance?"

 

Why do you pay retail price for a quarter pounder when you go into McDonalds? Because you are buying one burger. If you bought 1000 of them I am sure you could get a better price. I can promise you, that if Congress passed a law limiting the price of what vendors could charge the only thing that would happen is that pretty soon you would have no vendors since no one would be in the market. That's what a free market economy is.

 

I suggest that if this what is what you wish for, it already exists in such countries as Sweden and Canada. Talk to Canadians who come to the US to have medical care they must wait months or years for because the government can't afford it. They don't seem to have a problem paying more for it.

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Guest Sierra

The Salary Reduction plan that I wish for, for the 403(b) as well as all other plans is practiced every day by the Federal Thrift Savings Plan----------no need to go overseas.

 

Using burgers I would say your big mac is the no-load variety while the same burger served by a waitor at a restaurant is of the loaded variety.

 

Peace and hope,

Joel L. Frank

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Guest Sierra

<!--QuoteBegin--TR1982+May 1 2005, 02:59 PM-->

QUOTE (TR1982 @ May 1 2005, 02:59 PM)
<!--QuoteEBegin--> Sierra,

Been away for a few days so I couldn't reply.

 

"Decades before ERISA'a enactment in 1974 qualified plans existed under section 401(a). Qualified plans of governmental and tax exempt entities are not exempt from section 401(a). So why in 1958 did Congress enact section 403(b) just for public educational institutions and tax exempts and exempt them both from the rules and regs of a qualifed plan under section 401(a)? The insurance lobby asked for the exemption and got it because only a sole insurance product would be available for sale----the fixed interest rate annuity with principal and interest guaranteed by the full faith and credit of the issuer. If not for the payment of an upfront load this arrangement was akin to buying US Savings Bonds via convenient payroll deduction. So on January 1, 1959 the insurance companies launched section 403(b)1 by selling fixed annuities. The VAs were not marketed until the mid 1960s and were already authorized to be sold under the original 403(b)1 legislation. Even though the VA was available in the 1960s it was a hard sell so most agents sold the fixed product. ERISA changed all that with the addition of section 403(b)7 authorizing the sale of mutual funds. Now insurance companies which had a monopoly were faced with competition and began selling its VA in earnest. So the old line life insurance agent that sold fixed annuities from 1959-1974 suddenly became licensed to sell variable annuities and mutual funds in the mid to late 1970s.

 

If this salary reduction model was working so well why wasn't it extended to the rest of the public employee workforce as well as the private workforce? Surely the financial services industry would have loved to sell an individually owned annuity contract or custodial account to the balance of the nation's workforce. Why didn't they get the Congressional authorization to do so? Because Congress knew of the 403(b) abuses and did not want to extend the abuse to the rest of the nation's workforce. So when the salary reduction concept was finally extended to the private sector the Congress made sure it operated as a qualified plan under section 401. The new section became known as section 401(k)."

 

You make this sound as if it was the great conspiracy of the middle of the 20th century.

 

IT SURE WAS ONE OF THE GREAT COUPS OF THE LIFE INSURANCE INDUSTRY OVER THE PAST HALF CENTURY.

 

1) VA's didn't even exist as you correctly point out until the early 60s. Guess who was the early innovator for the VA? TIAA-CREF. CREF was the first such vehicle. If you are going to blame this conspiracy on anyone they should be 1st in line.

 

ABSOLUTELY NOT---YOU SEE THEY SELL THEIR VA (CREF SINCE 1952) ON A NO-LOAD BASIS. THE OTHER INSURERS SIMPLY TOOK THE TIAA RESEARCH AND MADE THEIR VA MORE EXPENSIVE FOR THE CONSUMER BECAUSE THEY DECIDED TO SELL THEIR VA VIA A NETWORK OF COMMISSIONED LIFE INSURANCE SALESPERSONS AND GUYS/GALS LIKE YOU LIKE TO EAT AND THE STOCKHOLDERS LIKE TO SEE A DIVIDEND.

 

2) Section 401a of the Code establishes that employers can create retirement plans for the benefit of employees and thus deduct the cost of these benefits. That's all. ERISA was the first piece of legislation that created safeguards on how employers ran retirement plans, etc. Section 401a did not do this. That's why ERISA was passed. Many governmentals and tax exempt organizations have established retirement plans under section 401a. They are still exempt from the rules of ERISA. That means, for example, that your state retirement system can have a 10 year vesting schedule if it wants to. This is not allowed under an ERISA covered plan.

 

 

ERISA CONFERS DUAL JURISDICATION TO THE IRS AND THE DEPARTMENT OF LABOR. IF ERISA ASSURES THAT THERE IS ADEQUATE FUNDING OF PRIVATE DEFINED BENEFIT PLANS WHY ARE SO MANY OF THESE PLANS UNDERFUNDED AND BEING TAKEN OVER BY THE PENSION BENEFIT GUARANTEE CORP (PBGC)? WHY DOES THE PBGC CURRENTLY HAVE A DEFICIT OF ABOUT $18 BILLION? GOVERNMENTAL PLANS ARE EXEMPT FROM ERISA REQUIREMENTS BECAUSE THE CONGRESS BELIEVED THAT THERE ARE ADEQUATE STATE STATUTES WHEN IT COMES TO DB PLANS OF STATE AND LOCAL GOVERNMENTS.

 

The key issue in exemption is this: Congress always exempts itself from the rules that it requires the private sector to play by. Sometimes that has a positive result, sometimes negative, it depends on whose ox is being gored.

 

3) Let's be clear about why 403b7 was created: the mutual fund industry wanted it and got it. That is also the power of a lobby.

 

SURE THEY SAW WHAT A CASH COW IT WAS TO THE INSURERS AND THEY WANTED A PIECE OF THE ACTION.

 

4) You again claim to know why Congress passed 401k in the form it did and did not establish it in the same way as 403b. You claim it was because of the abuses of the 403b market. What abuses are you talking about and can you point to Congressional testimony that pointed this out and the influence this had on policy writers in 1978? I don't think you can because there isn't any.

 

401(K) NEVER WOULD HAVE BEEN ESTABLISHED IF THE CONGRESS FELT THAT THE 403B MODEL WAS ADEQUATE. THIS IS COMMON SENSE.

 

Also, 457 was set up for governmentals and the employer owns all these assets and the assets were subject to claims of creditors if the employer went bankrupt.

 

SINCE 1997 THE ASSETS OF A 457(B) ARE HELD IN TRUST FOR THE EXCLUSIVE BENEFIT OF THE PARTICIPANT THEY ARE NO LONGER SUBJECT TO THE CLAIMS OF CREDITORS.

 

Doesn't sound better than 403b or 401k to me. Talk to employees who worked for Orange County CA a few years ago. <!--QuoteEnd-->

<!--QuoteEEnd-->

Please look for my CAPS at appropriate places in the body of your message.

 

Peace and hope,

Your buddy Joel

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Guest TR1982

Sierra,

You are fun!

 

ABSOLUTELY NOT---YOU SEE THEY SELL THEIR VA (CREF SINCE 1952) ON A NO-LOAD BASIS. THE OTHER INSURERS SIMPLY TOOK THE TIAA RESEARCH AND MADE THEIR VA MORE EXPENSIVE FOR THE CONSUMER BECAUSE THEY DECIDED TO SELL THEIR VA VIA A NETWORK OF COMMISSIONED LIFE INSURANCE SALESPERSONS AND GUYS/GALS LIKE YOU LIKE TO EAT AND THE STOCKHOLDERS LIKE TO SEE A DIVIDEND

 

TIAA-CREF has a lock on the higher ed market because they specialized for 50 years in doing the very thing you claim to hate: being a monopoly and not giving employees a choice. If you care to find out, go look at the settlement agreement CREF entered into with the SEC in 1987. Many employees had filed various lawsuits over the years complaining that their employers gave them only one option: TIAA-CREF. They wanted choices like Vanguard and some wanted other annuity choices. The outcry finally grew to loud to ignore. How could the SEC allow one of the largest insurance companies in the world to have their own set of rules? Why should they be exempt from the rules that every other insurance company and mutual fund had to follow? Well, your wonderful, all knowing Congress agreed and told CREF they had to play by the same rules. Lo and behold, TIAA-CREF started to become more competitive, offering more choices. I think TC is a fine choice for those who want no service and mediocre performance. The key is all people should have a choice and not be limited to what you want.

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Guest TR1982

Sierra,

 

"4) You again claim to know why Congress passed 401k in the form it did and did not establish it in the same way as 403b. You claim it was because of the abuses of the 403b market. What abuses are you talking about and can you point to Congressional testimony that pointed this out and the influence this had on policy writers in 1978? I don't think you can because there isn't any.

 

401(K) NEVER WOULD HAVE BEEN ESTABLISHED IF THE CONGRESS FELT THAT THE 403B MODEL WAS ADEQUATE. THIS IS COMMON SENSE. "

 

I love the way you don't answer the question:where's your testimony, where are the abuses you claim existed? You chalk it up to common sense. Please tell me that all the legislation Congress passes concerning education comes from common sense. I know that will get a howl from all your teacher friends on this board.

 

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