Money Roundup: Portfolio Evaluation, CA couple saved 1.5M under 40 w/ 2 kids! & other tid bits.

Port­fo­lio Eval­u­a­tion Any­body?

Lis­ten to my friend Ron DeLegge of the Index Invest­ing Show eval­u­ate a listener’s port­fo­lio. Ron just did his weekly Port­fo­lio Report Card on a $95,0000 retire­ment port­fo­lio for Charles — a farmer, in Sweet­wa­ter, OK.  If you want your port­fo­lio eval­u­ated, send your request to Ron and he will do it for FREE. Ron’s port­fo­lio eval­u­a­tion is right on point. He talks about diver­si­fi­ca­tion, asset classes, stock/bond split, per­for­mance and most impor­tant invest­ment COSTS.Take a lis­ten: http://theindexinvestingshow.podomatic.com/entry/2014–08-28T05_00_00-07_00 (I lis­ten to all of his pod­casts on my iPhone at the gym).

A Young Cal­i­for­nia Cou­ple with 2 young chil­dren tell you how they did it!

You must read this inspi­ra­tional announce­ment and dis­cus­sion about a young cou­ple, he is 39 and she 38 amassed $1.5 mil­lion. Dan and I are thrilled that young peo­ple are get­ting the invest­ment process right. As we have said in our book and on this blog, learn­ing to invest is not com­pli­cated and the rewards are tremen­dous. For starters, peace of mind! These folks have no more money prob­lems for the rest of their lives! Take a look at their amaz­ing story and the responses: http://www.bogleheads.org/forum/viewtopic.php?f=2&t=145652&newpost=2170897

For My PreK-12 Teacher Colleagues.

If you are look­ing for finan­cial advice and don’t know where to turn, you need to con­tact your union and dis­trict and demand that they offer finan­cial plan­ning work­shops. The Cal­i­for­nia Teach­ers Asso­ci­a­tion has been offer­ing finan­cial work­shops. I have not been to them because I am retired, but I have heard that they are good and they sup­pos­edly do not try to sell you some­thing. Ask them to expand their work­shops to more mem­bers. Their online finan­cial web­site has excel­lent 403b/457b infor­ma­tion: http://ctainvest.org/home.aspx You don’t have to be a teacher to learn from the infor­ma­tion pro­vided.

Boglehead’s Authors Released 2nd Edi­tion of their book, The Bogle­heads Guide to Investing.

Dan and I fol­low the Boglehead’s invest­ing philosophy–stay the course, con­trol invest­ment costs and spend­ing, use the index­ing strat­egy that offers broad diver­si­fi­ca­tion over all major asset classes and do NOT for­get to have a bond allo­ca­tion approx­i­mately equal to your age. There are thou­sands of fol­low­ers of Invest­ing giant, John Bogle. The lead­ers of that great forum, Bogleheads.org, have released their newest edi­tion, The Bogle­heads Guide to Invest­ing, 2nd Edi­tion. It is highly rec­om­mended that you pur­chase this book and read it so you can become that young cou­ple men­tioned above. Pene­lope Wang wrote a great review: http://time.com/money/3108473/retirement-investors-3-smart-moves-bogleheads/

Never too Late to Start

If you are older and think its too late, you are WRONG! That’s why we wrote a book because so many of us started much later and made mis­takes. Pick up a copy of our book, Late Bloomer Mil­lion­aires, its not too late for us old­sters too.

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Which retirement plan records the most customer complaints?

Ques­tion: Why would any­body use a retire­ment plan that gen­er­ates the most cus­tomer com­plaints accord­ing to a fed­eral watch dog, FINRA?

Answer: Com­plaints or not, my pro­fes­sion, prek-12 teach­ers, sign up with tax shel­ter annu­ities by the tens of thou­sands because the they don’t know of the high costs, that annu­ities are inap­pro­pri­ate retire­ment plans and that lower cost mutual funds might be avail­able through their employer or dis­trict. The agent and the com­pany make much of the money and give the annu­i­tant a small credit. Don’t take my word. Take a look at what Finan­cial Indus­try Reg­u­la­tory Agency (FINRA) says: click here.

Dan and I have talked end­lessly that annu­ities are not invest­ments, it is a com­pli­cated con­tract with an insur­ance company.

If your employer doesn’t offer low cost index or mutual funds, look to your state pen­sion plan for a lower cost 403b that uses gen­uine invest­ments with mutual or index funds.

If you are a LAUSD employee, take a look at the award win­ning 457b plan: click here.

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Los Angeles Unified WINS 457b Retirement Plan Award!

National Asso­ci­a­tion of Gov­ern­men­tal Defined Con­tri­bu­tion Admin­is­tra­tors (NAGDCA)

NAGDCA released their annual Lead­er­ship award recip­i­ents for 2014. Los Ange­les Uni­fied School Dis­trict won in the 457b Plan Design cat­e­gory! Why did we win? Very easy, we have one of the low­est costs retire­ment plans in the country.

Award Winning 457b Plan

This is huge. We are not talk­ing about just any employer, we are talk­ing about a PreK-12 school dis­trict, along with the major­ity of school dis­tricts which his­tor­i­cally has offered the worst vol­un­teer retire­ment plans ever. So bad that finan­cial author Bill Bern­stein said that teach­ers are trapped by one of the dank­est, foulest-smelling cel­lars of the finan­cial world.

But we are begin­ning to dig our way out of that cel­lar.  And this Award means we are doing some­thing right for our hard-working LAUSD employ­ees. Look at the low costs in the table above!

There were 12 plans sub­mit­ted and four got an award, includ­ing us. The com­pe­ti­tion was stiff because we were com­pet­ing with employ­ers all over the coun­try. These employ­ers were city, coun­try and state gov­ern­ments and not one PreK-12 school dis­trict, NOT ONE.

This is absolutely mar­velous for those ben­e­fit admin­is­tra­tors who cre­ated our com­mit­tee way back in 2006 and for our com­mit­tee (rep­re­sen­ta­tives from the unions) who have worked col­lab­o­ra­tively with dis­trict ben­e­fits staff for years to rec­om­mend to the CFO the pro­fes­sional con­sul­tants and Third Party Admin­is­tra­tors (TPAs) who would work for the best inter­ests of our employ­ees. This col­lab­o­ra­tion worked and should be repli­cated to other school dis­tricts.

I think we should all be proud!

Here is a list of all the award recip­i­ents and the cat­e­gories: http://www.nagdca.org/dnn/Awards/2014LeadershipAwardWinners.aspx

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Our Portfolio Mid-Year 2014 Evaluation and Performance

Hi,

We have not pro­vided an update to our port­fo­lio since we pub­lished our book 1.5 years ago. In the last two years, our port­fo­lio has per­formed so well, we fin­ished remod­el­ing our house with new AC and a mas­ter bath and our port­fo­lio has remained the same!

Our pur­pose now is to show how to eval­u­ate a portfolio’s per­for­mance with the over­all stock and bond mar­ket. We also want to model a broadly diver­si­fied port­fo­lio using low-cost index stock and bond funds.

Below are two tables and a pie chart. The first table shows the over­all broad domes­tic stock and bond asset classes’ per­for­mance year-to-day (YTD), data  needed to com­pare how our port­fo­lio is performing.

The 2nd table shows our port­fo­lio and the indi­vid­ual invest­ments’ YTD per­for­mance, the cost and the name of the index or fund. We got this infor­ma­tion using the Morningstar.com port­fo­lio fea­ture. Its a great and sim­ple way to mon­i­tor your portfolio’s per­for­mance for each invest­ment and does all the work I needed to make this report. I am no math­e­mati­cian, but M* makes me look good.

Finally, the pie chart shows our over­all allo­ca­tion between stocks and bonds. To bal­ance risk and return appro­pri­ate to our ages, Dan and I need to keep tabs on the impor­tant stock/bond split.

By look­ing at the broad mar­ket results in the first table and com­pare it with our indi­vid­ual returns on the sec­ond table, you can tell quickly that our port­fo­lio is per­form­ing about the same as the over­all stock and bond mar­ket. That’s good. (Notice the very low Van­guard costs of our invest­ments in 2nd table below).

QUESTION Below:

Asset Class Returns

Morn Star Printout of Portfolio.

Pie chart asset allocation

  QUESTION

Because we with­drew a large amount of money from our bond allo­ca­tion to pur­chase our Tesla (click here), our port­fo­lio is slightly off bal­ance from our orig­i­nal 30% stock / 70% bond allo­ca­tion. We now have a 38% allo­ca­tion to stocks and we need to lower than allo­ca­tion to about 30%.

Which stock funds would you sug­gest that we sell and which bonds would you sug­gest we buy to rebal­ance the port­fo­lio back to the 30/70 stock bond split?

Read the Bogle­heads responses to my ques­tion. Its great and hilar­i­ous because it gets into the emo­tions of invest­ing MY EMOTIONS: click here. :-)

Note: Because we are retired at ages 67 and 73, we choose the 30/70 split. This split is con­ser­v­a­tive and is not appro­pri­ate for younger investors who should have a much higher allo­ca­tion to stocks.

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John Bogle Says.…

John Bogle, founder of the Vanguard Group

John Bogle, founder of the Van­guard Group

The future of the finan­cial sys­tem will be smaller, leaner, low-cost, and less com­plex (thank good­ness!).  Cur­rently, the vast major­ity of retire­ment plans (403b, 401k, 457b*) are big, fat, high-cost and way too com­plex. Retire­ment plan­ning should be about as dif­fi­cult to dis­cover and learn as our first day on the job. For teach­ers it should be a lot eas­ier than our first year in teaching.

Chick here for all of Mr. Bogle’s com­ments writ­ten by Dan Weil.

*Los Ange­les Uni­fied School Dis­trict has a low-cost 457b plan that would make Mr. Bogle smile! For LAUSD employ­ees the future is here! See the fund line up below. The four bold Van­guard choices is a sim­ple starter diver­si­fied low-cost port­fo­lio. This selec­tion of funds includes bonds and domes­tic and inter­na­tional stocks (sans emerg­ing markets).

LAUSD 457b Options-total fees

 

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New Proposed 403b/457b Book for California Teachers: Final Chapter before publication.

Hi all,

Below is the sum­mary of my new pro­posed book: The 403b Jun­gle: How one group of LAUSD edu­ca­tors changed the cor­rupted 403b, in my opin­ion, into a best-in-class 457b. The entire book is on this blog, click here for Table of Contents.

Have a great day,

Steve

 

Suc­cesses, Chal­lenges and the Future

After 20 years my 403b reformed-minded friends and I learned four strategies:

1. Learn Invest­ment Basics—Start with costs:

a. com­mis­sions (aka trad­ing costs)
b. rev­enue shar­ing
c. advi­sory fees
d. trans­fer fees
e. M&E insur­ance
f. 12b(1)
g. mutual fund annual expense ratios
h. share classes.

2. Employ Com­pet­i­tive Bid­ding.
3. Use the 457b.
4. Demand Transparency!

     Low-cost, best-of-class gen­uine invest­ments are now avail­able to employ­ees of the 2nd largest PreK-12 school dis­trict in the coun­try. One of those invest­ments is my orig­i­nal choice Van­guard Welling­ton at .56% annual expense—a momen­tous achieve­ment. Our com­mit­tee was proud when the Los Ange­les Uni­fied School District’s (LAUSD) Chief Finan­cial Offi­cer signed our motion to include Welling­ton and other low-cost funds in our plan for teachers.

We had not pre­dicted that the 457b would lead to suc­cess. The 457b achieve­ment was ini­ti­ated by one fear­less LAUSD benefit’s admin­is­tra­tor, George Tis­chler. We did not know either the 457b or Mr. Tis­chler until he intro­duced his bril­liant strat­egy. He led our dis­trict around the ghastly 403b and into a glas­nost era which our dis­trict looks after all employ­ees’ best inter­ests. What a visionary.

Table 1 and 2 illus­trate the dif­fer­ences in the num­ber and qual­ity of invest­ments between what LAUSD offered in 2002 and 2014. Table 1 shows a par­tial list of 155 ven­dors avail­able in 2002 (space lim­i­ta­tions pre­vent a list­ing of all ven­dors). The 150 insur­ance com­pa­nies listed in the left and the expen­sive mutual fund com­pa­nies in mid­dle columns were annu­ities and loaded mutual funds respec­tively. Only five no-load mutual fund com­pa­nies were avail­able. Even then the no-load label can be mis­lead­ing. TIAA CREF is the low­est cost ven­dor of all three categories.

Table 1

LAUSD 403b Partial List in 2002

     Table 2 shows the 2014 list of ven­dors. The left two columns list the annu­ities and loaded mutual funds, decreased from 150 to 23 ven­dors. The num­ber of low-cost, no-load funds in both the 403b and the new 457b (two right columns) increased to 21, plus a bro­ker­age account.

Table 2

LAUSD 403b-457b all options

Why Reform Continues

     Keith and Mar­garet Reed teach in a small dis­trict in rural San Bernardino County in Cal­i­for­nia. After watch­ing PBS Front­line, The Retire­ment Gam­ble and other T.V. shows about hid­den invest­ment fees, they got sus­pi­cious of their long­time finan­cial adviser. This peaked when their adviser (and friend) evaded direct ques­tions about his fees and the invest­ment costs. Keith attended a Cal­i­for­nia Teach­ers Association’s 403b/457b work­shop. Keith learned how to find the costs in their invest­ments using 403b compare.com and CTA’s invest­ing web­site (CTAinvest.org). CTA’s pre­sen­ter showed Keith how to locate a fee-only, gen­uine fidu­ciary finan­cial adviser from the National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers (NAPFA). After look­ing at the 403bcompare.com web­site, Keith was shocked at the high fees both he and his wife were paying.

Keith serves as his local union’s Vice Pres­i­dent. He asked the district’s Third Party Admin­is­tra­tor (TPA) for more infor­ma­tion about his dis­trict plan and was ignored. He asked his dis­trict super­in­ten­dent about form­ing an over­sight com­mit­tee. “No! Too much lia­bil­ity!” shot back this spine­less fool. Keith was relent­less on behalf of all the teach­ers and staff. He wrote his story in the union’s newslet­ter (Infor­ma­tion Over­load, see ref­er­ences) to appeal to a wider audi­ence. He asked the Cal­i­for­nia Teach­ers Asso­ci­a­tion (CTA) to con­duct an analy­sis of his district’s plan. The TPA, once again, refused to coop­er­ate with CTA’s ben­e­fits spe­cial­ist and could not get the infor­ma­tion nec­es­sary to con­duct a thor­ough review. The hide-and-seek shenani­gans are still with us. Keith got the same round-around I got twenty years ago. Why are these pro­fes­sion­als so afraid to answer our ques­tions? And they won­der why we don’t trust them.

With­hold­ing infor­ma­tion and sell­ing inap­pro­pri­ate, high-cost plans by non fidu­ciary agents are the quin­tes­sen­tial top­ics of friends and col­leagues’ 403b hor­ror sto­ries, chron­i­cled in over two dozen news reports. With­out over­sight, there’s no trans­parency of costs, no objec­tive infor­ma­tion about all options and no fidu­ciary respon­si­bil­ity. I shud­der to think what the 400 teach­ers in Keith and Margaret’s tiny dis­trict are pay­ing.(1) Mul­ti­ply their superintendent’s prim­i­tive think­ing by 700 other school dis­tricts in our state and you can see the great oppor­tu­nity for goug­ing teach­ers by non fidu­ciary finan­cial consultants.

Let the 403b Go

     In my opin­ion, our advi­sory com­mit­tee would be happy to let the 403b to wither and rot in its per­verted and per­ma­nent high costs.(²) We pre­fer the 457b 100%–it’s our plan, it’s low cost and offers gen­uine grow­ing invest­ments. Eth­i­cal finan­cial experts don’t sell a fixed annu­ity to twenty-something, year-old teach­ers (some com­mit­tee mem­bers, myself included, gasp out loud, when we read the 403b reports show­ing ten mil­lion a month of our teach­ers’ hard work­ing dol­lars con­tributed to indexed annu­ities, month after month, year after year).

Putting the 457b in Place

     Just set­ting up a 457b and mak­ing it avail­able is not enough to reform the defined con­tri­bu­tion pro­grams with PreK-12 school dis­tricts. A 457b solu­tion requires four pri­mary sup­port sys­tems, each dif­fer­ent and with unique challenges:

1. Oversight/Advisory com­mit­tee
2. Pub­lic Rela­tions
3. Enroll­ment Pre­sen­ta­tions
4. Finan­cial Education

     Oversight/Advisory Com­mit­tee. As men­tioned, our oversight/advisory com­mit­tee is made up of rep­re­sen­ta­tives of employ­ees who pay the plan costs. Our work­ing dynam­ics are a prime exam­ple of LAUSD’s employee col­lec­tive bar­gain­ing units work­ing col­lab­o­ra­tively with man­age­ment. We took full advan­tage of the most pow­er­ful and unpre­dictable weapon imaginable—transparency of the industry’s most cov­eted fee—revenue shar­ing. Ben­e­fits admin­is­tra­tion is cred­ited for sup­port­ing our move to dis­close all fees and reduce those costs as shown in Table 2 above. I doubt if Mr. Tis­chler imag­ined the depth of trans­parency demon­strated in Chap­ter 9 and the drilling down of invest­ment costs by elim­i­nat­ing rev­enue shar­ing agree­ments as explained in Chap­ter 10. In the final analy­ses, the suc­cess of our advi­sory com­mit­tee was a result of good old-fashion com­pro­mise and col­lab­o­ra­tion between employee groups and management.

Pub­lic Rela­tions. Since launch­ing the 457b plan in 2006, LAUSD has been pas­sive aggres­sive in let­ting the employ­ees know the new plan exists. No major announce­ment or press release has been cir­cu­lated and to my knowl­edge the Board of Edu­ca­tion never announced it either. Upper man­age­ment and the Board may not know our com­mit­tee or the 457b plan exits either, in my opin­ion. Once a year an email with a PDF file of all the health, den­tal and life insur­ance ben­e­fits are sent to employ­ees. There is two links, one for the 403b and the other for the 457b, to more infor­ma­tion on the district’s website—that’s it.

It should be no sur­prise then that far too many of our 75,000 employ­ees are clue­less about our ter­rific plan or don’t know how the 457b plan works. LAUSD ben­e­fits’ web pres­ence is dif­fi­cult to find. This foot-dragging is not about money as LAUSD had VALIC’s $500,000 avail­able for “Plan admin­is­tra­tion expenses” (quoted from the con­tract), much of that money went to our com­mit­tee finan­cial consultant’s new five-year con­tract. In my opin­ion, we fell short in the pub­lic rela­tions front because edu­ca­tional management’s lia­bil­ity hang-up.

Upper management’s old lia­bil­ity fear cou­pled with a low pri­or­ity mind­set for retire­ment sav­ings linger over our best com­mit­tee inten­tions like exces­sive CO2 inten­si­fy­ing smog. Just last week LAUSD’s super­in­ten­dent denied our mar­ket­ing plan to send out another 457b flyer in an email blast from ben­e­fits admin­is­tra­tion to employ­ees because to do so would bur­den them unnec­es­sar­ily. What? My response is narrow-minded Superintendent’s fool­ish­ness is that it is not spam, this is about an impor­tant LAUSD ben­e­fit that the Board and Super­in­ten­dent should be proud and which many employ­ees would welcome.

Enroll­ment Pre­sen­ta­tions. Deploy­ing enough reps for face-to-face pre­sen­ta­tions and enrolling employ­ees is the next major chal­lenge. Both VALIC and Cal­STRS failed to hire and send enough reps to meet our edu­ca­tors’ needs face-to-face and increase the assets in the plan.³ Instead, both TPAs relied heav­ily on a web pres­ence and reg­u­lar pre­sen­ta­tions at LAUSD head­quar­ters for enroll­ment procedures.

a. How can 2.5 to a max of five reps com­pete with the hun­dreds of reg­is­tered annu­ity sales peo­ple and finan­cial advis­ers, some are still roam­ing our cam­puses at will (Yes, they bla­tantly ignore the dis­trict and union’s new restricted access pol­icy).
b. Cal­STRS was worse than VALIC. For the last 2.5 years Cal­STRS did not budge one iota to increase the num­ber of reps from the cur­rent 2.5.
c. If .37 per­cent Third Party Admin­is­tra­tor (TPA) fee only sup­ports 2.5 reps, what would be a pru­dent fee to hire more reps?
Finan­cial Edu­ca­tion. The major chal­lenge for any pub­lic or pri­vate sec­tor employer, union or TPA is offer­ing finan­cial education:

• Set a goal to fund retire­ment
• Learn stocks, the “gen­uine invest­ment.” Why pen­sion plans, endow­ments and foun­da­tions invest in the stock mar­ket and not annu­ities?
• Mutual funds vs. indi­vid­ual stocks
• How the stock mar­ket works
• Stock mar­ket his­tory of returns
• Stock mar­ket risk
• Diver­si­fi­ca­tion. The sin­gle most impor­tant skill you must learn
• Index vs. man­aged invest­ment strate­gies (per­for­mance and risk)
Rebal­anc­ing the port­fo­lio
• Insur­ance vs. invest­ments
• Women’s invest­ing issues
• Annu­ities vs. mutual funds
• 403b vs. 457b, Roth IRA, 403b Roth, 457b Roth
• How to find a gen­uine fidu­ciary finan­cial adviser paid by the hour

     This par­tial list of top­ics can­not be dis­cussed in depth at lunchtime or an after school enroll­ment pre­sen­ta­tion. With 2.5 reps even Cal­STRS enroll­ment effort was dis­ap­point­ing. In my opin­ion, VALIC and Cal­STRS were naive about the num­ber of enroll­ment pre­sen­ta­tions and edu­ca­tional work­shops they could real­is­ti­cally carry out with their low RFP bid.

Pos­i­tive Reform Developments

     In addi­tion to the begin­ning of the news reports on 403bs in the late 1990s, the fol­low­ing shows a broad based change:

1. In 2000, Dan Otter, a for­mer ele­men­tary teacher, launched his pop­u­lar 403b web­site: 403bwise.com. For 14 years Dan has gath­ered an incred­i­ble amount of infor­ma­tion for 403b and 457b plans and offers a dis­cus­sion forum to ask ques­tions.
2. In 2003, Cal­STRS launches their web­site 403bcompare.com.
3. In 2007, Cal­STRS cre­ated their excel­lent, low-cost Pen­sion 2. This low-cost plan is avail­able to every school dis­trict in Cal­i­for­nia.
4. In 2010, National Asso­ci­a­tion of Gov­ern­men­tal Defined Con­tri­bu­tion Admin­is­tra­tors (NAGDCA) began offer­ing pre­con­fer­ence work­shops and a sep­a­rate com­mit­tee focus­ing on 403b plans for the first time in its his­tory. Many NAGDCA mem­bers are gen­uine fiduciaries.

Pos­i­tive Devel­op­ments from the Teach­ers’ Unions

The nation’s largest teach­ers’ unions are mov­ing in the right direction:

5. In 2014, the Amer­i­can Fed­er­a­tion of Teach­ers (AFT) has not yet fol­lowed up on its pow­er­ful sug­ges­tions from their sem­i­nal arti­cle, Shark Attack! pub­lished in 2000.
6. In 2002, Cal­i­for­nia Teach­ers Asso­ci­a­tion (CTA) stopped endors­ing 403b ven­dors.
7. In 2007 CTA launched an excel­lent 403b/457b infor­ma­tional web­site, and occa­sion­ally refers mem­bers with fly­ers and mail­ers. For exam­ple, their guid­ance on eval­u­at­ing and select­ing a fidu­ciary adviser is well thought out and thor­ough.(4)
8. In 2008 United Teachers-Los Ange­les ter­mi­nated their decade’s old and use­less 403b “Union Approved” pol­icy. Both LAUSD and UTLA col­lab­o­rated by for­bid­ding on-site 403b sales pre­sen­ta­tions through­out the dis­trict. This united effort reduced the 25,000 403b par­tic­i­pants to 20,000 while the 457b plan has increased from zero in 2006 to 4,000 par­tic­i­pants in 2014.
9. The AFT New York City local union has an excel­lent plan with a 73% par­tic­i­pa­tion rate. This great plan should be repli­cated with other AFT locals.
10. The National Edu­ca­tion Asso­ci­a­tion (NEA) our country’s largest teacher’s union launched a 401k plan, we, the 403b reform­ers, dream about. Accord­ing to Brightscope.com, a national 401k rat­ing firm scored the NEA’s plan a high 85 (out of 100).

     NEA put together a top-notch, low-cost plan with three Van­guard funds as the largest hold­ings. Con­grat­u­la­tions to NEA for look­ing out for their 700 par­tic­i­pat­ing employ­ees’ best inter­est. NEA pro­vides a best-in-class model for all unions and employ­ers to follow-up with their employ­ees. Con­grat­u­la­tions to the NEA employ­ees. Con­sider your­selves lucky to have a car­ing employer.

The Unions have to Fin­ish the Job

     Unfor­tu­nately, NEA’s three mil­lion mem­bers have a higher-cost 403b. No Van­guard fund is avail­able. The out­ra­geous fees prompted an unsuc­cess­ful law­suit by two teach­ers. The case was dis­missed faster than Houdini’s escapes. The fidu­ciary stan­dard argued by the plaintiff’s attor­neys was thought­fully writ­ten, but they neglected one lit­tle detail—the fidu­ciary stan­dard does not apply to 403b plans.(5) Annu­ities are not reg­u­lated by secu­ri­ties laws. The NEA’s plan is still pro­vid­ing expen­sive annu­ities and loaded mutual funds to their mem­bers while NEA’s employ­ees enjoy a Van­guard plan! Demand that NEA launch a sim­i­lar Van­guard 401k plan and ter­mi­nate their hor­rific, high cost 403b.

A few low-cost plans are in place with unions and dis­tricts, but the word has sel­dom reached edu­ca­tors face-to-face. The unions’ lead­er­ship dis­cusses these plans and remains tight-lipped pub­licly. The secrecy speaks volumes—don’t trust them until the details about costs are trans­par­ent. One union didn’t even inform their excel­lent retire­ment com­mit­tee they were launch­ing a 403b prod­uct until the “details” were worked out by the bosses and high-level pol­icy wonks (sim­i­lar to my expe­ri­ence with my local union as described in Chap­ter 6).

Scared by their finan­cial con­sul­tants, the unions defend the expen­sive “hand-holding” pol­icy, for good reason—unions can­not admit mis­takes, lest careers and elec­tions are at stake. Thus, like the dis­tricts, unions are com­fort­able turn­ing to either insur­ance agents or broker/dealers to han­dle the pre­sen­ta­tions and enroll­ments to teach­ers (There is lit­tle or no edu­ca­tion). The unions appear not to know what fidu­ciary respon­si­bil­ity means when pick­ing con­sul­tants. As men­tioned, they don’t have to legally, as 403b and 457b plans are not bound by fidu­ciary stan­dards (401k plans are reg­u­lated by ERISA).

Our advi­sory com­mit­tee fol­lows the ERISA guide­lines and never works in secret with the excep­tion of the RFP bid­ding process with ad hoc com­mit­tees. We strongly feel that is the right thing to have our meet­ings and deci­sions pub­lic and recorded. We are bound by the Brown Act.6 I hope that some unions are begin­ning to under­stand that we live in the world of trans­parency since the 2008 stock mar­ket crash, know the mem­bers are get­ting annu­ity screwed and that mak­ing money off mem­bers by offer­ing high costs plans are over.

Some­day our unions will enthu­si­as­ti­cally pub­li­cize and be proud of their infor­ma­tional web­sites, imple­ment their Shark Attack ideas, hire gen­uine fidu­ciary con­sul­tants to offer finan­cial workshops7 and release a sim­i­lar NEA 401k type Van­guard 403b plan to their members.

Your Local Union

     Unions are com­plex orga­ni­za­tions with hun­dreds of issues on their plate. They are an impor­tant voice for work­ing peo­ple. They are made up of peo­ple like you and me. Get to know them and have them get to know you by attend­ing meet­ings. Find other mem­bers who share your con­cern and begin a dis­cus­sion of this poten­tially pow­er­ful retire­ment plan. Start with their retire­ment com­mit­tee. Be pre­pared to ini­ti­ate a dis­cus­sion with your 403b or 457b ideas. Once they know you, your ideas will be sup­ported at the com­mit­tee level.

Tell them we need to take con­trol of how this plan is deliv­ered to our co-workers and that by leav­ing it up to the sales­peo­ple is a breach of fidu­ciary respon­si­bil­ity. If your union has the union approved pol­icy, ask them to ter­mi­nate it and offer finan­cial work­shops led by fidu­cia­ries instead(7). You can start a sub­com­mit­tee ded­i­cated specif­i­cally to 403b/457b plans. Ask the dis­trict to cre­ate an over­sight com­mit­tee and be pre­pared to vol­un­teer (In the pri­vate sec­tor, many com­pa­nies have retire­ment plan com­mit­tees). Most over­sight com­mit­tees meet four times a year, so it’s not an oner­ous time com­mit­ment away from your busy sched­ule and no prior finan­cial expe­ri­ence is nec­es­sary. And don’t for­get to ask your union’s newslet­ter edi­tor. I got lucky when Steve and his suc­ces­sor, Kim Turner, pub­lished my invest­ment articles.

Your Plan

     You can see the suc­cesses and chal­lenges to finan­cial edu­ca­tion and over­sight, which bring the onus of retire­ment plan­ning right back on our lap. With respon­si­bil­ity for our per­sonal plan and district’s plan, we can strive for finan­cial secu­rity at each level, where the chal­lenges remain. You have more infor­ma­tion now from this or related per­sonal finance books and arti­cles. We can’t wait for school dis­tricts and employee groups to get up-to-speed. We can­not depend on some­body else for over­sight and offer finan­cial edu­ca­tion. The cur­rent sys­tem works fairly well IF you know what you are look­ing for. That requires a com­mit­ment to learn­ing about your plan and invest­ment basics.

Chances are your employer offers a few low-cost, gen­uine invest­ment choices. The sales peo­ple and your employer are not going to tell you about those choices for obvi­ous rea­sons. Sales peo­ple will not get a com­mis­sion and your employer fears lia­bil­ity about pro­vid­ing infor­ma­tion.
Here are suggestions:

• Log on your employer’s web­site and search for the list of funds or visit your employer’s ben­e­fits office.
• Look for low-cost ven­dors such as Van­guard, TIAA CREF, USAA mutual funds, or Fidelity Invest­ments.
• If none of these low-cost ven­dors are avail­able, call their 403b/457b depart­ment and ask each of them to sign up with your employer.
• If the sec­ond and third bul­let points above don’t work out, tell your story to your local finan­cial reporter and don’t for­get to write what you want to the school board and your union.
• Use the Roth IRA. You are free to select any low cost mutual fund. Con­tinue to peti­tion your employer, union or dis­trict to offer a low-cost ven­dor, one of those listed above. TIAA CREF might be your best chance.
• Set up a diver­si­fied port­fo­lio (Large Cap, Mid-Cap, Small Cap, Inter­na­tional and a bond fund. There are sev­eral good books about asset allo­ca­tion and rebal­anc­ing in the ref­er­ence sec­tion).
• If you need pro­fes­sional assis­tance, inter­view a finan­cial adviser you pay by the hour and will sign fidu­ciary oaths from these two orga­ni­za­tions: National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers (NAPFA) or Gar­rett Plan­ning Net­work (Gar­rett). Both orga­ni­za­tions require their adviser mem­bers to sign oaths with their clients.

     The seven bul­let points above pro­vide so much infor­ma­tion, books and arti­cles have been writ­ten about each. But you can iden­tify in a minute whether your employer’s plan is high (over 1.0% total cost) or low-cost (under 1.0%), an annu­ity or mutual fund. Set­ting up a diver­si­fied port­fo­lio can be straight­for­ward. All you need to know is a lit­tle about invest­ment basics.

Remem­ber, there are no villains—everybody involved on the pol­icy side have their self-interests through decades old poli­cies. My story reflects what hap­pens when we speak up. Employer pol­icy heads and the union lead­er­ship need to hear our sto­ries, so together we can make the entire retire­ment sys­tem bet­ter for all—clients and the pro­fes­sion­als, whether 403b, 401k or 457b.

Employ­ers and col­lec­tive bar­gain­ing units prob­a­bly think we are sat­is­fied because we are busy with tak­ing care of our stu­dents and don’t have time or the knowhow to tell our story. The world has changed—reporters want to hear from you. Hope­fully this book will help you for­mu­late your 403b story and voice your con­cerns directly to those per­son­nel who make deci­sions on your behalf. No mat­ter what any­body else says, you have enough infor­ma­tion to tell your story, to begin to take con­trol, ask tough ques­tions and say no to high-cost plans.

Edu­ca­tional and Finan­cial Cul­tures are Evolving

The glacial move­ment in the last 20 years leads me to think the edu­ca­tional cul­ture is chang­ing. Invest­ment the­ory and prac­tice with low-cost index funds are gain­ing tremen­dous pop­u­lar­ity among investors. These pos­i­tive devel­op­ments will con­nect with teach­ers (and many more employ­ees nation­wide) even­tu­ally. As one Bud­dhist teach­ing says noth­ing is per­ma­nent. A siz­able num­ber of edu­ca­tors are savvy investors and the num­ber is grow­ing. You can be one of them too.

Pur­pose­ful Drama

     My story involved drama between the stake­hold­ers. The drama was jammed packed with reflec­tions and com­men­tary of con­flicts between insid­ers and out­siders over invest­ment costs in many dif­fer­ent orga­ni­za­tions, reg­u­lar par­tic­i­pants and pol­icy. Each chap­ter turns out to be an age-old strug­gle between the insid­ers’ sta­tus quo and the out­siders demand­ing trans­parency of costs and pro­vid­ing low-cost choices. Noth­ing exists more impor­tantly than knowl­edge of costs—nothing.

The knowl­edge of the immi­nent con­flict will help you. Most teach­ers who ask the tough ques­tions might get imme­di­ate push back from their annu­ity sales per­son, dis­trict per­son­nel, employer, boss or union. Don’t be inti­mated by their legal jar­gon, scare tac­tics and foot-dragging. Under­stand­ing this drama as illus­trated through­out this book simul­ta­ne­ously helps you under­stand the finan­cial industry’s inter­est, out­dated poli­cies and their language.

A Huge Prece­dent to Move Forward

My friends and I came on this mas­sive prob­lem with no prece­dents for 403b advo­cacy. The petty con­flicts, suc­cesses, defeats, mis­takes and mis­com­mu­ni­ca­tion between reg­u­lar employ­ees, ben­e­fits admin­is­tra­tion, super­in­ten­dents, legal coun­sel, union offi­cers, politi­cians, indus­try lob­by­ists and finan­cial con­sul­tants ended with a won­der­ful 457b plan. It all started with our 403bAware cama­raderie. It was intox­i­cat­ing as we planned and con­ducted infor­ma­tional meet­ings for our col­leagues’ ben­e­fit for five long years help­ing two hun­dred edu­ca­tors. And later when we became mem­bers of the over­sight com­mit­tee, we demanded trans­parency, selected fidu­ciary con­sul­tants and a low-cost TPA and imple­mented a low-cost plan—highlights of our suc­cess­ful story, cur­rently help­ing thou­sands of teachers.

Begin that dis­cus­sion by shar­ing exam­ples of our great 457b plan to all employ­ers and employ­ees, pri­vate or pub­lic sec­tors, in the coun­try. It’s a gigan­tic chal­lenge. The good news is we have a solid prece­dent from the “troops” and our story with the 2nd largest school dis­trict in the coun­try. Over the long run, you will find the knowl­edge and the courage to start anew with a low-cost plan and meet your retire­ment goals with­out need­less suffering.

Best of fortunes.

 

Foot­notes:
(1.) Keith and Mar­garet found a gen­uine fidu­ciary finan­cial adviser which they pay by the hour through the National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers (NAPFA). He helped the Reeds get out of those high–costs funds and into long-term gen­uine invest­ments.
(2.) Refer­ring back to Table 2, the three low-cost 403b options are appro­pri­ate: Cal­STRS Pen­sion 2, TIAA CREF and USAA. (Caveat emp­tor about USAAUSAA mutual fund com­pany is an option in many employ­ers’ approved venders. The do-it-yourselfer can choose their no–loads but if a finan­cial adviser selects USAA for a client, said adviser might use the share class that pays the adviser com­mis­sions).
(3.) The plan con­sists of $70 mil­lion in assets at mid-year, 2014. By con­trast, the 403b plan took in about $800 mil­lion in the same time period. The con­tri­bu­tions are mas­sive and yet both of our TPAs missed an oppor­tu­nity to grow more than $70 mil­lion.
(4.) The Cal­i­for­nia Teach­ers Asso­ci­a­tion might pro­pose a bill for the 2015 Cal­i­for­nia State leg­isla­tive cycle. This pro­posal will be the third attempt to reform 770.3. CTA wants to vet ven­dors through col­lec­tive bar­gain­ing and improve Cal­STRS 403bcompare.com to dis­close more cost details. The devil is in the details. Watch those costs.
(5)Daniels-Hall vs. NEA. It is highly rec­om­mended that you read this opin­ion. It is a repli­ca­tion of why Mer­cer Con­sul­tants choos­ing invest­ments with rev­enue shar­ing costs over par­tic­i­pants’ best inter­ests dis­cussed in Chap­ter 9. When the fidu­ciary stan­dard is absent in 403b/457b plans, non fidu­ciary con­sul­tants will invari­ably choose invest­ments that charge rev­enue shar­ing costs. It’s all per­fectly legal in 403b plans and the prin­ci­pal rea­son why the plain­tiffs lost their case against the NEA.
(6.) To my knowl­edge our advi­sory com­mit­tee is the only place in Cal­i­for­nia where our voices are heard in an offi­cial, ongo­ing and pub­lic forum.
(7.) The Cal­i­for­nia Teach­ers Asso­ci­a­tion has begun to offer finan­cial work­shops about four times a year. One of those work­shops Keith Reed attended and got excel­lent help. Hope­fully, the work­shops will be more fre­quent so all of their 330,000 mem­bers receive this cru­cial information.

 

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Los Angeles Unified School District 403b/457b Vendors

Los Ange­les Uni­fied School District’s 403b/457b List of Ven­dors, Com­mit­tee Agenda and May 15, 2014 Min­utes.

If you have a 403b or a 457b plan, com­pare what you have with other avail­able ven­dors and their retire­ment products.

Our next over­sight com­mit­tee meet­ing is Thurs­day, June 19 from 3:00 PM to 5:00 PM in the Blue room at Beaudry. The Blue room is right next to the entrance to the Board meet­ing room and should be open to the pub­lic. If the door is locked, just knock hard enough so we can hear it. Please join us. It’s your retire­ment plan (457b or the 403b) we talk about. I will post the agenda as soon as I get it.

I will be intro­duc­ing a motion for ben­e­fits admin­is­tra­tion to insert fol­low­ing Table in the Annual Ben­e­fits Open Enroll­ment infor­ma­tion. The table should be self explain­able. Would this table be help­ful to the 80,000 LAUSD employ­ees won­der­ing which 403b or 457b ven­dor to use for their retire­ment plan?

What do you think?

LAUSD 403b-457b all options Click any­where on the table to enlarge it.

AGENDA for the June 19 meet­ing: Agenda 6–19-14

MINUTES for the May 15 Meet­ing: Min­utes 5-15-2014 Agenda 6–19-14

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Free ebook, Calculators and another reference to connect with fee-only financial advisers

Stock Mar­ket Reach­ing New Highs!

Isn’t the stock mar­ket going crazy! Our port­fo­lio has made up about a 30% of the cost of pur­chas­ing our new Tesla elec­tric car since we bought it two months ago. That’s how wealth build­ing works with invest­ments that grow with the econ­omy (annu­ities don’t). If the mar­ket con­tin­ues to go up, by the end of 2014 our eco­nomic pow­er­house as reflected in our world­wide, diver­si­fied low-cost, stock and bond port­fo­lio might pay for our new Tesla. We shall see.

Get your free ebook “Can I Retire Yet” from this link: http://www.caniretireyet.com/what-will-you-do-when-retired/

This site has great retire­ment cal­cu­la­tors for your plan­ning: http://www.analyzenow.com/

Women Investors

Even though the arti­cle is about the finan­cial habits of high-net worth women, all can learn. Its still worth repeat­ing because the points in the arti­cle for Dan and I used over many years and you can too: http://www.dailyworth.com/posts/2296–10-habits-to-get-rich/1

Locat­ing Fidu­ciary Finan­cial Advisers

I have always learned from arti­cles that talk about real peo­ple and their finances. What is sig­nif­i­cant about this report is the ref­er­ence to two finan­cial adviser pro­fes­sional orga­ni­za­tions that have fee–only finan­cial advis­ers and who will sign fidu­ciary oaths: National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers and the Gar­rett Plan­ning Net­work. Please note that Dan and I do not use advis­ers, we learned to invest with­out an adviser and saved a bun­dle. But we also under­stand that some peo­ple want and need help. We did at one point in our retire­ment sav­ing plan years. Our fee only adviser was a mem­ber of National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers. Here is the arti­cle that cites both orga­ni­za­tions: http://www.bankrate.com/finance/investing/how-to-find-fee-only-financial-planner.aspx

Best of fortunes!

 

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Introduction: The 403b Jungle

hijacked 403b

Links to the entire book

Intro­duc­tion is below.

Part 1: His­tory. How did the 403b got hijacked.
Chap­ter 1, Chap­ter 2 and Chap­ter 3.

Part 2: Fed­eral Laws that improved the 403b.
Chap­ter 4 and Chap­ter 8

Part 3: The Teach­ers’ Unions and the 403b.

Chap­ter 5, Chap­ter 6, and Chap­ter 7.

Part 4: The hijacked and cor­rupted 403b is by-passed by a new plan! Chap­ter 9 and Chap­ter 10.

Part 4: The author’s obser­va­tions as a Member-at-Large of the 457b/403b Invest­ment Advi­sory Com­mit­tee for the 2nd largest school dis­trict in the coun­try Los Ange­les Uni­fied SD. The com­mit­tee over­sees over $2 bil­lion in 403b and 457b assets for 54,000 cur­rent and for­mer LAUSD employees.

 

By Steve Schullo, Retired Los Ange­les Teacher

 Introduction

Don’t get me started on the 403b!” responded octo­ge­nar­ian John C. Bogle, Van­guard Group1 founder, named one of four invest­ment “Giants of the 20th Cen­tury” by For­tune mag­a­zine and named in the “world’s 100 most pow­er­ful and influ­en­tial peo­ple” by Time mag­a­zine.  He reflected his frus­tra­tion with the 403b mess with suc­cinct elo­quence. When we parted, I had to write my story.

After read­ing this book you will dis­cover, as I did, five retire­ment plan­ning fundamentals:

  1. You will be empow­ered. Invest­ing basics are not com­pli­cated. For starters, never pay com­mis­sions. Sounds silly, but mil­lions pay invest­ment commissions.
  2. You will com­mu­ni­cate with con­fi­dence by dis­cov­er­ing the lan­guage of finance from a con­sumer stand­point. You will know what you want from your employer’s retire­ment plan, union, bro­ker, finan­cial adviser, insur­ance agent or human resource ben­e­fits department.
  3. You will be an astute finan­cial con­sumer. An MBA, a degree in eco­nom­ics, math nor sta­tis­tics isn’t nec­es­sary. Dis­cover the invest­ing com­pa­nies that offer gen­uine fidu­ciary advice (look out for your inter­ests over their own), low­est costs invest­ments and a solid long-term strat­egy for grow­ing your retire­ment nest egg over your work­ing career.
  4. You will dis­cover invest­ments which grow with the econ­omy (instead of sign­ing a bind­ing con­tract with an exces­sively “safe” insur­ance product).
  5. You will con­fi­dently eval­u­ate any finan­cial pro­fes­sional to assure he or she is trust­wor­thy and competent.

This book illus­trates how chron­i­cally abysmal the 403b is with PreK-12 school dis­tricts and a way out of this “mess.” By my exam­ple, you will inti­mately know if your employer-sponsored retire­ment plan (403b, 457b or 401k) is a good one or a lousy one. If you share uncer­tain­ties about your plan you will be able to peti­tion your employer for a low-cost retire­ment pro­gram and find a com­pe­tent fee-only finan­cial adviser. It is an analy­sis of the author’s first per­son account as a typ­i­cal con­sumer and ordi­nary chap who ini­tially over­paid the price and lived with the results of a dread­ful employer-sponsored retire­ment sav­ings pro­gram, until I dis­cov­ered the five fun­da­men­tals listed above.

When I started teach­ing 30 years ago, my Tax-Sheltered Annu­ity (TSA) appeared fine until the inter­est rate plum­meted from 12% to 3%. I searched options for gen­uine growth which took sev­eral turns, twists and dead-ends. Instead of get­ting help, I got absurd and eva­sive behav­ior from my employer’s ben­e­fits staff. You would have thought I was a pariah. What are these peo­ple afraid of? Con­fronting orga­ni­za­tions so big, com­plex and pow­er­ful as the Los Ange­les Uni­fied School Dis­trict (LAUSD) and, my union, United Teach­ers Los Ange­les (UTLA) yielded petty con­flicts with only super­fi­cial successes.

While my story focuses on one retire­ment pro­gram with one large employer, you will dis­cover and ben­e­fit from the insights, dis­ap­point­ments and inspi­ra­tions to improve your employer-sponsored sav­ings plan, no mat­ter what the challenge.

One place under­stood helps us under­stand all places better

author and pho­tog­ra­pher, Eudora Welty.

My short-term goal was per­sonal. All I wanted in 1993 was Van­guard Welling­ton, a bal­anced pow­er­house low-cost mutual fund invest­ment. Had I got­ten Welling­ton or been treated with a mod­icum of respect with an alter­nate low cost request, this book would not exist. My frus­tra­tion fueled a greater long-term pur­pose of bring­ing the 403b (and the 457b plan) into the new mil­len­nium by mak­ing it our plan, not the industry’s nor my employer’s. I had never planned to write a book, much less two books on per­sonal finance. My tale cov­ers a twenty-year period from 1993 to the end of 2013 and will open your eyes to the fact that finan­cial pro­fes­sion­als take care of their interests.

By ask­ing a few ques­tions in 1993 I found out my 403b was never meant to take care of employ­ees’ sup­ple­men­tal sav­ings pro­grams in PreK-12 school dis­tricts. It’s a splen­did job cre­ator for the sales force with lucra­tive com­mis­sions and exces­sive fees. The 403b is poorly con­structed and laden with inap­pro­pri­ate low per­form­ing annu­ity prod­ucts. The cur­rent deliv­ery sys­tem pre­sented by self-serving sales agents omits objec­tive infor­ma­tion. This sys­tem is so appalling and a con­ve­nient mon­ey­maker for the indus­try and its min­ions that finan­cial author, Bill Bern­stein, says teach­ers are trapped by one of the dank­est, foulest-smelling cel­lars of the finan­cial world.

Bern­stein is not alone in his con­dem­na­tion: since 1994 the major print media pub­lished, at least, twenty-two arti­cles crit­i­cal of 403b prod­ucts in PreK-12 school dis­tricts (Ref­er­ences or Cita­tions). The nation’s sec­ond largest teacher’s union, the Amer­i­can Fed­er­a­tion of Teach­ers (AFT) chimed in with the best cri­tique yet, their right­eously titled AFT_Special_Report Shark ATTACK a must read. AFT goes on the offen­sive against insur­ance com­pany 403b/TSAs with a vengeance.

These pub­li­ca­tions reported teach­ers plead­ing for help. The 403b annu­ity world exploits, like car­pet bomb­ing, every inch of invest­ing naïveté with the fol­low­ing revelations:

  • High costs
  • Low per­for­mance
  • Illiq­uid­ity (money locked up)
  • Hideous sur­ren­der fees
  • And the biggest crime, the indus­try reeks with con­flicts of inter­est by not inform­ing edu­ca­tors about lower cost choices.

The media noise had not cur­tailed the mil­lions of dol­lars our nation’s edu­ca­tors spend on TSAs every year. Why are so few edu­ca­tors read­ing these spe­cific news reports that focus on their ben­e­fit plan? This eerie silence among the profession’s most affected—public school teachers—is mys­te­ri­ous. Instead, edu­ca­tors are stead­fast in their pur­chase of TSAs since 1961—the news reports had lit­tle or no impact on teacher retire­ment sav­ings behav­ior or pol­icy reform.

Iron­i­cally, more peo­ple out­side the edu­ca­tional sys­tem know the 403b prob­lems than inside. One spec­u­la­tion is the focus on com­pelling val­ues of stu­dents, teach­ing pro­fes­sion and par­ents, leav­ing retire­ment plan­ning to our pen­sion plan, the union for wage increases and the TSA sales force for the 403b. Edu­ca­tors earned mul­ti­ple degrees and cer­tifi­cates but most have lit­tle incen­tive and time to know about per­sonal finance. Con­versely, some edu­ca­tors are savvy about finance, invest in mutual funds and go about their busi­ness. Other edu­ca­tors are involved with orga­nized union com­mit­tees about their health ben­e­fits and pen­sion plans, not the 403b. For an equally mys­te­ri­ous rea­son, the entire edu­ca­tional culture—educators, dis­tricts and their unions—do not dis­cuss the 403b publicly.

Given this lack of pub­lic dis­cus­sion and sup­port, the TSA sales force filled the gap. They exploit the edu­ca­tors’ pro­found vul­ner­a­bil­ity about invest­ments, the stock mar­ket and finances. Many sales­peo­ple are for­mer teachers—the built-in, long-term trust of a for­mer teacher is pow­er­ful to break. The 403b/TSA prod­ucts are com­pli­cated to unravel and decep­tive. Edu­ca­tors are ham­mered 24/7 with the pseudo charisma of a cult leader that invest­ing in the stock mar­ket is dan­ger­ous and way too risky. This unfor­tu­nate sit­u­a­tion leads to a sale and a lucra­tive com­mis­sion from a con­tract so con­vo­luted attor­neys are hard pressed to understand.

State reg­u­la­tions are also to blame. They are in lock­step sup­port of the insur­ance indus­try. Lis­ten to this—school dis­tricts are brow­beaten by cyn­i­cal state insur­ance codes which demand high-priced TSA ven­dors be avail­able, like forc­ing a child to swal­low foul tast­ing med­i­cine lest dis­tricts face legal threats—I kid you not. No other pro­fes­sion or gov­ern­men­tal employ­ers (City, State, County, Col­leges, Uni­ver­si­ties, Police, Fire and Sheriff’s Depart­ments) have spe­cific laws pro­tect­ing agents’ access to teach­ers’ class­rooms to ped­dle expen­sive products.

With other like-minded LAUSD edu­ca­tors to begin to counter this sys­temic mess, an advo­cacy cam­paign evolved. We cre­ated an infor­mal infor­ma­tional group called 403b Aware. Our goal was to edu­cate our col­leagues that costs and invest­ing for growth mat­ter to the 100,000 LAUSD employ­ees and to the 61 mil­lion work­ers who have tax-deferred retire­ment plans at work, whether 401k, 457b or 403b. Later, LAUSD ben­e­fits staff asked us to be vot­ing mem­bers of a dis­trict char­tered Invest­ment Retire­ment Advi­sory Committee.

Two years ago I co-authored with my hus­band, Dan Robert­son, and pub­lished our book Late Bloomer Mil­lion­aires, out­lin­ing the invest­ing suc­cesses and mis­takes we made, as a cou­ple of edu­ca­tors dis­cov­er­ing invest­ing skills and a sim­ple course of action. Despite a late start with our mod­est edu­ca­tion salaries we ended up with a com­fort­able nest egg. We retired five years ear­lier than the typ­i­cal age of 65.3 Dan had lit­tle prob­lems. He freely chose his invest­ments from his tiny non­profit employer’s plan, while I had to jump through one restric­tive pol­icy hoop after another.

I was angry enough to write this book when I was told by my employer that Van­guard Welling­ton was not avail­able with no expla­na­tion and the sub­se­quent Her­culean effort to find options. My anger ratch­eted up when I was pre­sented with $6,000 sur­ren­der fees to get my money. 4 Finally, I dis­cov­ered those sur­ren­der fees were the com­mis­sions which my self-serving “free” adviser received. My adviser’s mis­lead­ing, con­flict of inter­est sales pitches are also legal under cur­rent reg­u­la­tions. I learned fast to avoid that cut­throat game. From then on I saved tens of thou­sands of dol­lars in reduced costs over the rest of my work­ing career, vow­ing never to seek “advice” from self-serving TSA agents.

As men­tioned ear­lier, not pay­ing com­mis­sions and stay­ing away from TSA sales were easy to learn, yet mil­lions of my col­leagues con­tinue to pay commissions:

.   . .

Dear Mr. Schullo,

I am a sec­ond grade teacher with LAUSD. I have been invest­ing in my 403b since Feb­ru­ary 2003. I real­ized I was invested in annu­ities and am cur­rently try­ing to find other options. I am inter­ested in learn­ing more about your expe­ri­ence and the club that helps with retire­ment plans. Any help you can offer would be appreciated.

Thanks in advance! Crys­tal Mendez

Crys­tal Mendez had nowhere else to turn. She and many thou­sands of our col­leagues may won­der if their loss-averse deci­sion would serve them well. At age 22 she got the iden­ti­cal poor per­form­ing fixed-annuity I did only twenty years later! The 403b world would not pro­vide the infor­ma­tion Crys­tal sought with­out unnec­es­sary, time-consuming sleuthing. She had to rely on her boyfriend, my 403b reform-minded friends and this author to help her get on track. That’s patently wrong. Our employ­ers, our finan­cial advis­ers, employee col­lec­tive bar­gain­ing units and reg­u­la­tions should be work­ing for us so there are more suc­cess sto­ries like Crystal’s. By 2014, she amassed $160,000. Not bad for a 33 year-old sin­gle female ele­men­tary teacher.

This book pro­vides a forum to begin a con­ver­sa­tion. The goal is to stand up to the mon­strous indus­try by dis­clos­ing the legal monop­oly of biased infor­ma­tion about guar­an­teed prod­ucts and scary sales pitches. And let’s not for­get the dis­re­spect­ful treat­ment exhib­ited by our fright­ened employ­ers’ ben­e­fit staff and indif­fer­ent unions. Another gen­er­a­tion of teach­ers and Amer­i­can work­ers in employer spon­sored retire­ment plans can­not wait. Amer­i­cans will ben­e­fit now as we dis­cover how the employer-sponsored retire­ment sav­ings plan work. We can con­fi­dently ask tough ques­tions, get objec­tive answers and invest our money in gen­uine low-cost investments.

 

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1Van­guard Group is the largest and most respected mutual fund invest­ment com­pany in the world with mil­lions of clients and $2.1 tril­lion in assets.

2The 403b and the 457b are retire­ment sav­ings plan for gov­ern­men­tal employ­ees and the equiv­a­lent to the pri­vate sec­tor 401k.

3Dan and I worked in the pri­vate sec­tor before enter­ing teach­ing. Dan does not have a pen­sion, only Social Secu­rity. I receive 49% of my teach­ing salary from my teacher’s pen­sion plan (Cal­i­for­nia State Teach­ers Retire Sys­tem, Cal­STRS). Thus, my Social Secu­rity ben­e­fit is off­set by 50% under exist­ing law. If we worked our entire careers in pub­lic ser­vice and both had pen­sions, there would be no need to write this book. We retired early because of our 403b invest­ing, which sup­ple­mented my pen­sion and Dan’s Social Security.

4The two annu­ities were worth $33,000 before the sur­ren­der fees of $6,000 were levied.

______________________________________________________________________

 

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Fee-only Fiduciary Financial Advisers, discussion continues.

Con­tin­u­ing the dis­cus­sion, locat­ing a finan­cial adviser who looks after your best interest

Choos­ing a finan­cial adviser is one of life’s major deci­sions that could cost you thou­sands of dol­lars in invest­ment fees over many years, if you don’t do your due dili­gence. As you know Dan and I have our money in Van­guard because of their low-cost index funds. Our port­fo­lio is noth­ing fancy, actu­ally it’s bor­ing, but it gets the job done. We bought a Tesla which reflects how our low-cost, fully diver­si­fied port­fo­lio has been per­form­ing since 2004 (and our val­ues of doing our part to cre­ate Amer­i­can jobs and save the environment).

While we don’t use an adviser we real­ize that many peo­ple need one. You want an adviser who would also choose Van­guard. Many advis­ers don’t like Van­guard, just ask yours.

So, just about any finan­cial pro­fes­sional who says in a pub­lished arti­cle that John Bogle, founder of Van­guard Group, the largest and most respected low cost invest­ment com­pany in the world, is his or her “hero,” that’s a pro­fes­sional who is a gen­uine fiduciary.

Sherl Gar­rett heads up this orga­ni­za­tion that has fee–only fidu­ciary finan­cial advis­ers in her orga­ni­za­tion. We have had a link to her orga­ni­za­tion on this web­site since day 1 (along with the National Asso­ci­a­tion of Per­sonal Finan­cial Advis­ers, NAPFA). With arti­cles like this com­ing from the top of this pro­fes­sional orga­ni­za­tion, you know the adviser you have will not put you in high cost, com­mis­sion laden mutual funds or the hot stock of the day.

Be sure to read the com­ments after Garrett’s arti­cle: http://blogs.wsj.com/experts/2014/05/05/why-john-bogle-is-my-investment-superhero/

Garrett’s Orga­ni­za­tion Web­site: http://garrettplanningnetwork.com/

Another arti­cle when Ms. Gar­rett takes on the finan­cial indus­try: http://www.investmentnews.com/article/20140506/FREE/140509941#

In case you missed our last Blog post, scroll down for more infor­ma­tion about find­ing a fee-only fidu­ciary finan­cial adviser. Feel free to print out the Fidu­ciary Oath and ask your adviser to sign it.

Please click on “replies” below to view com­ments or “Leave a reply” to add one.