Late Bloomer Wealth

“Genuine Financial Transparency Demonstrated” Part 2

Mercer Consultants

Mercer’s rep marched to the podium with a briefcase and stacks of reports, wearing a smartly dressed dark suit. I got a heads-up about Mercer from my professional friend, Brian Cressey. Without hesitation he said “Mercer is the crème de la crème of retirement plan consulting firms.” Their website showed they’re a huge international firm with a broad presence in the investment consulting business.

The Mercer consultant, a Midwestern middle-aged woman reported the 15 bps was not the total cost, “there is additional 27 bps from revenue sharing.” Within minutes the cost had increased to 42 bsp (15 + 27 = 42). Isn’t that almost three times the cost of what the Senior VP just said?

27 More Bps? Now My Head was Spinning

AIG-VALIC has a right to charge fees. In my opinion, however it’s misleading to announce 15 bps, following up with an additional 27 bsp, rationalizing that it’s “the industry standard” by Mercer. Okay, if the cost was the industry standard, why the binary presentation about fees? We would agree 42 bsp is reasonable. Shouldn’t the VP be proud of announcing 42 bsp in the first place and be done with it?

Games People Play with YOUR Money

AIG-VALIC and Mercer were colluding in my opinion, an example of how the industry made financial information confusing and complicated. This time the audience and Board members recognized the tactic. More fees would come. The unknown cost of the investments—this omission was a huge concern.

But there were two other issues I brought up in my public speaker opportunity (edited for brevity):

What Mr. Tischler and the benefits administration now propose is a low fee 457 by strangely offering a contract to one of the biggest insurance companies in the country. Think about this: V.A.L.I.C. That spells out Variable Annuity Life Insurance Company. Is this the company that’s going to fix the problem of selling high priced products? AIG-VALIC is not the answer to the problem of high fees and low performance because that’s what it’s done for decades. I have concerns that AIG-VALIC will use their position to sell more 403bs to offset the low 457b fees.

Because other speakers were also concerned about AIG-VALIC selling 403bs and the 15 bsp were now 42 bps, benefits administration convened a special meeting two weeks later.

Twenty people showed up. Three teachers, myself included, and the UTLA Treasurer were present. The rest included George and his staff, Mercer reps and the AIG-VALIC Senior Vice President. LAUSD’s procurement and contract staff sat on the periphery of the room away from the table and never said a word. It was a strange meeting with nobody in charge. After the introductions LAUSD’s staff, the Mercer rep and the AIG-VALIC’s rep sat there waiting for a few seconds. Defined contribution plans have seldom been discussed publicly. The tension was evident. The staff and financial consultants may have been unfamiliar with answering questions about fees and were anxious with the UTLA’s treasurer present—but this was the beginning of genuine transparency.

The allegation about AIG-VALIC selling 403bs was discussed first. AIG-VALIC would be the TPA record-keeper for both plans, known as the “common remitter.” Would AIG-VALIC take advantage of their common remitter position to sell the expensive 403b insurance products? He sidestepped the conflict of interest question by agreeing on-the-spot they would not sell new 403bs and would focus on the 457b plan.

Next we discussed the 27 bps. Mercer rep repeated what she said to the Board. She was unwavering and had to say what the AIG-VALIC VP said was accurate. Huh? The VP didn’t say 42 bps—he almost shouted “15 bps.”

Nobody spoke for a few minutes. We should have challenged this dual presentation by keeping AIG-VALIC’s feet-to-the-fire with 15 bps. We were not familiar with revenue sharing and did not challenge the additional cost. Revenue sharing refers to a portion of the investment expenses which are kicked-back to AIG-VALIC. The source and delivery of this revenue were not transparent and will be shown in detail later in this chapter. The UTLA treasurer, two teachers and I lacked sufficient knowledge or backing from the teacher’s union to yank support.

We prevented AIG-VALIC from selling new 403bs which turned out to be a positive move to protect the hardworking employees of our district. In retrospect, however, I should have motioned to the UTLA Treasurer and the other two teachers for a huddle talk out in the hallway about strategies for holding AIG-VALIC’s fees to 15 bsp.

Part 3 in two days.

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