Fighting Powerful InterestsSubtitle: Educators Challenged Tax-sheltered Annuities and WIN!

Notice to readers. These chapters are an early version of this book without the 17 appendices, glossary, financial pod casts and other information in the 2nd half of the book. For the finished and completed published book, go to the home page and obtain the free pdf, click here.

Table of Contents

Part 1: History. How did the 403b get hijacked by the Insurance Industry.
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 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


“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.



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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