Hi LAUSD colleagues. My name is Steve Schullo, retired LAUSD teacher who wants to keep you informed about the 403(b) and the 457(b) volunteer retirement plans. Scroll to the bottom for my Bio.
Let’s begin with one simple fact: the 403(b) with public k-12 districts has been owned and monopolized by the insurance industry since day one. They did it by lobbying Sacramento and passing insurance codes to protect districts, so insurance agents can have 100% control with presentations and delivery of product to employees. Since 1961 when the “TSA” was launched, district employees from around the country were (and still are) helpless because they have nowhere to turn for help or at least a second opinion. Our colleagues and I deserve a simple and transparent roadmap to saving in our volunteer retirement plans.
What a brilliant strategy with no end in sight. Just think about it. IMO the insurance industry’s strategy to isolate district employees while satisfying district’s legal counsel has been working to the insurance industry’s benefit for five decades:
- Amazing, the price our employees are paying to protect their employers.
- Employers are protected 100% and while the employees have zero protection from misleading and sometimes wrong information aimed at scaring employees to purchase an expensive tax-sheltered or indexed annuity.
- In addition to the districts’ protection, the sales force also have legal protections to enter schools, classrooms, district-sponsored professional development or sit in the cafeteria.
- Employees cannot sue for conflicts of interest, misrepresenting products and services, and paying extremely high annuity fees. Some agents call themselves CalSTRS pension reps, for example, (CalSTRS knows about the misrepresentation but to my knowledge, nothing has been done about it). One brave teacher reported to the CalSTRS Retirement Board that she got an email from an agent claiming that she should see this agent because CalSTRS pension is in trouble. Only then did both the board respond and the agent’s company disciplined this agent. We have to report suspicious conduct.
- Districts are fully protected when a sales agents can say ANYTHING to get that sale, and then sell fixed annuities to totally vulnerable and clueless 22-year-old new (and older) teachers. And then walk away with a $1000-$4000 commission. No legitimate fee-only financial adviser would recommend fixed indexed annuities to young teachers. NONE!
- The interest rate credited in current annuities is so low, the sales force is now asking older teachers to exchange their old annuity contract and purchase a new one, so the agent gets another commission, and the company does not have to pay the high-interest rate required by the old contracts. Sure, this may be against regulations, but who enforces it? Our employees never know, so they don’t complain. They get excited by the phony bonus.
- IMO, much of the 403(b) compliance consulting that k-12 districts listened to came from Ellie Lowder, a wonder woman who has made sure districts never varied from their current hands-off status. From Amazon about Ellie Lowder: “Ellie Lowder is an independent consultant with over fifty years of experience in 403(b) plans, and is widely considered one of the foremost experts in retirement plans for public education employers.”(Click here for my Amazon published review of her 403(b) compliance guide)
There is nothing anybody can do to stop the 403(b) abuse. While a lawsuit is not possible, equally astonishing are the responses of two groups of our educator employees:
- The first group doesn’t have a clue. 72% of LAUSD employees have neither the 403(b) or the 457(b)!
- The second group of educators are investment savvy by educating themselves, have gotten help from friends, relatives, or fee-only financial advisers.
- As a result, this second group straightened themselves by moving on to low-cost genuine investments with LAUSD’s 457(b), TIAA or CalSTRS Pension2. But most of the 20,000 district employees who signed with a 403(b) product have expensive insurance products (There are expensive mutual funds available, but that is another topic).
Neither group has complained about these practices for 55 years and counting. Think of all our highly educated and savvy educator colleagues who have come and gone in five decades, and the hundreds of millions of dollars spent on high fees, and not one complaint which resulted in reform. 403(b) reform involves districts and unions working together to select 403(b) vendors on a competitive basis and providing on-going workshops and discussion groups. Currently, the unions provide expensive resources and personnel to keep track of our pension plan, but never, and I mean, never public talk about the 403(b). Our district is so tight-lipped about providing information, only one press release was issued in 2014 when our 457(b) plan got an award. No acknowledgment from the Board of Education, benefits administration or the union that LAUSD earned this award!
How can so many educated and smart professionals allow this to happen for years? No other public employers and their employees allow this to happen: Police and firefighters’ employers, California city, state and county governments ignore the insurance code and offer education and sound investments with low costs. The State University systems (California state Universities and UC systems) have plans we in the PreK-12 can only dream of. UC system has legendary low-cost Vanguard!
There are three stars in this otherwise hideous environment:
- CalSTRS created Pension2 and is available on the 403(b) side. Don’t bother to ask an insurance agent to help you because not only will they not help but dissuade you with convincing scare tactics about stock market risk. They are superb at intimidating people into their expensive products. Call CalSTRS and get started: http://www.calstrs.com/pension2
- TIAA-CREF is another low cost, sound investment option (A decade ago, I invested my 403(b) with TIAA-CREF during my last six years with LAUSD).
- LAUSD created the 457(b) plan and asked Sandy Keaton (former UTLA Retirement Issues Committee Chair) and me to be on the original advisory committee.
We now have an Aware Winning 457(b) plan! It’s up to us to spread the word and one of the major reasons why I created this blog. All LAUSD employees deserve to know all available options, not just the expensive and inappropriate fixed and indexed annuities.
Here are the details of the 457(b) plan (updated January 2017):
Resources for further reading:
- Our own CalSTRS Pension 2. A great 403(b) for all California Teachers: http://www.calstrs.com/pension2
- Online investment forums, documentaries, and videos. PBS Retirement Gamble, John Oliver’s hilarious but useful comedy about annuities that the annuity industry does not think is funny at all!
- CalSTRS 403bcompare.com Research the fees and expenses of your 403(b).
- UTLA’s Investment Workshop Evaluation Results. For a half day workshop conducted last spring, 2016.
- Is an Insurance Product an Investment? Hell NO! Read why.
- How are LAUSD employees invested? This report is very interesting!
Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension, retired in 2008. The first generation Italian-American, ex-Marine, Vietnam vet wrote investment articles for United Teachers-Los Angeles’ union newspaper (circ. 40,000) for 11 years. A thrice featured volunteer retirement plan advocate, twice in the Los Angeles Times and once in U.S. News and World Report. He has recently been on the national broadcast PBS Frontline: The Retirement Gamble. He started an investor self-help group with Sandy Keaton for LAUSD colleagues and wrote 6,500 posts in three investment forums since 1997. Frequently quoted and interviewed by the media, testified at state legislative hearings, and honored with the “Unsung Hero” award by the 40,000 member Los Angeles teachers’ union for his retirement investing advocacy.
After ten years, Steve still serves on LAUSD’s Investment Advisory Committee as Member-at-Large and former co-chair. The committee oversees 457(b)/403(b) plans for 55,000 former and current LAUSD employees, assets of $2.4 billion.