Late Bloomer Wealth

Book Review: Author did the job for her client’s best interests, now is the time us K-12 educators to demand ours!

Section 403(b) Compliance Guide for Public Education Employers

by Ellie Lowder
Book Review and an Editorial by Steve Schullo

IGNORED

As a retired teacher serving on my district’s 403(b)/457(b) Retirement Investment Advisory Committee, I read this book with great interest. While it’s a compliance guide written for district employers and their benefit administrators, every public education employee should read this review. Ms. Lowder omitted and ignored the important consequences for teachers of this often times expensive and inappropriate retirement savings plan. My purpose is to spark the interest of my colleagues to discover and either reform this ancient 403(b) or replace it with the 457(b) plan. Being ignored by the insurance industry who make major decisions to benefit themselves will not be tolerated. This article explains why.
Both plans are offered for our nation’s PreK-12 public school educators. The older 403(b) plan has not always been in the public educator’s best interest. Ms. Lowder has been the 403(b) consultant for public school business officials and insurance industry professional organizations as evidenced by three previous editions of this book aimed at Public Education Employers and the following connections:

Both plans are offered for our nation’s PreK-12 public school educators. The older 403(b) plan has not always been in the public educator’s best interest. Ms. Lowder has been the 403(b) consultant for public school business officials and insurance industry professional organizations as evidenced by three previous editions of this book aimed at Public Education Employers and the following connections:

• Her book’s co-publisher, the Association of School Business Officials International (ASBO International). Coincidently, the author and the book’s intended audience appear well-connected.
• Ms. Lowder has many additional connections with a long career in the insurance industry. The industry’s best-selling product, the Tax-sheltered Annuity (TSA), has dominated PreK-12 market since 1961. The TSA is a hardened and known brand name that is as familiar to the majority of public school employees as books and pencils are with students.
• She is the co-author of “The Source: 403(b) and 457(b) Plans (NTSAA-ASPPA)”, National Tax Shelter Accounts Association (new name, National Tax-deferred Savings Association (NTSA) and American Society of Pension Professionals & Actuaries.
• The NTSA historically represents annuity salespeople, specific to PreK-12 school district markets across the country.
• NTSA, ASPPA (and Wall Street) have opposed fiduciary reforms initiated by the Federal government’s Department of Labor. They have twice successfully stopped our state 403(b) reforms efforts to update our insurance code, 770.3. Currently, the ASPPA is gearing up their opposition to the latest DOL fiduciary efforts by writing a notice to members. Chris DeGrassi – NTSA Executive Director wrote: Fiduciary Proposal Expected in State of the Union; Coalition Steps up Effort, January 16, 2015. The rhetoric clearly indicates that the core of the issue targets IRA rollovers and the insurance industry.   It’s not just the President and the DOL, Supreme Court justices are also chiming in on fiduciary issues during initial oral arguments in the Edison International case (Click here for additional information).
• The author served as national sales director for qualified annuities at Transamerica Life & Annuity Company and was the chief marketing officer for Delta Life & Annuity, earlier in her career.

Her insurance industry career and professional connections speak for themselves about her position supporting the production, selling and marketing of insurance products. Her long and colorful career makes her a major force and an industry ringer for the 54 year-old, status quo, high-cost, low performing TSA/403(b) in PreK-12 school districts. She has served the industry and their constituents well.
This fourth edition updates the 2007 Internal Revenue Service (IRS) new regulations. These new requirements are momentous to school districts as the IRS requires school districts to be responsible. This book shows district benefits administrators how to comply with the new regulations and to clear up misinformation. For the record, the IRS new regs did not reform the 403(b) as I will elaborate in my review and editorial.
Lowder’s guide contains 19 chapters. Outside the occasional legalese expected in a compliance guide, the 103-page book is an easy read. While not a professional benefits administrator, I am familiar with the jargon and many of the laws as a knowledgeable and experienced consumer of 403(b) products. My quibble with the writing style is her frequent use of parenthetical and “however” phrases, which distract rather than add to the conversation. She ends the book with a compliance checklist for the 403(b) and the 457(b) and recommended forms from ASBO International resources.

The Author Did Her Job

The author did exactly what any important consultant would do for clients. If no sustainable teacher complaints nor a demand for fiduciary, transparency, ethical or objective information materialize, public education officials will be in legal compliance with the IRS new 403(b) regulations.
What a wonderful opportunity for little old me to offer the educator’s view. Nothing wrong with balance between the customer and the industry. Together we can improve and reform the 403(b) so that it best serves everyone.
As a 20-year advocate, just because 403(b) legal status is justified, that doesn’t automatically mean it also has an ethical status. With a higher ethical standard, everyone benefits. Currently, the 403(b) does not pass the smell test, until the 403(b) is discussed, disclosed and debated publicly by the people who pay the costs, the teachers. The good news is that there is plenty of room for a higher ethical standard within the current regulations. Plus, we have a huge precedent with the country’s second largest school district–LAUSD’s Award Winning 457(b) plan! I will be discussing this legal and ethical example shortly.

Thank You Ms. Lowder for Providing a forum for My Review

I am grateful the author wrote this book as it provides the opportunity to elaborate in detail on the ethical shortfalls of this mysterious, surreal system. Specific 403(b) books for PreK-12 educators are rare. I enthusiastically agree with her communication recommendations with educators. I disagree with a few of the author’s perceptions about how the 403(b) manifests in the real world. Thus, I am using this extraordinary opportunity as a call-to-action for wholesale reform, so that the 403(b) system benefits all stakeholders, not only the insurance industry and district benefits administration. Reform starts from active and informed classroom teachers and courageous benefit administrators. I remain hopeful that union policy makers will also take notice. By the time you finish reading this review and editorial, you will be confident enough to initiate a much-needed discussion at your district, union or benefits office.

Huge Omission!

The major omission in this book is the perspective of the 403(b) world as experienced by us educators. Secondly, why haven’t our unions, district benefits administrators and the educators themselves challenged the appropriateness of TSAs in retirement plans? Of course, that has never been the intention of this book. I am taking the liberty to finish the job. For example, the 403(b) has been already tax-deferred by the IRS. Insurance company annuities do not and cannot offer additional tax deferred status, yet, the industry makes it sound like they do. Nothing wrong with enthusiastically selling one’s products, but 15 years ago the Securities and Exchange Commission (SEC) released a report warning investors that variable annuities do not provide additional tax benefits. But nobody on the educational employees’ side questioned this dilemma nor have initiated a serious public discussion concerning the misleading sales pitches about the annuity guarantees and who or what provides the tax-deferred benefit.
The other major issue are costs. Insurance product guarantees against stock and bond market short-term loses have tremendous costs–long-term returns suffer. It is well-known in the investment community that a 2.0% extra fee will cost a third of teacher’s nest egg over 30 years. This is not insignificant! These serious disadvantages are inherently built-in and will produce diminishing nest eggs. Yet, so very few in the Pre-K-12 community publicly talk about these legitimate TSA shortfalls.

Why the IRS Needed New Regulations?

Let’s back up for a minute to get a big picture view of the 403(b) systematic problem. The IRS has already painfully discovered the mess and provided a good example. The insurance industry in concert with our state’s Insurance Commissioner’s Office maintain stringent support of aggressive delivery systems of insurance products into classrooms, cafeterias and union halls, face-to-face. In California we attempted twice to update the insurance code to reduce the industry’s overbearing presence on our campuses and were massively defeated by the insurance lobby.
Districts were mere conduits with no responsibility to inform their teachers that a plan exists. Employees’ 403(b) accounts were simple arrangements between individuals and the insurance company or mutual fund. Districts and teachers’ unions were unable or unwilling to act in their employees or members’ behalf. Thus, the industry took 100% control from product development to face-to-face delivery, which included absorbing all liability risks and costs for districts’ fiscal mistakes. During the union approved era, once a 403b vendor gets the “union-approved” nod, vendors were unleashed on naivé union members with no oversight or accountability for decades (Two exceptions are the NY State and New York City, which offer excellent teachers’ union oversight).
Something unexpected happened. As the 403(b) became more popular in the late 1990s, the IRS had two problems:

a. Many districts had more than 100 vendors on the official list, an insane number. My employer, Los Angeles Unified School District (LAUSD), had over 150 vendors at the time. I kid you not!
b. The 90-24 transfer rule allowed employees to invest in multiple 403(b) accounts with vendors either on the official district’s list or off the list. Many investment savvy educators discovered, on their own, higher returns with lower costs in powerhouse mutual fund companies.

First, why so many vendors? State insurance codes in five of the largest states (California, Texas, Ohio, Washington and Massachusetts) demanded that districts make available to their employees every company that signed district and IRS agreements. Districts were forbidden to competitively bid as they do with all other outside contractors (textbook publishers, computer equipment, building contractors, etc.). Can you imagine districts forced to contract with every book publisher because some external regulation demanded it? Instructional mayhem would result! The private industry’s sacred cow supply and demand and competition euphuisms go out the window in this strange world. Why are government strong-armed regulations needed by this capitalist industry in the 403(b) world?
Second, because of the 90-24 transfer rule, many individual teacher’s transferred 403(b) accounts outside the official list to low-cost, higher performing companies such as Vanguard Group, TIAA CREF or Fidelity Investments. Not only did the IRS find up to a 100+ vendors on districts official list, but they also found numerous accounts parked in low-cost mutual fund companies not on the list. These extra accounts put the IRS auditors over-the-top and developed into an auditing nightmare. School districts had no responsibility to provide the accounting the IRS needed of all accounts both inside and outside. The IRS found itself right smack-dab inside a murky, clandestine and unaccountable world.

A Real Life Auditing Example of the Los Angeles Unified School District

When the IRS audited the behemoth LAUSD’s 403(b) in the year 2000, they took a sample of 900 employees’ records. According to the Chief Financial Officer, they found insignificant “over contribution” mistakes of $2,000. If the IRS found serious out-of-compliance issues they would have audited additional employees. But it was impossible to audit 25,000 LAUSD active participants without extensive time and money. This mishmash of accounts inside and outside the plan with hundreds of different vendors made auditing more complicated than a Rubik’s Cube solution. The IRS had to do something to clean up this systematic mess.

Districts Became Responsible for the First Time in 403(b) History

The 2007 new regs required districts to be responsible for writing a plan document and requiring vendors to share information. This requirement reduced the number of vendors at LAUSD from 155 down to 27. But the most controversial requirement was the termination of the 90-24 rule. Transferring from a high-cost insurance product to a low-cost mutual fund outside the district was terminated, which angered teachers. Many quit using the 403(b) because the only choices available were the usual suspects–high-cost, low performing annuities or broker/dealer, commission laden mutual funds. (In the history of the 403b only one or two low-cost mutual fund companies were available because of an outrageous and costly agreement called the Hold Harmless agreement. In my book, Fighting Powerful Interests, I detail this separate story).
Now you know why the IRS had to update the regulations. They found a “Wild-West” environment under 100% control of the industry and state insurance commissioners.

The Volunteer Retirement Product, the Tax-sheltered Annuities (TSAs)

Lowder outlines a 403(b) system that has been overwhelmingly aligned with annuities–the new regs simply reinforced and strengthened the familiar monopoly. From 1961 to 1974, the TSA had been the only product available. In 1974 when the Employment Retirement Income Security Act (ERISA) passed congress, mutual funds became available to teachers for the first time. However, only some of the financially savvy educators knew about lower cost, higher performing mutual funds. Districts had never been responsible to inform their employees about all options–both districts and the teachers’ unions left all responsibility to the sales force for explaining products, sales presentations and face-to-face deliveries.
A growing population of educators has long complained about the lack of low-cost options and the gumshoe effort trying to get information from district officials. But it went nowhere because those complaints came from powerless individuals. This situation has remained permanent since 1974. It was a “perfect storm” marketplace for the largest and most powerful insurance carriers in the country. Billions of dollars of educators money remain at stake and with rare public discussion of the 403(b). Consequently, with so much insurance company freedom and in a highly controlled market place, the TSA developed into one of the most successful selling products in the 54-year history of tax-deferred retirement plans.

But Districts are now Responsible, Aren’t They?

At first glance, one would think it’s helpful to employees that districts are now on the hook to inform employees. But in the real world districts follow what the IRS requires–once a year meaningful notice in the annual handbook with the other benefits, health, dental and pension plans. During the rest of the year, financial information provided are sales pitches to naivé teachers. The manner in which teachers receive only TSA information has not changed. I don’t think I have to comment about the lack of objectivity. Districts rarely make objective financial information available on a more frequent basis than the once a year meaningful notice.

One Author Error and More Omissions

On page 8 the author wrote three points regarding misinformation of the new 403(b) regulations.
Her first point: “The final regulations do not require that employers select a limited number of product and investment providers–that decision is entirely up to the employer….”(underlined is mine). This is incorrect. This has never been “entirely up to the employer” in California. As previously mentioned above, our cynical insurance code rules each of the 1000+ school districts and County Offices of Education. The regulations demand, with lawsuit threats, from the insurance industry that districts must make available all 403(b) companies that sign the IRS and information sharing agreements. Similar to Riply’s “Believe or Not,” our state’s Insurance Commission is the authority, via their primitive insurance code 770.3, that mechanically decides which company is on (or off) a district’s official list.

Why is the Fiduciary Standard a Thorn In the Industry’s Side?

Next on page 8 she wrote, “the final regulations do not cause public education employers to be subject to ERISA fiduciary requirements.” Well, yeah! Did she omit the insurance company DC lobbyists made sure that insurance product TSAs would never become securities either? If the government were successful in their 2010 Dodd/Frank proposal, the securities laws would require the 403(b) vendors and the agents selling TSAs to be fiduciaries. It’s unfortunate and not surprising that Lowder says it’s a good thing for school district employers not to have fiduciary responsibility (defined in the next paragraph). She makes fiduciary responsibility sound complicated and onerous, implying that increased liability would result if districts have the responsibility. Really? Are districts more prone to liability than any other large employer, such as IBM or a county hospital’s sponsored plan? Of course not, but she makes it sound like PreK-12 school districts are more vulnerable.
What is this dreaded fiduciary responsibility that both the insurance industry and Wall Street find so threatening? In my opinion, it looks like fear of the unknown over any other explanation. Fiduciary responsibility can be a complicated legal issue. Its most basic tenet, understood by us nonlegal participants, is that professionals in authority look out for their clients’ interests over their own. That’s basically it. CPA’s and attorneys have little problem with it, but broker/dealers and insurance agents selling investment products and insurance TSAs have been exempted for decades. Many news articles have been written about the history of these exemptions in the run-up to the Dodd/Frank bill mentioned above. The PreK-12 educational establishment knows little about this crucial exemption. Obviously, in my opinion, educators might revolt when high-costs and handsome commissions paid to the agent are disclosed at every annuity presentation and enrollment.

The Financial Industry Would Benefit by More Business!

The financial industry would do itself a favor by implementing fiduciary responsibility because it would lead to more trust by us. With more trust, there would be more business. This can be an economic boom for the industry, but obviously, this industry doesn’t listen to us educators. In my opinion, this situation will lead to their peril eventually as the world is changing to disclosure, transparency and the fiduciary standard soon or later. Recently, the President and the Supreme Court are seriously courting this basic idea that financial advisers either look out for the clients’ best interests or get out and find another profession (click here for article).
According to the Department of Labor’s (DOL) ERISA requirements, a fiduciary does the following (Quoting from the DOL):

• Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
• Carrying out their duties prudently;
• Following the plan documents (unless inconsistent with ERISA);
• Diversifying plan investments; and
• Paying only reasonable plan expenses.

What does the above mean for the 403(b)?
Annuities have Three Problems

1. Insurance products carry costly guarantees. Thus, the educator will not earn average stock market returns. But our teachers’ pension plans, foundations and higher education endowments do earn the stock market averages. Most financial advisers with fiduciary responsibility will inform their clients that equity exposure (stocks) with low-cost investments has been the primary way nest eggs will keep or beat the inflation rate. That’s the primary reason why my pension benefit is higher than Social Security.

2. Annuities are not diversified. The author implies on page 57 when she said the people with “advisers” (probably meaning an insurance agent) will “contribute more overtime and have more diversified investments.” Even if a teacher has three annuities with three different insurance companies, said teacher is not diversified as defined by most fee-only fiduciary financial advisers. Besides, insurance companies have declared bankruptcy, too. The most famous bankruptcy was the huge American International Group (AIG) in 2008. Our investment advisory committee had firsthand experience with AIG. Many educators voiced their concerns about their money and rightly so. No teacher lost money this time. The point is that no matter where one’s money is invested, there is no 100% safety as often claimed by insurance agents. And insurance agents are NOT trained investment advisers.

3. Aren’t agents self-serving by only informing and selling the commission- ladened products? Educators have little chance to ask questions about other options and are often sitting ducks because the district or union offers little or no access to objective information. The “2nd opinion” does no exist. For example, I asked about using my 403(b) in mutual funds and was blindsided by her conflict-of-interest and knee-jerk reaction: “I never recommend mutual funds to teachers because they are too risky!” That barbarous comment marked the last time I ever talked to an insurance agent.

Lastly, on page 8, the author makes it clear that the fiduciary standard will not be a part of the 403(b). How can she be so sure? Not only the agents and broker/dealers exempted, but so is the 403(b) system with most public schools. Thus, the insurance industry exploits every sentence and paragraph of the regulatory exemption. In the short-term, it relieves district benefits administrators, but in the long-term, isn’t it always the teachers who pay the price? But there is more. Will it only be a matter of time when enough educators realize the high-cost and the chronically low-performing TSA guarantee deceptions and began mobilizing to reform the 403(b)? Then, the district’s liability for their inability or failure to fully disclose might be a problem.
What is ironic is that fiduciary requirements could help everybody right now. They reduce liability by improving this retirement planning system to better meet the needs of all workers. When costs, options and diversification choices are disclosed, it would be difficult for an angry employee to win a case against employers. Isn’t it always the hidden fees and misleading sales pitches that get insurance companies, investment firms and employer sponsored plans in legal trouble? If we failed to disclose our house’s discrepancies we would be held personally liable when selling our home. The same principle applies here. Nothing wrong with disclosure of fees and making sure a retirement product fits the uniqueness of individual teachers.
Be transparent about all costs and options, offer a broadly diversified portfolio of stocks and bonds with reasonable costs and make sure that employees can change their plans. Furthermore, after a career teaching, their supplemental retirement account has more money than it would have in an annuity. Who would complain and raise a legal shitstorm about that?
So my fellow educators, we can’t wait for the 403(b) world to act as a genuine fiduciary. Thus, Dan Otter of 403bwise.com created a fiduciary oath. Copy this simple oath and to take to your financial adviser and their supervisor (click here). It’s a powerful tool.

Communicating to Employees

On page 62 I found her five bullet point recommendations for communicating to employees thoughtful, but disingenuous for two reasons:

1. It’s not happening in the real world (one great recommendation detailed below).
2. She does not go far enough with communicating with employees about all options including low-cost, higher performing mutual funds.

The author is surely aware that districts have gotten the message that the erroneous strategy to avoid lawsuits is not to provide any 403(b) communication and information, beyond what is required by the IRS. After more than 50 years, the chronic silent message still rings today. Benefits Administration is reluctant to communicate with employees other than what is required, the once a year, “meaningful notice.” Districts are afraid that they will be targeted for lawsuits for “recommending” or “endorsing” the plan by merely mentioning options. It would have been helpful if Lowder explained in detail the difference between “endorsing” and “providing objective information.” While I agree with what Ms. Lowder says about routinely communicating to employees, in the real world employees are notified of the annuity option throughout the year, not the no-load, lower cost mutual funds. Recall that state insurance codes demand that districts offer “all willing providers” which turns out to be overwhelmingly insurance company annuities or commission-laden, broker/dealer, high-cost mutual fund companies.

Shout OUT! to District Benefits Administration: Are You Listening to Ms. Lowder’s one OUTSTANDING Communication Recommendation?

On page 62, Ms. Lowder wrote: “The appointment of a committee that includes rank-and-file employees and/or union representatives to help construct a good communications plan will help employers with input.”[initialized is mine]. In my new book, “Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN!” I devote three chapters of my involvement as a Member-at-Large for our competent Retirement Investment Advisory Committee. Los Angeles Unified School District should be given a lot of credit for creating this committee almost a decade ago and asking my 403(b) advocacy friends and I to be voting members. What a wonderful idea to include folks who pay the price with our contributions to our plan.
As a result of our committee’s work and to my knowledge for the first time in history, a PreK-12 school district won a “Plan Design” award from the prestigious National Association of Government Defined Contribution Administrators in 2014. I could not agree more with Ms. Lowder’s powerful statement about forming a committee to “help construct a good communication plan…with input.” Thank you, Ms. Lowder! Our top-notch committee took full advantage of the opportunity to make good on our “input.” From the beginning, we demanded full transparency, exposed and eliminated the dreaded revenue sharing, reduced plan costs and included best-in-class broadly diversified index funds from Vanguard, American Funds and Blackrock.
Is Out of Compliance and Liability A Red Herring after all of these Years of Scare Tactics?
With some hyperbole embedded in this guide about the consequences, Lowder admits on page 65, “…according to reports of IRS audit results in public schools, not a single 403(b) plan has been disqualified….” Not a single disqualification employers! The IRS needs to look elsewhere to find serious out of compliance issues such as higher paid professionals. On page 92, the hyperbole is when the author wrote nearly a half page warning service providers to monitor “excess deferral contributions.” Let the LAUSD’s record speak for itself when the IRS only found $2,000 of over contributions, and this was before the new regs.
Both of these revelations should be a calming force for all district employers that benefit departments are practically mistake free. It takes a lot of compliance errors over several fiscal years to get your 403(b) disqualified! There is little to fear with common sense oversight. This revelation should be good news. Even though I contributed every year during my 24 year career, I never used the $3,000 additional savings allowed over age 50. I couldn’t afford it. Public school teachers don’t make enough money to over contribute. End of discussion.
In my experience researching 403(b) plans and talking with many people, I get the feeling the red flag-waving the author and the industry about noncompliance and liability isn’t serious. It’s a strategy with a deliberate purpose. That purpose is to provoke a problem when none exists. In my opinion, scaring school boards, their legal staff and district benefits worked right into creating those insane insurance codes (and overly restrictive hold harmless agreements) so that insurance company agents are the primary people who deliver retirement products to teachers. The open season on helpless and trusting educators are too hard to resist. With oversight and full transparency, can you comprehend that only the most expensive, commission laden products would be available? Can’t prove this, but let the 54-year record of TSA sales speak for itself. LAUSD has $2 billion in mostly TSA assets with punishing surrender fees from 54,000 active and retired employees.
Other California employers have implemented their ethical principles of transparency and fiduciary standards. Large California employers, other than the PreK-12 school market, has not been so focused on a single, high-cost product–annuities. The University of California, State Universities, Sheriffs Departments, Healthcare companies and other governmental employers implemented low-cost 403(b) or 457(b) plans years ago. The UC Retirement plan is one of the best around. Our PreK-12 educators deserve the same ethical low-cost treatment.

457(b) Plan: LAUSD Won an Award!

Ms. Lowder wrote that the 457(b) plan has a “growing interest” because it was due to EGTRRA changes (2001 pension law that allowed 457(b) plans in PreK-12 school districts). One brave benefits administrator in our district took advantage of the EGTRRA and used the 457(b) plan to bypass our state’s hideous insurance code. The 457(b) doesn’t carry our state’s 403(b) regulatory baggage. Districts are free to competitively bid for lower-cost plans that can offer higher returns with mutual funds rather than being forced to swallow the higher cost, lower returns with 403(b)/TSAs. In our case, the 457(b) won an award as a result of this one courageous administrator (for more details on how former LAUSD benefits administrator George Tischler did it, read my book, Fighting Powerful Interests. Free download from the home page of this blog or click here for a taped interview of myself and two other committee members).
This review should spark the interest of my colleagues to learn and discover both the 403(b) and the 457(b) plan. Fiduciary responsibility, full transparency and public discussion are what the 403(b) needs.Congress has tried to implement it, but was beaten back by Wall Street, in the run up to the Dodd/Frank bill. We also tried twice to reform our state insurance code with the same result as Congress’s effort.
The author spends a lot of time telling our benefits administrators that fiduciary responsibility is something to fear. If the insurance industry would put as much energy looking out for the educator’s best interest for a change, the low participation rate might increase and more districts might win awards. Educators are tired of biased sales pitches and they want either Vanguard or Fidelity back (Fact: Because of Vanguard’s low-costs and looking out for the clients, it has over three trillion in assets!). Most importantly, we want authenticity and honesty about costs and plan appropriateness, so we can go about the important work we do–student instruction.
The biggest omission is that nothing in this book reflects the educators’ best interest. Educators are merely a sales and corporate profits’ number and the 54 year-old policy is for public school employers to disclose little objective information. The book clearly reflects the Siamese triplet-relationship between the insurance industry, public education employers and the author. And that’s the author’s right; she has done her consulting job. But as consumers of 403(b)/TSAs, we educators have rights too and that is to say NO! to these high-priced, nonfiduciary sales pitches. We need to say YES! to your district or union’s request to join an advisory committee. Committing time and energy to our committee proceedings is as rewarding as teaching.

Summary
403(b) Reform Has Started

The discussion about reform is in its nascent stage. Not enough district educators know about this system yet to begin putting pressure on their collective bargaining representatives. But reform discussions have been ongoing for a long time and are slowly spreading. Educational culture is tough to change, but the 403(b) world’s tightly-wound compliance mandates are beginning to crack. The final reform will require fiduciary responsibility and transparency, all district employees will have the same objective information needed to be make good decisions. The following are positive steps:

• In 2014, the Los Angeles Unified School District won a Plan Design Award for the 457(b).
• California has 403(b)compare.com, a site to obtain objective information from your school district’s 403(b) plan.
• Many teachers’ unions have terminated their useless policy of endorsing certain 403(b) vendors.
• 403(b)wise.com is a great resource for objective articles and a discussion forum to ask questions.
• In addition to LAUSD, state pension plans and school districts are offering lower cost, competitively bid 457(b) plans.
• California Teachers Association has a top notch website of financial information:
• I write investment articles on this blog and wrote two books, aimed at my colleagues: “Late Bloomer Millionaires” and “Fighting Powerful Interests” (The pdf version of the second book is free for life available on this blog).

The status quo remains powerfully fixed and by reading this Lowder’s book, the reader will experience firsthand a good book by a six-decade old consultant for the insurance industry written only to public school employers. But there is a way out of this conundrum and save our 403(b).

An unexpected proposal came from the Ms. Lowder, the book’s author, who kindly recommended district officials to form a committee–the best recommendation of the entire book! What are you waiting for colleagues? If this isn’t a call-to-action for us to get informed and involved, what is?

We need to voice our demands for the ethics of fiduciary responsibility and full transparency. The insurance industry, IRS new regulations and public school employers will not reform this retirement system for us.

Additional Reading on Annuities:
http://www.forbes.com/2010/07/02/variable-annuities-high-cost-401k-403b-personal-finance-bogleheads-view-lindauer.html

Here is an old post I found on M* investment forums by “evans” who is complaining about the rip off annuities in his school district 403b plan way back in 1999:

Does anyone have any information about the 403(b) Service Provider Agreement that the Association of School Business Officials International is telling school districts across the nation that they must have in order to protect themselves from liability? The employees in my school district have to invest in loaded 403(b)funds because the district insists on using the ASBO Intl “Hold Harmless” contract that makes the purchase of the no load 403(b) Vanguard funds impossible.
A copy of the contract can be found at www.asbointl.org. Vanguard will not sign this contract because they say that the contract needs to be between the employee and the employer. Our district will not use Vanguards one page contract because of some perceived liability on their part that they think the “hold harmless” contract will absolve them from. Any help will be much appreciated. We are losing 10’s of 1000’s of dollars in fees because we do not have a no load option for our retirement investments. Thank you for your help.

This post may be why only public K-12 school district never challenge the status quo and look out for us teachers, because for years and years k-12 district personnel have been listening to scare tactics of delusional LIABILITY by Association of School Business Officials International, which in turn is led by the author.

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