Please help LAUSD improve the 403(b) with Vanguard Group!

• Call or email the Office of Chief Financial Officer, David Hart.
• Phone: 213-241-7888
• Email: cfo-info@lausd.net
• Simply write or call and tell whoever answers the phone that you want the CFO to add Vanguard on the 403(b).
• You don’t have to identify yourself.

 

Here is the back story of this very rare move

I have a rare request because this event is rare. Vanguard needs to be on the 403(b) list for obvious reasons. If you have been reading my quarterly reports, you see that I have almost all of my retirement money in Vanguard (with some in TIAA).

This news may seem trivial as LAUSD has several Vanguard funds on the 457(b) plan. However, here is why I felt that Vanguard should also be available on the 403(b) side too.

 

Some of you might know that I am a voting member of a little-known advisory committee known as the LAUSD Retirement Investment Advisory Committee (RAIC). We oversee the 403(b) and 457(b) plans. We meet four times a year and listen to reports from the financial consultant and each of the record keepers. We have done many things to improve the 457(b) plan with more features and lower-cost funds. For example, we launched auto-enrollment (employees have three months to opt-out), but auto-enrollment has a colorful 40-year history as millions of American employees realize that without it, they would have zero assets for retirement planning. We also launched the Roth IRA, which is popular with younger employees who feel that by the time they need the money, taxes will be higher than they are now.

But for me personally, one item never materialized. For 30 years, I wanted Vanguard on the district’s 403(b), but the district and Vanguard could not agree on a contract until recently. I was happy that Vanguard is now ready and willing to serve as a vendor on the 403(b). Right before COVID, I introduced a motion to add Vanguard as a 403(b) vendor but failed because the old benefits personnel were totally against it (they have since retired, thank goodness!). Then COVID hit, and everything stopped. After three years and a change in LAUSD benefits administration personnel, I tried again. This time I was prepared for the objections. Just last week, it passed unanimously, with LAUSD abstaining. The motion sits on the CFO’s desk, waiting for his approval or rejection.

For three years, RAIC was reluctant to change the 403(b) because they feared opening up the floodgates for other high-cost vendors to follow suit. There are three counterpoints to that argument:

1. According to state insurance code law, California school districts are required to add any willing vendor to the 403(b). The reason they said no to adding Vanguard is mysterious.
2. Regarding “Opening the flood gates” for other most costly vendors: The benefits administration said that about 5 vendors asked to be included in LAUSD 403(b) during the last year. The image of opening the floodgates with just five vendors is laughable! And one of them was our state teachers union with their product which is a good plan. Adding 5 vendors to the current 27, making a total of 32 vendors, is trivial. LAUSD had 150 vendors for decades before the new IRS regs were launched, requiring all vendors to share information. The vast majority of the 150 vendors left the plan leaving 27 vendors. No additional vendors were added since 2008.
3. Originally, the committee thought that the 457(b) plan would starve the 403(b) out of existence. That expectation never materialized. While the number of 457(b) participants grew and the 403(b) participants declined, it wasn’t near enough to starve 403(b) out of existence. In fact, the opposite materialized. The 403(b) grew another billion to 3.2 billion in the last 17 years, while the 457(b) grew from zero dollars to $350 million. There are several reasons for this. The district never adequately publicized the new low-cost and Award Winning 457(b) plan. The 2 record keepers who enrolled LAUSD employees into the 457(b) are no match for the hundreds of annuity salespeople roaming our district at will.

• Adding Vanguard to 403(b) makes 403(b) better by adding a non-annuity, non-insurance company vendor that has low costs and broad diversification in their investments.
• There are way too many insurance companies that only offer high-cost annuities. We need a low-cost company that offers genuine investments, not annuity contracts, which invests in the stock and bond markets.
• The 403(b) is more familiar than the newer 457(b) plan, so more employees will benefit. The 403(b) has been around since 1961. 457(b) plan was launched in 2007.
• This move is nothing new. Vanguard is listed on many other public k12 districts, including the L.A. County Office of Education right next door. LACOE had Vanguard available for decades. LAUSD has never had Vanguard, to my knowledge. This is terrible for employees who want a quality company.

Steve’ BIO

Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers.

Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) union newspaper for 13 years. Thrice featured retirement plan advocate in the Los Angeles Times and U.S. News and World Report. He co-founded an investor self-help group 403bAware for teacher colleagues and wrote 7,500 posts in three investment forums since 1997. Frequently quoted by the media, he testified at California State legislative hearings and was honored with the “Unsung Hero” award by UTLA for his retirement planning advocacy.

For the last seventeen years, he serves as a volunteer on LAUSD’s Investment Advisory Committee as a “Member-at-Large” and former co-chair. The committee contains collective bargaining reps from the unions and monitors the district’s tax-deferred retirement plans, 457b/403b, of 55,000 former and current LAUSD employees, worth $3.1 billion in total assets.

He started this blog in 2012 to help all PreK-12 public school educators nationwide, especially his Los Angeles Unified School District colleagues. He belongs to a small national group of 403(b) advocates (mostly teachers) who want to bring closer attention to the 403(b). During the last 25 years, over 40 newspaper articles have been published and each one says the same thing, TSAs (Tax Sheltered Annuities) are terrible 403(b) plans. Over and over again, the articles report that the salesperson gets the benefit from lucrative commissions and high costs. Nobody in educational leadership reads these articles NOR talks about the proper place for annuity products publically. We come together at 403bwise.org. Come on over if you want to join us so we can help our colleagues avoid these self-conflicted retirement plans, TSAs.

For a copy of both books, click on my home page and scroll down to the two books. Click on each book and download it FREE. No obligations as I am not a financial adviser.

Email Steve at steve.schullo@latebloomerwealth.com or ask your question after each post.