Keeping retirement weird. 403(b)s and the teacher pension rip off. And the NEA.

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My state teacher pension alone would never be enough to pay for the retirement travel that Anne and I have been looking forward to, and are enjoying at this very moment.

Tomorrow we will celebrate our 4oth wedding anniversary in the small French village of St. Emilion, in the region of Aquataine.

But in addition to the public pension I earned over 30 years of teaching, we have other savings, including the money I pulled out of my paycheck and placed into a defined contribution annuity called a 403(b).

This article in the New York Times is a must read for teachers who invest, or who invested, in one of these annuities. The Times includes among those who rip off teachers with these less regulated retirement investment plans, NEA Member Benefits.

First, a personal story about the role of the NEA.

When I first became president of my NEA local I received several phone calls from sales reps of NEA approved annuity companies selling 403(b) investments. I was asked to set up times in each building that would be good for these sales reps to set up tables and market their plans.

“Not a chance,” I told them. “I teach and I’m way to busy to handle your scheduling.”

“We are approved by NEA Member Benefits and we always go through the local president,” I was told the first time I got one of these calls.

“I’m not a salesman. I don’t work for NEA or NEA Member Benefits. If you want to set up a time to come, call the school secretary,” I said.

I then received a call from NEA Member Benefits telling me to cooperate with these salesman. I simply hung up on them.

That was without even knowing what a pension theft this arrangement was.

And I personally lost retirement money in this deal

Most Americans who save for retirement at work have 401(k) plans, which are generally offered by companies and must by law provide a mix of prudent investment options. But millions of Americans — public school teachers, clergy members, employees of religious institutions or nonprofits, and some charities — are not offered 401(k)’s. Instead they typically must rely on what are known as 403(b) plans, many of which are more lightly regulated.

As a result, the people who do the most good in the world, spending their careers helping others in exchange for modest paychecks, often get the worst retirement plans. In fact, millions of people who save in 403(b) plans may be losing nearly $10 billion each year in excessive investment fees, according to a recent analysis by Aon, a retirement consultant.

“It’s a wealth transfer from those who don’t know any better — Main Street — to those who do: Wall Street,” said Scott Dauenhauer, a financial planner who works with public schoolteachers and as a consultant to school plans. “What makes me the most angry is that public school employees are not protected the same as their private sector counterparts.”

Named for a section of the tax code, many 403(b) accounts are riddled with complicated, expensive investment products that can cost their owners tens of thousands of dollars, if not more, over their careers. The 403(b) accounts that many workers contribute to are not subject to the more stringent federal rules and consumer protections that apply to 401(k) plans. In fact, of the $879 billion in total 403(b) assets, more than half is not subject to federal retirement plan rules, according to  Cerulli Associates, a research firm.

As for the NEA:

The union representative recommended a sales agent affiliated with the retirement program run by the National Education Association, a union with three million members.

But the union’s products weren’t much different from what the teachers already had.

The N.E.A.’s Member Benefits group, a subsidiary, exclusively endorses a set of products from Security Benefit, a financial services company with nearly $32 billion in total assets that creates fixed and variable annuities and offers mutual funds. (The union’s program for teachers receives at least $2.7 million from Security Benefit each year, according to regulatory filings, which it said it paid to operate the program.)

The products include an array of mutual funds, various annuities — and one lower-cost option in which investors can choose inexpensive index funds without a broker’s assistance. But most new money from school employees is invested in the mutual funds sold by brokers, according to Gary Phoebus, chief executive of N.E.A. Member Benefits.

Fees in that program range from 0.35 to 1.25 percent. But that doesn’t include another layer of expenses for the underlying investments, which run from 0.59 to 2.11 percent, according to Security Benefit, and in some cases additional sales or surrender charges

For comparison, total costs at a typical large 401(k) generally fall under 0.5 percent.

Mr. Phoebus defended the program, saying it offered a wide variety of options “to meet the diverse needs and comfort levels of members.” The goal, he explained, was to balance fees while providing access to advice.

However, some employees of the union itself, as opposed to its subsidiary, do receive a better deal. Many are offered a 401(k) retirement plan managed by Vanguard, a mutual fund company known for its low costs.

 

 

11 thoughts on “Keeping retirement weird. 403(b)s and the teacher pension rip off. And the NEA.

  1. My state teacher pension alone would never be enough to pay for the retirement travel that Anne and I have been looking forward to, and are enjoying at this very moment.

    So, good thing you were able to supplement your income with money from Hillary’s campaign, to disrupt the Chicago Trump rally. Bought & paid for by Bob Creamer (who is allegedly looking for a new job now, but with friends like Obama – whom he visited over 40 times in the White House – he should be back to kicking conservatives’ asses again soon. He’ll have more work for you soon, I’m sure.

    Do you get a pension for that type of work, Fred?

    • akivida–Why do you keep repeating the same things over & over?
      Fred, in addition to everyone else I know who went to the Trump non-event at UIC did not–#1-Disrupt the rally (standing outside–really?) & #2–did not take money.
      Get it?

  2. Seems like Becky Pringle has a lot to answer for. She’s been chairwoman of the board of NEA’s Member Benefits Corp since 2008, as NEA Treasurer, and based on NEA’s 990, she could have made up to $131k for doing so apart from her $322k NEA salary.

  3. These 403b type plans value to the employee varies drastically from company to company and also from employee to employee. Public employees of different income levels pay different rates of federal income tax, and some are in social security only, some are in social security and a pension (IMRF), while others (TRS and SURS for example) are not in social security. This is an important distinction. The sales rep showed me that the 403b is taken off of the gross income for social security and income tax, but not taken off of the gross amount that TRS and SURS employees have to pay into the retirement system each paycheck. Example, an employee under social security gets $2000 gross pay, and puts $100 into a 403b, the wages for social security are $1900. That saves the employee about $6.50 and ALSO saves the EMPLOYER $6.50. If the same employee under TRS or SURS gets $2000 gross pay, and puts $100 into a 403b, the employee pays about $8.50 into the retirement system on that $100. In both cases, the employee’s pay for INCOME TAX is counted at $1900 dollars, so they both save some on income tax, but not exactly the same total amounts. It’s so complicated the insurance salesperson has a laptop with different programs for each state, each pension system and each income level. The fees are high as you pointed out, that is why these companies push these things so hard, if you add up what they make if a Illinois TRS teacher signs up and stays in for 20 or 30 years, it’s A LOT OF MONEY! The school districts especially like their IMRF employees to put savings into a 403b, for each $100 the employee puts into the 403b, the school district saves about $6.50. The school district does not give that $6.50 savings to the employee. They keep it.

  4. I’m glad this is getting some press. Every time I try to explain this to people, they look at me like I have three heads.
    This is the biggest insurance scam/rip-off ever. Teachers and nurses have the “privilege” (they sell it like they’re doing you some kind of big favor) of being ripped off big time, compounded year after year by opaque fees and “charges.” Couldn’t wait to retire so I could get my money out of there.
    Read Daniel Solin’s “The Smartest 401(k) Book You’ll Ever Read.” They have it at the library. There’s a 403(b) chapter.
    Did this happen at the state level? Can teachers opt to open an IRA instead?
    Vanguard index funds are the only way to go.

  5. I will write more on this when you get back …just enjoy the trip.In the meantime akivida needs to watch the best ad ever…the Khan ad…and get back to us.

  6. Reblogged this on Mister Journalism: "Reading, Sharing, Discussing, Learning" and commented:
    Fred Klonsky writes: My state teacher pension alone would never be enough to pay for the retirement travel that Anne and I have been looking forward to, and are enjoying at this very moment.

    Tomorrow we will celebrate our 4oth wedding anniversary in the small French village of St. Emilion, in the region of Aquataine.

    But in addition to the public pension I earned over 30 years of teaching, we have other savings, including the money I pulled out of my paycheck and placed into a defined contribution annuity called a 403(b).

    This article in the New York Times is a must read for teachers who invest, or who invested, in one of these annuities. The Times includes among those who rip off teachers with these less regulated retirement investment plans, NEA Member Benefits.

    First, a personal story about the role of the NEA.
    Read Fred’s full blog post here: https://preaprez.wordpress.com/2016/10/22/keeping-retirement-weird-403bs-and-the-teacher-pension-rip-off-and-the-nea/

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