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.