I've written recently about the issues surrounding the latest reports put out by the National Tax-deferred Savings Association (NTSA), a lobbying organization for insurance agents, brokers and vendors who market to public school employees. The report used statistics to mislead readers into believing things that haven't been proven. You can read the article here.
Now the NTSA and two of its members are teaming up to present the report to the leaders of the CT ASBO. Why this conflicted organization was invited is not clear to me, though it does appear AXA is a member. These three highly conflicted organizations should not have a seat at the table.
I've included a copy of the presentation that was made, see below.
You'll immediately notice the push for "education," which of course will be fulfilled by members of NTSA and their new designation program. The new education program is, in my opinion, just a trojan horse. Under the guise of education, the representatives of insurance companies will use the opportunity to sell financial products.
You'll also see who has served on the CT ASBO Financial Services Coalition, it's a who's who of some of the worst players in the 403(b) industry.
One slide, in particular, is demonstrative of why the NTSA shouldn't be allowed to provide education. In the slide, they use an 8% growth rate (which is overly optimistic) and compare a pre-tax account to a taxable account. The problem is that they only portray the accumulation, which advantages the pre-tax account, they don't show the de-cumulation time period. The slide isn't even necessary, yet it's misleading (for no apparent reason).
On several slides, they summarize the findings in the report mentioned above (which I thoroughly debunked). The NTSA is fully aware that the report they put out would not pass any academic muster, it's just a propaganda piece. This is a situation in which a good bit of propaganda works. The entire point of the presentation is to preserve their precious payroll slots and expand their insurance rep and broker access to the campuses.
They even had the gall to present a slide on fees and why they matter, acting like they care about fees even though their goal seems to be to ensure a fiduciary doesn't provide the education to employees. They are VERY concerned that they won't be the ones providing the education.
Another slide talks about another fake study that AXA put out last year about how vital Advisors are. While I agree that an advisor is essential and can make a difference, what is not mentioned is that the NTSA, AXA, and VALIC representatives almost exclusively don't provide advice as Registered Investment Advisors or Investment Advisor Reps. If they do so, they are not and will not commit to being a fiduciary in 100% of their dealings with school district employees (note: there might be a few full-time fiduciaries now who are members of the NTSA, but this would represent a minority).
The vendors and agents who sell products to teachers have a powerful lobby. They are backed by deep pockets with significant incentives. School employees should be fully informed about these conflicts. Relying on the NTSA to provide balanced financial education is a terrible idea and can only lead to a more significant percentage of school teachers income going into the pockets of an insurance company.
What schools need is auto-enroll, coalitions that provide truly unbiased financial education and low-cost vendor access.
Friday, March 15, 2019
Monday, February 04, 2019
Recently, the National Tax-Deferred Savings Association (NTSA, an entity that exists to lobby on behalf of vendors and salespeople to government 403(b) & 457(b) plans) released a report titled “Improving Retirement Savings for America’s Public Educators” in which it aims to provide evidence that increasing or maintaining (many) choices for public educators increases participation. After reading the report, I found no evidence to support the conclusions reached. Further, I believe those conclusions were reached through clever misrepresentations of the data to justify a primary goal of the NTSA, which is to “Prevent elimination or limitation of retirement plan options for public employees.”
The one thing you must know about government 403(b) plans to understand this report is, unlike 401(k) plans, there are usually multiple vendors. Public school employers rarely offer less than five 403(b) vendors and sometimes over sixty. Each vendor might offer numerous products sold by a long list of (typically) insurance agents. It can be very confusing as there is not a single place to go to get unbiased information.
Insurance companies and their agents rely on the multiple vendor system to maintain their ability to sell retail products to public school employees. If a school district were to consolidate vendors and use the purchasing power of their employees to gain better pricing (think of this like a Costco using it’s buying power to buy wholesale) the sales agents and their product providers would either be out of business or would need to find a new market in which to sell their expensive products. There is a significant interest in maintaining the status quo of multiple vendors in public schools as the insurance companies and their agents are making billions of dollars from it. In recent years, a trend toward fewer, higher quality and lower cost vendors have threatened these insurance companies and this report is an effort to sway the public into believing that our nation’s teachers are better off buying at retail, rather than wholesale prices.
As I started reading the report, I found myself agreeing with some of it. The first paragraph of the Executive Summary was well written, and I agree that “…the importance of personal savings in 403(b) plans is more critical to their retirement security than ever.” The report then goes on to promote the association's members as the solution, but disguised as “research.” This access to data could have potentially been used to improve these plans; instead, it's used to justify the status quo.
The main conclusion was that “The data shows a decrease in the participation rates for 403(b) plans when the number of choices are reduced.” If true, this report would be evidence that Nobel winning research on behavioral finance is wrong. However, it’s not true. The data doesn’t confirm the claims, and it should concern everyone involved that it’s represented as something it’s not.
Have you ever heard the phrase “don’t confuse correlation with causation”? It’s a common phrase in the world of academia (and statistics) that means because two things happen to be correlated, one didn't necessarily cause the other.
Tyler Vigen maintains a website that demonstrates the absurdity that arises when we connect things which aren’t related. Let me give you a few examples to make the concept more relatable:
Did you know that between 1999 and 2009 the number of people who drowned by falling into a pool closely correlated with films in which Nicolas Cage appeared? The data is irrefutable, both went up or down together, but you can rest assured that the next time Cage appears in a film, there will not be an increased risk of falling into a pool and drowning. Sometimes two things that are entirely unrelated look like they are related. Statisticians have many ways to attempt to tease out what is, in fact, a true correlation and what is just a coincidence.
Did you know that every year people die by becoming tangled in their bedsheets? I had no idea. However, did you also know that per capita cheese consumption highly correlates with those deaths? If only we could get people to eat less cheese, we could save so many people from needless tangled bedsheet deaths.
It’s ALWAYS better to have a younger Miss America. No, I'm not misogynistic or ageist, I care about people murdered by steam, hot vapors and hot objects. The data clearly shows that the older Miss America is, the more murders by hot objects there are, the information seems to indicate we should stay away from anyone over 20 years of age.
I could go on and on. Tyler Vigen ended up writing a book showing all sorts of crazy things that correlate. My main point, just because two things relate, even if it might make sense that they are correlated, it doesn’t mean one is caused by the other, the work to prove causation is still ahead of you.
My problem with the NTSA report is that it doesn’t do the work to prove any of the claims made from the data. They merely cite correlations; they don’t prove causation (or even attempt it).
The central claim of the report (on page 4) is that “The research revealed that the number one factor driving participation and savings rates in school districts is participant choice.” and that,
“Simply stated, the data reveals a positive and significant correlation between the number of choices/advisors and participation.” The author might be correct that "the data reveals a positive and significant correlation,” but we can’t know that because so far the NTSA has refused to release the data. Notice that the claim is made real by the evidence of the data correlation? In other words, the NTSA is saying that because there is a positive correlation, therefore higher numbers of vendors CAUSE higher participation. However, didn’t we learn that correlation is NOT causation? Just because two variables are linked, it doesn’t mean one is caused by the other.
The NTSA has committed an academic foul here; they aren’t lying, the data DOES correlate. However, they spend no time attempting to find out if the correlation is just a coincidence or if it's caused by other factors (such as the age of the population, employer pay scales, the simplicity of enrollment process, employer-provided education, rural vs. urban area, teacher pay, the strength of the defined benefit plan, access to Social Security, etc.). All of the work is still ahead of the NTSA, they’ve not proved, as the report states, that more vendors lead to higher participation (or that reducing vendors causes participation to fall). They’ve only found a correlation. Interestingly, the correlation they found is the one they wanted to find, curious.
I’ve spent hours tearing apart this report claim by claim and wrote the framework for a six-page paper, but such a long piece would be boring. Why be boring when a short article on correlation and causation completely discredits the report.
The bottom line here is that this report is not worth reading or citing, it is industry propaganda to maintain the status quo. There are solutions to increasing participation, adding more vendors is not one of them.
It shouldn’t surprise you that the industry put out “research” that shows how much you need them, but this report should be taken with a grain of salt. If you want to understand better how 403(b) plans can be improved, I suggest the website run by my esteemed colleague, Dr. Dan Otter, www.403bwise.com. Dan’s site sometimes correlates learning with wittiness, but I’ve not yet been able to prove causation!
Author's note: I've been tough on the NTSA (formerly NTSAA) over the years and for good reason, they've consistently worked on behalf of salespeople and mostly low-quality vendors under the guise of representing public school educators. In recent years they've made a few changes that I feel are positive and there are some people involved in leadership whom I respect (even if I disagree with them). My hope with this piece is to convince the NTSA to let the data lead them, not the other way around.
Friday, November 02, 2018
Read this whole thread, worth it.
1/ PART 1 of 4— Meb Faber (@MebFaber) October 29, 2018
Let's talk about investing expectations.
Investors typically expect 10% returns on their portfolio. Most pension fund expect around 8%.
** Millennials expect 11.7% per year. And 20% of you expect 20%+ returns. https://t.co/2aifwCu7I9
Wednesday, October 17, 2018
Vanguard is sending out letters to Plan Sponsors letting them know that the target date offerings within their Custodial 403(b) product (for public school employees) is changing to the Institutional share class. The Institutional share class has a minimum of $100 million requirement for most plan sponsors, but now participants in multi-vendor 403(b) will gain access to them. Vanguard says:
The expense ratios for the current offering of Vanguard Target Retirement Funds range from 0.13% to 0.15% (between $1.30 and $1.50 for every $1,000 invested). Each Vanguard Institutional Target Retirement Fund, in comparison, has an expense ratio of 0.09% ($0.90 for every $1,000 invested).I've attached the letter below.