Friday, May 19, 2006

Illegals granted Social Security

Interesting. Someone from another country can come to the United States illegally and recieve Social Security benefits, but the Educators who teach our children (and the children of those here illegally) will be denied Social Security benefits they legally earned. I feel as if I am in the twilight zone.

Scott Dauenhauer, CFP, MSFP

Tuesday, May 16, 2006

Results expected soon in attorney general examination

Dick Iannuzzi - NYSUT President "There is no intermingling of NYSUT and Member Benefits funds. Any fees NYSUT’s Member Benefits Trust receives are used to fund the nearly 40 programs and services offered by the Trust. No money from the Trust or vendors is used to fund daily union operations." This quote is from

The linked to article also quotes Iannuzzi as saying "Member Benefits uses approximately half the fees from ING to directly enhance the benefits received by 403(b) participants, including providing term life insurance and a survivor financial counseling program to inservice participants; and a legal services plan and financial counseling program. The remainder of the fees are used to help cover the costs of administering the 403(b) offering and the more than 40 Member Benefits programs and services, Trust managers said. There is no mingling of Member Benefits funds and NYSUT funds, union leaders noted."

NYSUT admits to using the assets of a trust (the 403(b) plan) to fund other Member Benefits programs and services, this is egregious. In Iannuzzi's defense on the NYSUT website it does disclose the following:

"The ING Opportunity Plus Program is a NYSUT Member Benefits-endorsed program. Member Benefits receives an expense reimbursement/endorsement arrangement of $6.50 per NYSUT member for the year 2006 with a member cap of 515,000 for this program. All such reimbursements are used solely to defray the costs of administering Member Benefits programs and, where appropriate, to enhance them. Member Benefits acts as your advocate; please contact Member Benefits at 800-626-8101, if you experience a problem with any endorsed program."

I do not know if the prospectus specifically states this or if materials given to potential and current participants disclose what is going on.

I do know that using the assets of one trust to pay for benefits for another trust (with different beneficiaries) could easily be seen as a breach of fiduciary responsibility. Imagine if a school district started a 457(b) plan and required the investment provider to overcharge the participants so that it could use the funds to pay health benefit costs for the employees of the district - I am pretty sure NYSUT would be outreached at such a breach - yet they are doing the same thing.

As a fiduciary of the 403(b) program it is shocking that they would use plan assets to subsidize other programs. I believe this to be a breach of fiduciary responsibility and an abuse of trust - even if fully disclosed.


Wednesday, May 10, 2006

School System Sues Over Teachers' Retirement Planning

Not again.......

Scott Dauenhauer, CFP, MSFP

Spitzer vs. NYSUT

Elliot Spitzer is finally investigating the New York State United Teachers and their relationship with an endorsed product provider ING. I raised concerns about this relationship several years ago and send an e-mail to Sptizers office encouraging him to look at if a Fiduciary breach of responsibility is occuring. Nothing ever happened. Finally, thanks to a series of articles that have appeared in Forbes magazine, the LA Times, and other publications Spitzer is looking into this cozy relationship. What follows are links to a few of the articles - most require either a free subscription, some you must pay for the article (yea right, like we're going to pay for it)....

New York Times: Spitzer Studying ING's Tie to Teachers' Union

New York Post: Where's Elliot?

Reuters: New York AG probing teachers' union ties with ING

LA Times: New York Is Probing 401(k) Plans


I'll continue to follow this story and pass along all pertinent articles.

Scott Dauenhauer, CFP, MSFP

Tuesday, May 09, 2006

NEA Rebuttal

What follows is the NEA’s rebuttal to the LA Times article that came out a few weeks ago. I am still of the opinion that this program is not in the best interest of the members and that the NEA should discontinue it. I’ll follow up with my comments in a few days.

Scott Dauenhauer, CFP, MSFP

Some facts about NEA's Valuebuilder plan

On April 25, 2006 the Los Angeles Times published an article titled "Unions' Advice is Failing Teachers." The article suggests that teacher unions, including the National Education Association, sponsor 403(b) annuity products for their members to generate revenue for the sponsoring union. The article's conclusions are flawed and rooted in a misunderstanding of the K-12 403(b) marketplace and a misapplication of traditional 401(k) principles.

NEA Member Benefits is a wholly owned subsidiary of the National Education Association. Its mission is to provide the 2.8 million members of National Education Association, as a benefit of membership, the highest quality products and services at the lowest possible price. Although it is a for-profit company, it operates as close to a break-even margin as it can and any surpluses it may have are poured back into the services and products that NEA Member Benefits provides. It has made agreements with many of NEA's state affiliates to offer products and services to NEA members working in those states. Those states receive some compensation to facilitate the delivery of products and services.

No dues dollars are used to support NEA Member Benefits.

The following factual information is helpful in understanding NEA Member Benefits' Valuebuilder Program, along with background information to clarify and correct the misleading information in the article.

The facts about fees and expenses

NEA receives no money as a result of the sponsorship. NEA Member Benefits receives a relatively small payment from Security Benefit Group, the underwriter of the NEA Valuebuilder Program, to help market the program and ensure that the investments, relative to the marketplace, represent a good value for members. If NEA Member Benefits received no money from Security Benefit Group, there would be no material impact on the pricing of the product. The only impact would be lower quality, less visibility for the program, and fewer opportunities for members to participate in a great program.

While everyone prefers lower fees, research clearly indicates that NEA members want investment advice. Agents and brokers have been the best vehicle to provide that advice at a reasonable and disclosed price. For the segment of members who may want to do it on their own and enjoy the benefits of lower fees, we will be developing (assuming we can find a company willing to develop the product for us) a high-quality, low-cost product. NEA Member Benefits hopes to have this available by year's end.

403(b) and 401(k) plans are different

It is important to note that school district based 403(b) plans are not distributed in the same manner as employer-based 401(k) plans. In fact, there are significant differences between an employer with a centralized workforce, supported by a centralized HR department that provides a narrowly focused and often employer-matched 401(k) plan, and a school district with no employer plan or involvement, undifferentiated product offerings. One of the major differences is these decentralized plans often have substantial barriers to acquire the mechanism for making payroll deduction which enables tax-deferred contributions to an employee's investment of choice.

In a 401(k) environment, there are few barriers to participation so distribution costs in the form of brokers, financial planners and salespeople are not incurred. In a school district environment where work sites are spread across a city, county or municipality, there are huge barriers to participation. If it weren't for the information, service and support that brokers, financial planners and sales people provide, a large percentage of our members would not be participating in any investment plan at all, thereby losing the critical tax-deferred benefits and supplemental retirement savings opportunities that 403(b) annuities and mutual funds provide.

All things being equal - lower is better; but all things are NOT equal

All things being equal, lower fees are better, but everyone knows that things are usually not equal. In the late 1980s, NEA Member Benefits, in partnership with Mutual of America, created a very low-fee annuity program for members. The program was based on member activism, telephone support and no sales agents in the field to consult with members and obtain a mechanism for members to make contributions directly from their paychecks. After years of nurturing the program, it failed to appeal to members. In a retrospective evaluation of the program, members were asked in focus group sessions and surveys why they did not participate. Members indicated clearly that they preferred representatives, agents, brokers, and/or financial planners to help them understand investing and their investment choices. In addition, NEA members preferred to have representatives navigate the school district's administrative maze, to acquire the administrative mechanisms to make payroll deductions and participate in the program.

Programs to meet the unique needs of NEA members

Based on responses shared in multiple focus group sessions, individual interviews, and surveys, NEA Member Benefits reached the conclusion that it had an obligation to develop a program that would meet this specific need of the membership. Subsequently, the NEA Valuebuilder Program, a 403(b) program that provides members with face-to-face investment advice with quality, trained professional investment experts was developed and offered to members. The NEA Valuebuilder Program has a cost associated with it that members have explicitly expressed a willingness to pay. It is also worth noting that since its inception in 1991, the NEA Valuebuilder Program has become one of the best-received programs that NEA Member Benefits has developed for NEA members.

You can't compare apples to oranges

When compared to similar programs distributed by financial planners and brokers, the NEA Valuebuilder Program is very competitive. But you can't compare the NEAValuebuilder Program to programs that do not provide a similar level of service; this would clearly be comparing apples to oranges. Many people who have time and consider themselves to be savvy on investment matters want to make their own investment decisions, but research indicates that a large percentage of NEA members prefer to have assistance in making important investment decisions.

NEA Member Benefits understands that a segment of members are comfortable making these types of investment decisions without face-to-face consultations. NEA Member Benefits is developing a high-quality, low-cost, phone and Internet-driven product to meet the needs of these members. Unfortunately, there are not many companies interested in providing this type of program. It is not because of fees "the union" would demand for sponsorship; it is because those companies understand the barriers and the difficulty in providing high-quality, low-cost products, in the decentralized school district environment. Companies like TIAA-CREF and Vanguard have indicated that they can't reach critical mass in a program that has to acquire payroll slots and communicate a complex investment message, without an on-site expert.

NEA Member Benefits is very proud of the NEA Valuebuilder Program. If you have any questions, please email them to Gary Phoebus, president, NEA Member Benefits Corporation or John Wendland at For more information you may also visit

Wednesday, May 03, 2006

Special Problems Areas for Pensions

Special Problems Areas for Pensions

Not sure of the agenda of this organization - but they are correct in there assessment.


Teachers union criticized for pushing retirement plan --

Teachers union criticized for pushing retirement plan --

This isn't news, but perhaps it will have some positive effect. I've sent e-mails to Spitzers office, the SEC, and the NASD about the ING plan offered by NYSUT over the past several years and have never gotten a response (perhaps because Spitzer needs NYSUT to get elected Governor). I am doubtful anything will happen, but am glad to see this finally getting publicity. I believe a national revolution is forming and that the 403(b) will look very different 10 years from now.


Unions' Advice Is Failing Teachers - Los Angeles Times

Unions' Advice Is Failing Teachers - Los Angeles Times

Kathy Kristof's article on how unions are failing our teachers when it comes to the 403(b) and 457(b). I believe our unions (of which my wife is a dues paying member) can make a huge positive difference in the 403(b) world if they really wanted to, the question remains whether they want to. The only way they will change is if the membership lets them know that they want help. Send this article to your local, state, and national union leadership.


403(b)wise : Features : One Educator's Take on the NEA and the 403(b)

403(b)wise : Features : One Educator's Take on the NEA and the 403(b)

I started the assault on the NEA Valuebuilder product several years ago with an article entitled "Does the NEA Practice What It Preaches," since then several other people have come to the same conclusion. Kathy Kristof (article to follow) of the LA Times wrote about it recently and now a member and former product owner of the Valuebuilder has written an article. The article is posted on


New retirement savings plan is portable for school workers

The Bristol Press - New retirement savings plan is portable for school workers

Ok, the Connecticut Association of School Business Officials has created a 457 plan - great. They say it is low in cost, however they have partnered with ING, a company that is not known for low cost plans. Furthermore, they fail to mention that the funding mechanism for the 457 plan is a Group Annuity Contract. Why would they adopt a variable annuity for their funding vehicle? If they were truly looking to offer a great product at a great price they would not have settled for a Group Annuity Contract. There was no disclosure of expenses and in fact I did not see any mention of fees in the motion passed by the CASBO board in November.

I am doubtful that is plan is what it is says it is - though I am willing to review it if CASBO would like to put out a press release disclosing all the costs and how to get a copy of the prospectus and state publicly that they don't recieve any money from ING.

The article cites the Ohio 457 plan, they are right, it is a good plan, and it has $6 billion in assets and low costs. It utlizes mutual funds, not an annuity contract (though the recordkeeper is an insurance company).

I'm not optimistic at this point as I have seen other endorsements by ASBO states of 457 plans that turned out to be turkeys.


Court Blocks W.Va. Pension Merger

News Articles [] - Court Blocks W.Va. Pension Merger

The closing of West Virgina's DC plan and the folding of it back into the DB plan (pension) is hitting some snags. This is something to watch if only because it will be used to show that switching to a DC plan or giving a DC plan as an alternative doesn't work in the public sector. Whether true or not, this will be a landmark event.