Tuesday, December 18, 2007

Gatekeeper - New Regulations & Updates

Gatekeeper - New Regulations & Updates

Good synopsis of additional guidance and model plan language recently released by the IRS.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, November 19, 2007

Swindler gets 9 years in prison for scamming Danville neighbors

Swindler gets 9 years in prison for scamming Danville neighbors

Bill Reimers, the now infamous con artist who ran Plan Compliance Group and a few investment advisory services is going to jail, though not until January.

Why this creep gets to spend Christmas outside of a jail cell and with his family is beyond me. Why he only gets nine years is also beyond me. This is a guy who stole millions of dollars from everyday people - people who couldn't afford to be swindled, many of which won't be able to live anything close to a retirement as they had once imagined.

I personally know some of the victims and it really makes me irate. I hope God will forgive him, I don't think many of his victims will.

The question remains whether crime actually pays - how many of you really believe he'll serve nine years? He'll be out probably within five and perhaps some of the money that he stole still hasn't been accounted for - who knows where it all went.

I for one would like to know the full story, perhaps Reimers can write a book while in prison - maybe even sell a few copies and provide a little restitution to those people he hurt so badly.

For now we will close this book and move on, learning a little something that will hopefully allow others not to be taken for a ride.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, October 29, 2007

Teacher retirement plans more limited, confusing

Article by Pamela Yip on the new 403(b) regulations and how they'll affect normal, everyday teachers - it isn't looking good.

Scott Dauenhauer, CFP, MSFP, AIF

Thursday, October 25, 2007

Motley Fool Skewers AIG VALIC on Fees

Is Your Retirement Plan Robbing You Blind?

The Motley Fool's Tim Hanson skewers AIG VALIC in article about his wife's high fee account. Tim's wife is a school teacher who is forced to use AIG VALIC and her account experiences excessively high fees, you'll enjoy this read - its not just educational, its kind of funny to read and imagine Tim getting all worked up!


Wednesday, October 24, 2007



The New York Post joins the Los Angeles Times in ripping the NEA for continuing to sell the ridiculously expensive NEA Valuebuilder product to teachers (we like to refer to it as the ValueKiller).

My wife is an NEA member as are most of my clients - they want their union to stand up for them, not use them.

When will the NEA begin treating the 403(b) and 457(b) like they do healthcare and advocate for a better system instead of profiting from the current one.

Luckily many state affiliates do not follow the NEA lead and working to better the 403(b), cheers to those affiliates.


Wednesday, October 17, 2007

AIG VALIC Launches New Low-Cost, No-Load Mutual Fund Platform in 403(b) Market

AIGVALIC, the largest purveyor of 403(b) products to k-12 school districts has launched a "no-load" product called the "Profile Retirement Program". Interestingly enough the program is not to be easily found, or found at all on their website and the press release that appears above on BusinessWire is not found on their Press Room section of their website......wierd. Is it possible that this program is simply a ploy to answer the critics that their products are too expensive? They can now say, "but we have a no-load product". This isn't a serious attempt to help employees lower costs, it appears to just be PR - otherwise why an announcement, but no details.

The product is available through 403(b) Compare, but the disclosure is not exactly eye-opening either as they give a range of fees, not the exact fee. The underyling investment options appear to be priced around .70%, with the S & P fund priced at .36%. However, AIGVALIC can charge a wrap fee of up to 1.00% and up to an additional .65% if the "Guided Portfolio" is chosen. Doesn't sound low-cost, but at least it's no-load!

I'll give you more information if and when AIGVALIC decides to distribute it.

In a parallel story, the NEA has come out with their own no-load product (about five years after saying they would do so). The name of the product is DirectInvest Online and is also a difficult product to find out information on. It is not registered on 403bCompare.com and thus not available in California. I had to type in "directinvest" in the search box at www.neamb.com and then click on a press release, which then had a link to the special website. If you are looking for this product to be marketed on the "Investments" section you will not find it. The website is located here. Amazingly there is little info on this site unless you really dig - for example, the fact sheets for each investment option do not list the expense ratio of the fund.....how difficult would that be to add to a sheet that is supposed to give THE FACTS?

There are four index funds and the Target Date's are done by T. Rowe Price, a good company.

The main question an investor must ask themselves is why they would choose AIGVALIC or NEA Valuebuilder for their 403(b)? Neither product is that low in cost, though they are no-load and there are much better choices out there for individuals if they want to go direct. These two products might be alluring for those individuals in school districts that have a limited provider list and offer the high cost VALIC and Valuebuilder products - through those payroll slots you should be able to access these lower cost, no-load products and thus have at least a decent option.....that is of course if you can find out any information on them.

Scott Dauenhauer, CFP, MSFP, AIF

The Free Fallacy - Why Free 403(b) TPA's Are A Bad Idea

This is a piece I wrote that I believe is one of the most important papers I've written since "Does The NEA Practice What It Preaches" back in 2001. This paper, like the last is an expose on the industry that is attempting to serve school districts across the United States in relation to their compliance for 403(b) retirement plans. A bevy of Third Party Administrators of 403(b) Compliance have popped up to offer "Free" compliance services, or low-priced compliance service - but they are all driven by product sales.

The compliance piece is simply a way to get to school employees to sell them product, not a comprehensive plan to keep them in compliance.

My paper examines the true costs of these "Free" TPA's and concludes that they are a bad idea and probably a lawsuit waiting to happen.

Scott Dauenhauer, CFP, MSFP, AIF

Wednesday, September 19, 2007

Time to find yourself a new broker :: Herald News :: Malcolm Berko

Time to find yourself a new broker :: Herald News :: Malcolm Berko

My letter to the Chicago Sun Times regarding a complete idiot "Advisor" columnist.

I am a fee-only financial planner who works with many teachers. I co-authored The 403b Wise Guide along with Dan Otter of www.403bwise.com (the #1 site on the internet for unbiased 403(b) information). I also consult with one of the largest pension systems in the world on their 403(b) plans.

After reading Malcom Berko's absolutely appalling response to F.L. in the above referenced article I had to write you. Not only did he refer to educators as dumb, but he made fun of the couple's lifesavings, calling it "pathetic". You should never allow him to write for your publication again and should immediately begin an investigation to see how he has unduly profited from this column. He should also be forced to make a written apology.

While I agree with the his assessment that the High Yield funds are a rotten idea, the way he talks down to the educators and berates them (how does he know what they've been through in their 31 years, maybe they had to scrimp to get to that $231k figure) is out of line and uncalled for.

What is worse is that he calls out the brokerage firm for recommending commission based products and then recommends commission based variable annuity products that will make him around 7% commission (more than the 4.75% that he berates the other broker for). The products that he is selling are horrible and excessively expensive, probably around 3% in annual fees or more. The guarantees come with catches that he fails to mention.

You would be wise to remove this ticking time bomb and replace him with someone who is less conflicted or not replace him at all.

This is one of the most self serving columns I've ever read.

I urge you to get rid of Malcom Berko.

Scott Dauenhauer, CFP, MSFP, AIF
Laguna Hills, CA 92563

Monday, September 17, 2007

403(b) Company, American Fidelity Banned By Pentagon

American Fidelity, a company that markets 403(b) and other programs has been banned by the Pentagon from military bases throughout the United States as the linked document above will show.

They were banned from deceptive sales practices and other stuff that you can read about.

Why is it that the military can ban these people, but they are free to roam my wife's school district?

Why in California can this company continue to harass school teachers and be protected by law (insurance code section 770.3). Under current California law if American Fidelity is willing to sign a hold harmless agreement with a school district they can offer their products and services........a district can not ban them. This is ridiculous.

Scott Dauenhauer, CFP, MSFP, AIF

Updated 403(b) Regulations – an In-Depth Review

Deloitte's take on the new regs.

Scott Dauenhauer, CFP, MSFP, AIF

Dechert Publishes Newsletter on 403(b) Regs

Yet another law firm with yet another offering of information on the 403(b) regulations.

Nothing new here.

Scott Dauenhauer, CFP, MSFP, AIF

ICI Begs IRS To Extend 90-24 deadline

I'll reprint the entire letter - keep in mind I don't necessarily support it, just an FYI.

Scott Dauenhauer, CFP, MSFP, AIF

September 12, 2007

Mr. W. Thomas Reeder
Benefits Tax Counsel
Department of the Treasury
1500 Pennsylvania Ave., NW, Room 3120
Washington, DC 20220

Re: Final Regulations Under Code Section 403(b)

Dear Mr. Reeder:

The Investment Company Institute1 appreciates this opportunity to comment on the final regulations governing 403(b) arrangements issued in July. We commend the Department of the Treasury and Internal Revenue Service for undertaking a comprehensive review and codification of the guidance issued under Code section 403(b) over the last 40 years. On behalf of Institute members, who offer investments and provide services to 403(b) participants,2 we write to request a delayed effective date with respect to one aspect of the regulations - the elimination of transfers and exchanges made pursuant to Revenue Ruling 90-24. We also seek certain additional guidance on several issues relating to the regulations.

Table of Contents

Extension of Rev. Rul. 90-24 Transfers
Additional Guidance
1. Reporting and Withholding for Exchanges
2. Accumulated Benefit
3. Significance of September 24, 2007 and Grandfathering
4. Orphaned Accounts
Extension of Rev. Rul. 90-24 Transfers
The final regulations make significant changes to the ability of participants to transfer their investments, as previously permitted under Revenue Ruling 90-24. Under a grandfather rule, the new rules for contract exchanges, which include certain plan provision requirements and an information sharing agreement, do not apply to contracts received in an exchange on or before September 24, 2007 (60 days after publication of the regulations). While we appreciate the goals that underlie the decision of the Treasury and IRS to eliminate unfettered transferability, 60 days does not provide enough time for providers, employers, and participants to react to this major policy change. Providers of 403(b) investments have designed their systems around this transferability and individuals have grown to rely on it. We urge the Treasury and IRS to extend the deadline until December 31, 2008 to coincide with the general applicability date of the regulations.

Participants and employers in the education field are particularly disadvantaged by the timing of this change. Most schools start their school year mere weeks before the change takes effect, and the resources needed to explain the new rules to participants will be limited at this critical time. As a result, participants may be blindsided by the abrupt cut off of their ability to move assets to investment choices not offered by their employer.

As employers and service providers analyze the new regulations, they must make decisions about how to proceed once the new rules go into effect, including whether to permit exchanges or transfers as part of their plan or business model. Many considerations enter into these decisions and providers need more time to fully understand the regulations and their implications for providers and employers.3 As described below, our members already have identified several issues as having immediate relevance during the transition period beginning after September 24, 2007. More generally, providers that determine to continue to permit transfers from existing contracts after September 24, must be given ample time to develop systems to track the transfers (for reporting purposes) and develop any new forms necessary for approving the transfer. Providers also need time to train processors, who must be able to comprehend the subtle differences between transfers, exchanges, rollovers and taxable distributions.

We urge you to consider the practical realities facing sponsors, providers and participants as they adapt to the new 403(b) landscape by delaying the effective date of the new transfer rules until December 31, 2008.

Additional Guidance
Although the final regulations are extremely helpful in codifying prior guidance and providing certainty with respect to many areas of 403(b) plan operation, we believe additional guidance in several areas would help employers and service providers meet the requirements of the regulations. In the short period of time since the final regulations were published, Institute members have identified several points that would benefit from immediate clarification. Many of these issues relate to the uncertain landscape after September 24, 2007 and are further evidence of the need for an extension of that deadline. As the new rules are put into practice in the coming months, we may communicate additional issues on which guidance is needed.

1. Reporting and Withholding for Exchanges
For contract exchanges taking place between September 24, 2007 (or such later date specified in future guidance) and January 1, 2009, the transferring vendor may not know whether the information sharing agreement and/or other required documentation will be in place by January 1, 2009, the compliance date of the regulations. This has significant implications for a vendor's reporting and withholding obligations. For all exchanges under the new rules, including exchanges after January 1, 2009, we request confirmation that a transferring vendor may rely on the employer's representation that the exchange will be legitimized by either an information sharing agreement or the requisite plan and contract provisions, as the case may be. 4 If the transferring vendor receives no such representation, the vendor must determine how to report the transaction and whether to withhold income taxes on the amount distributed or transferred. Guidance would be helpful particularly on whether the transaction should be reported on Form 1099-R, and if so, how it should be coded. If a new code is provided, systems must be reprogrammed to accept the new code.

2. Accumulated Benefit
One of the requirements for a qualifying contract exchange or plan-to-plan transfer is that the participant's accumulated benefit immediately after the exchange or transfer be at least equal to the accumulated benefit immediately before the exchange or transfer (satisfaction of Code section 414(l)(1) is deemed sufficient). Mutual fund redemptions from 403(b)(7) custodial accounts may involve contingent deferred sales charges or redemption fees (which apply in a variety of contexts and are disclosed to investors). Similarly, some mutual funds involve front-end charges. Vendors would like comfort that these types of charges, which are otherwise permissible and serve legitimate purposes, would not violate the accumulated benefit restrictions in §1.403(b)-10(b).

3. Significance of September 24, 2007 and Grandfathering
We request confirmation that the date of September 24, 2007 (or such later date specified in future guidance) relates solely to the elimination of the current transfer rules under Rev. Rul. 90-24 and the grandfathering of transfers and exchanges made on or before that date. There is confusion surrounding whether certain other new rules might apply immediately after September 24, 2007, rather than on January 1, 2009. For example, certain verbal statements made by representatives of the IRS and Treasury after release of the final regulations imply that employer authorization requirements under the final regulations apply to distributions taken from non-grandfathered accounts after September 24, 2007.5 In addition, further guidance on what it means for a contract to be grandfathered would be helpful. For example, it is unclear whether distributions from grandfathered contracts will be subject to employer approval once the distribution rules become applicable. Similarly, there have been verbal indications that loans from grandfathered accounts will require an information sharing agreement. These interpretations are not expressly stated in the regulations and appear to be inconsistent with the notion of grandfathering.

4. Orphaned Accounts
Guidance on how the regulations apply to so-called "orphaned" accounts will be most helpful. Particularly when the employer no longer exists, the employer authorization requirement will be impossible to meet. Similarly, where the individual account-holder is no longer employed by the sponsoring employer and the vendor does not know the identity of that employer, compliance will be difficult. One option for dealing with orphaned accounts is to roll over the accounts into IRAs during the transition period, but providers would like comfort that this would entail no adverse consequences to participants.

* * *

The Institute appreciates your consideration of these matters. We would be happy to discuss any of the issues raised in this letter at your convenience. Please contact the undersigned at 202/326-5821 if you have any questions.


Elena Barone
Assistant Counsel - Pension Regulation

cc: William Bortz, Department of the Treasury
Robert Architect, Internal Revenue Service
John Tolleris, Internal Revenue Service
Lisa Mojiri-Azad, Internal Revenue Service

1 ICI members include 8,803 open-end investment companies (mutual funds), 671 closed-end investment companies, 457 exchange-traded funds, and four sponsors of unit investment trusts. Mutual fund members of ICI have total assets of approximately $11.140 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 93.9 million shareholders in more than 53.8 million households.
2 According to Institute estimates, $363 billion (53 percent) of 403(b) assets were invested in mutual funds as of December 31, 2006. The U.S. Retirement Market, 2006, Research Fundamentals, Vol. 16, No. 3, Investment Company Institute (July 2007).
3 Some providers may determine that they are bound to permit exchanges under existing contracts. We note that under state law, annuity contracts may be required to provide for ongoing transfers. Providers must have time to evaluate how the new requirements interact with their existing contract and state insurance law obligations.
4 Clarification would be helpful on whether the information sharing agreement requirement applies in all cases, or only to exchanges to outside vendors. The regulations are written in a way that applies this requirement to any exchange treated as being "within the same plan." Staff have suggested orally, however, that it applies only to exchanges to outside vendors. If the information sharing agreement does not apply to vendors "approved" by the plan (in which case information sharing presumably would be reflected in the service agreement or plan document), then it would be helpful to clarify what constitutes an approved vendor. For example, approved vendors could include only accounts to which salary deferrals may be directed, or additionally, accounts to which deferrals are not permitted, but that are designated in the plan document as "approved vendors" for exchanges.
5 Applying these rules earlier than January 1, 2009 would create significant compliance burdens, particularly when a third party has been used as a clearinghouse for remitting contributions and the account was never linked to an employer. It will take some time for providers to identify the correct employers.

Wednesday, September 12, 2007


Just to give you an update on Plan Compliance Group and "Bill" Reimers......

He pled guilty on March 23rd to bilking investors and school districts out of $7 million dollars. His sentencing will be on October 26th. He could get up to 20 years on each of 7 counts.

Plan Compliance Group was a Third Party Administrator of 403(b) plans in California.

In addition, Hal Hopkins of Flagship Admin, a TPA out of Ohio plead guilty to 39 Felony counts and will have a sentencing hearing on November 19th.

On Yet another TPA that went bankrupt and stole customer funds, NEBSOnline, the former CEO Bruce Kosinski became ill and died on March 13, 2007. He is the second person from the company to die since the company went under, the first, the CFO committed Suicide. The bankruptcy dissolution is still underway, but almost finished.

That is the update on the three TPA's that have gone belly up and stolen district money in the past three years.

Bottomline - Districts need to be more careful with whom they choose as a TPA.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, September 10, 2007

Friday, September 07, 2007

Nonprofit workers face retirement-plan deadline - Money Magazine

Penelope Wang of Money Magazine interviewed Dan Otter and yours truly the other day and wrote an excellent article on what educators need to do immediately - evaluate your current 403(b) and think about switching it.

Read the article, you'll be better for it.

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, September 04, 2007

Shift 403(b) assets by Sept. 24, or else

Good overview of what teachers need to do RIGHT NOW.

David Ranii

"Now is the time for teachers and nonprofit employees with 403(b) retirement plans to assess their investments.

Right now.

On Sept. 24, new Internal Revenue Service regulations take effect that make it more difficult for employees to shift the assets in their 403(b) accounts from one provider of mutual funds and other investments -- such as Fidelity Investments or Charles Schwab -- to another without suffering a tax penalty."

Follow the title link for the rest of the article.

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, August 28, 2007

GPO - BS....Government Pension Offset B.S.

The Government Pension Offset is an arcane provision of Social Security that unfairly punishes those who work for the government and earn a pension.

A client of mine is a teacher and her husband died a few years ago. He paid into Social Security his whole life, however his wife, my client, will never see a dime of it. The culprit: she will receive a pension from CalSTRS (California State Teachers Retirement System)....of which she contributed to and earned on her own account. My client is punished for working and will have a harder time in retirement because she will not receive income that her husband worked very hard for and for which he gave up 12.4% of his income during his lifetime.

Had my client's husband had a large life insurance policy that allowed my client to no longer work (after her husbands death) she COULD collect social security survivor benefits, but because she works for a government institution...nothing. Does this make any sense?

In my opinion this is flat out thievery. There is no other way to describe it.

I understand the Windfall Elimination Provision, however the Government Pension Offset is just ridiculous and should be repealed retroactively. We need to restore some sense of honor to our citizens who work hard and pay into a system that they are promised to get something out of.

Thanks for listening - call or e-mail your congressman and senator about this issue.

Scott Dauenhauer

Monday, August 27, 2007

90-24 Today, Tomorrow, and Beyond

McKay Hochman - Commentary

This is a link to a quick primer on what we can expect with the new 90-24 rule and timeframes, every school district needs to read this (as well as participants). It is vital that school districts have a plan for dealing with this issue, the risks are too great to wait.

Scott Dauenhauer CFP, MSFP, AIF

Monday, August 13, 2007

Mistakes We See - 403(b) - Reish

Mistakes We See (August 2007)

A good, short article about the mistakes Reish sees in 403(b) plans, districts should take note.

Scott Dauenhauer CFP, MSFP, AIF

Monday, August 06, 2007

New 403(b) Transfer Rules

403(b)wise : Features : New 403(b) Transfer Rules

Dan Otter of 403bwise.com and author of Teach and Retire Rich has put together a great piece on 90-24 transfers and how they will change come the end of September 2007. This is a must read.

Scott Dauenhauer CFP, MSFP, AIF

Monday, July 30, 2007

Social Security Offset Explanations

NAGDCA Newsletter - Summer 2007

A pretty good explanation of the two Social Security provisions that could eliminate Social Security Benefits for teachers in 13 states.

Scott Dauenhauer CFP, MSFP, AIF

Jobs, News and Views for All of Higher Education - Inside Higher Ed :: IRS Issues Rules for Defined Benefit Plans

Jobs, News and Views for All of Higher Education - Inside Higher Ed :: IRS Issues Rules for Defined Benefit Plans

Another brief overview of the regs, evidently Bob Architect of the IRS has been out speaking about the new regs. It is very important that school districts begin making decisions.

Scott Dauenhauer

IRS issues final regulations providing comprehensive guidance on 403(b) plans - 7/30/07

IRS issues final regulations providing comprehensive guidance on 403(b) plans - 7/30/07

Another overview of the Final 403(b) regulations.

Scott Dauenhauer

Sunday, July 29, 2007

Teacher gets schooled on retirement plans :: The Courier News :: Malcolm Berko

Teacher gets schooled on retirement plans :: The Courier News :: Malcolm Berko

Interesting response to the this persons predicament.....a high cost, poor performing 403(b) plan.

I, however, will not endorse the answer. I'm still not sure the answer is a lawsuit, but I do fear that school districts are setting themselves up for them.

Scott Dauenhauer CFP, MSFP, AIF

Saturday, July 28, 2007

Big Change to Teachers' Funds

Big Change to Teachers' Funds
Clearer Rules, New Options
Are Coming in 403(b) Plans
July 28, 2007

The retirement savings plans available to most teachers and many nonprofit employees are about to get a dramatic makeover.

The Treasury Department and IRS have issued long-awaited regulations that will make the 403(b) savings plan look more like its younger cousin, the 401(k) retirement savings plan.

• The News: Retirement-savings plans for teachers and others, known as 403(b) plans, will look more like 401(k)s.
• The Upside: Clearer rules, perhaps lower-cost choices.
• The Downside: Less flexibility to move assets. The new rules will allow transfers only to 403(b) investment managers with which the district or employer has a relationship.

For investors in these plans, the changes will mean clearer explanations of the plans from their employers and, eventually, lower-cost investment options with potentially higher returns. Some of the big mutual-fund firms may benefit at the expense of some insurance firms and the agents who sold investments to teachers.

Less Flexibility

However, investors will lose much of the flexibility they now have to move their assets to any investment manager offering a 403(b) vehicle. And plan sponsors -- the employers -- will have to ratchet up their oversight and involvement in their employees' retirement plans.

"There's going to be a shake-up in the industry," says D.J. Lucey, an analyst at Cerulli Associates, a consulting firm.

Like 401(k)s, 403(b) plans are defined-contribution retirement plans, where the amount of money withdrawn at retirement is determined by how much money is set aside and how that money performs when it's invested. Money is set aside pretax. Usually colleges, school districts and not-for-profit employers including hospitals are eligible for 403(b) plans.

The plans were introduced in the 1950s, with few administrative demands on the employers sponsoring them. Sales were originally dominated by insurance companies, which typically sold annuities; annuities still account for more than 70% of the investments in 403(b) plans.

The 401(k) plan wasn't launched until 1981, when it took off in another direction, toward mutual-fund investments, which often included an employee match. These savings plans, offered mostly by private companies, had more stringent rules and fiduciary requirements of plan sponsors.

The new rules bring 403(b) plans more in line, though not entirely, with the requirements of 401(k) plans, forcing plan sponsors to take a more active role in administering them.

Tracking Problem

The IRS sought the new rules because it was difficult for it to track 403(b) contributions and withdrawals. As with 401(k) plans, there are limits and tax consequences for contributions and withdrawals.

While the 403(b) plans available at many colleges and hospitals already have made many of these changes, the new rules will have a profound impact on school districts and small not-for-profit employers who had little oversight or involvement in their plans.

By forcing 403(b) sponsors to actually look at and think about their plans -- and shoulder more administrative burdens -- the new rules may boost the big investment-management firms that offer low-cost products and have the administrative support school districts will now need.

Dan Otter, a former teacher who owns and operates the 403bwise.com Web site, says the new rules provide school districts with "the opportunity to do the right thing for their employees" by giving them less-expensive investments and more information.

Write to Jilian Mincer at jilian.mincer@dowjones.com

Thursday, July 26, 2007

CalSTRS Offers New IRS Compliance Service for School Districts

CalSTRS Offers New IRS Compliance Service for School Districts

Full Disclosure: Scott Dauenhauer worked as a consultant during the RFP process.

SACRAMENTO, CA – The California State Teachers' Retirement System (CalSTRS) is launching a new program to assist school districts, county offices of education and community college districts in complying with new Internal Revenue Service regulations regarding 403(b) supplemental retirement savings plans.

"CalSTRS' relationship with teachers and school districts and its reputation for fiduciary integrity make it uniquely positioned to fill the need for a compliance program that employers can trust," CalSTRS Chief Executive Officer Jack Ehnes said. "This new strategic alliance will fill a void in the marketplace."

School districts are facing increased compliance responsibilities, including providing more hands-on administration of the plans they offer and providing a higher level of accountability. The new IRS regulations become effective January 1, 2008.

CalSTRS will offer administration and compliance services on a low-cost basis as a solution for employers who may not have the financial resources, additional staff, or technology to comply with the new regulations.

CalSTRS has selected The Omni Group as its partner in the new program. Omni is an independent compliance provider with experience working with hundreds of public school districts around the nation.

About CalSTRS: With a $171 billion investment portfolio, the California State Teachers' Retirement System is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California's 795,000 public school educators and their families from the state's 1,400 school districts, county offices of education and community college districts.

About The Omni Group: The Omni Group specializes in the administration of public school districts' supplemental retirement savings programs by providing IRS compliance and remittance services. It is the first such provider of its kind and serves 700 employers in 15 states, administering compensation programs for 170,000 employees.

Scott Dauenhauer CFP, MSFP, AIF

On Wall Street - A SourceMedia and Investcorp publication

On Wall Street - A SourceMedia and Investcorp publication

Changes are coming to the 403(b), this is a bit of a wierd article considering it was written after the new regs were released, but doesn't include some of the revelations of the new regs....


Tuesday, July 24, 2007

Original NEA Valuebuilder Expose - Published 12/2001

In light of the NEA Valuebuilder lawsuit, I figured I'd post my original expose on this product that I wrote back in December 2001.

Does The NEA Practice What It Preaches?

The NEA endorses a product that is costing its members millions in unnecessary fees.
“The only annuity nationally endorsed by the NEA.”
Most educators trust their union to act in their best interests; in fact part of the National Educator Association’s mission statement is to “…further the interests of educational employees.” In other words, when the NEA puts its stamp of approval on a product, they are effectively saying that their decision will work to further the member’s interest. Re-reading the above statement would lead most people to believe two things:

1. Annuities are good investment choices, and

2. Members should buy them only from the NEA. After all they wouldn’t endorse a product that didn’t further members interests, right?

Wrong. Whether out of ignorance or greed, the NEA is helping to bilk its members out of millions of dollars each year.

You see the NEA endorses a Variable Annuity that is sold to its members in their 403(b). Why is that so harmful? Variable Annuities are basically mutual funds wrapped in insurance; the insurance feature, which you pay a fee for, allows a variable annuity to grow tax-deferred. However, a 403(b) (commonly referred to as a TSA, though incorrectly) by nature is already tax-deferred, so in essence you are paying extra for a feature you should get for free. In addition, variable annuities typically have higher commissions and management fees (than mutual funds), which work to reduce your return over time. So why would the NEA endorse such a product? Good question.

Before we can answer that question, I’d like to direct your attention to a pamphlet recently made available to members on the NEA’s website. It is entitled “23 Financial Mistakes You Can’t Afford To Make”
Mistakes #15 and #16 read as follows:

Mistake #15 – Investing in products that carry high sales commissions and management expenses.
Mistake #16 – Using tax-advantaged investments for retirement savings accounts.

This brochure and “mistakes,” number 15 & 16 clearly point out that the NEA believes it to be a mistake if its members invest in high cost investment products and should avoid using variable annuities (tax-advantaged investments) in their 403(b) (a retirement savings account). Yet, in the same section of their website they promote and nationally endorse the “NEA Valuebuilder Variable Annuity TSA,” a product which is a variable annuity sold inside a 403(b). Why the double standard?

Perhaps the NEA, because of their huge buying power was able to negotiate a variable annuity product with lower costs. Let’s examine the “Valuebuilder Variable Annuity TSA” to find out. There are five costs associated with this product as follows:

Mortality and Expense* 0.90% (.75 if over $50,000)
Administration Charge 0.15%
Avg. Mutual Fund Expense 1.34%
Riders (additional benefits)** 1.00% (optional)
Policy Charge $30 (waived if over $50,000)
TOTALS: High Cost 3.39% plus $30
Low Cost 2.24%
*The insurance component, also where commissions are paid from.
**Riders are additional benefits, usually insurance based and are not required to be purchased, but are heavily pushed.

Even the member who qualifies for all the discounts (meaning $50,000 balance), and refuses to buy the “additional benefits” will still end up paying 2.24% in fees each year. The member who is unlucky enough to have a balance below $50,000 and have chosen the “additional benefits” will pay 3.39% plus $30 annually, a figure that is astronomical!!

Average Policy Holder
What might the average holder of a policy actually pay? As of September 21, 2000, there were 57,000 policyholders totaling $860 million in assets. That works out to be about $15,000 per policyholder. Let’s examine what the average policyholder might pay:

Mortality and Expense .90%
Administration costs .15%
Mutual fund 1.34%
Rider 1.00% (Optional)
Policy charge .20% ($30 annual fee)
Total: 3.59% annually

The average policyholder is probably paying over 3.5%, excluding trading costs, which can add an additional 1% annually. This assumes of course that they add the riders, which are pushed very heavily. Even if they forgo the riders, they pay 2.59% annually on average. When asked why the product was so expensive, John Wendland, a spokesperson for NEA Member Benefits responded, “Our product comparison indicates that the fees associated with the NEA Valuebuilder annuity are competitive with similar 403(b) offerings.” I don’t know who the NEA is comparing its products to but the average fee for a variable annuity is 2.14% (1.4% for a mutual fund), still extremely high, but low in comparison to 3.59%. When asked about this difference I was told, “…the 1.5% fee difference is an example that does not relate specifically to the NEA Valuebuilder Annuity.” I will give him the benefit of the doubt and assume he misspoke; anyone who tells you costs don’t matter is not working in your best interest.

Costs do matter. They will have a tremendous impact on your return. Lets compare an investor who chooses a low cost index mutual fund vs. the NEA Valuebuilder Variable Annuity TSA. What do you think the potential difference in return would be over a 30 year time period? Would you be surprised to learn that your account balance would be over 40% lower than the index fund investor, for the “average” member who ended up paying the higher costs. Their investment would be more than 50% lower. Can someone please explain to me how that furthers a member’s interest? It is clear that the NEA received no “bulk” discount when searching for a provider, even though they had nearly a billion dollars in assets. The NEA may believe the 1.5% doesn’t relate, but the numbers don’t lie.

Why the high costs? Well, you have a lot of people to pay. You have to pay the plan administrator (Security-Benefit) for insurance and other charges, you must pay an insurance agent (the annuity is not offered without one), you must pay the mutual fund managers and I am sure you are paying something to the NEA as well. However, NEA stresses that the product must be sold by an insurance agent, this ensures you will meet your goals (a load of bull). What it really ensures is that somebody gets paid a commission every time you put money into your policy.

You are being asked to sacrifice 40-50% of your potential returns in order to compensate a product salesperson, not a financial planner, a salesperson. The NEA stands behind these product salespeople as “a true value-added” service. If “value-added” means losing half your potential return to fees, well, I guess you get what you pay for.

It is clear that the NEA Valuebuilder Variable Annuity TSA is an inferior product designed to take advantage of educators who are not financially savvy. But why even offer a variable annuity to someone as an investment vehicle for his or her 403(b)? After all, the NEA has made it clear that they feel it is a mistake to use “tax-advantaged investment (like variable annuities) for retirement savings accounts.” The response I received is the “NEA believes that some of its members, particularly those who may be risk averse, would value the insurance benefits provided by a variable annuity within a 403(b) account.” Wendland goes on to explain that variable annuities provide “a death benefit which allows investors to invest in equity markets without fear of losing principal in the event of death prior to retirement.” In a nutshell, the NEA believes that its members should be subject to high fees because of “important” insurance benefits and that if you are risk averse, the variable annuity provides you a safe environment in which to invest. This is the same pitch you will hear from every insurance agent hawking variable annuities. They always promote the “guarantee.” Let’s take a look at the guarantee and the suggestion that variable annuities are for risk averse investors.

Worthless Guarantee

The variable annuity guarantees that you will never have less than you put into the account. Of course to collect on that guarantee you must die, which to me is rather inconvenient. I asked the NEA to provide me with numbers that show on average how many people die with account balances significantly lower than their contributions—they refused. They refused because that number is most likely somewhere south of 1%, meaning the chance of you dying with an account balance below your contributions, hence triggering a death benefit is almost zero. In addition, if the average policyholder has an account of $15,000 and the balance were to fall by $3,750 (a 25% market drop) would that cause a significant hardship to the members family if the policyholder were to die? No, and if it did you would purchase a separate life insurance policy. By the way, most members could purchase a $100,000, 30-year term policy (40 year old) for only around $300 a year. Just a tad more than you would be paying for less than $4,000 worth of life insurance through the variable annuity, plus the Term life insurance is tax-free, whereas the variable annuity death benefit is fully taxable. The insurance feature so highly regarded by the NEA doesn’t sound so good now. Remember, to collect any benefits two things must happen; you must lose money and you must die, otherwise you are up the creek without a paddle. Anybody who uses or promotes a variable annuity death benefit as financial protection for someone’s heirs is irresponsible and guilty of financial malpractice, at least in my book.

Variable Annuities for Risk Averse Investors

The NEA’s other reason for offering variable annuities is to please its “risk averse” members. However, variable annuities are no less risky than an ordinary mutual fund, and many times more risky. The Securities and Exchange Commission in an alert on variable annuities said, “variable annuities also involve investment risks, just as mutual funds do.”
Risk averse means that a member may not want his/her account to fluctuate; they simply do not like the gyrations of the stock market. Investing in a variable annuity does not protect anyone from losses in a stock market while they are living, only if they die. The argument that a variable annuity is a “safer” investment and more appropriate for “risk averse” individuals is riddled with holes at best and against the law at worst. If a person is unsuitable for mutual funds because they can’t handle market fluctuation, then they are also unsuitable for a variable annuity. If you buy a variable annuity and it goes down in value, you have lost money. The only way to get it back is to die, which in my book is pretty risky. Not many risk averse investors are willing to die for their variable annuity.

Income for Life Feature

The last reason given for offering a variable annuity in a 403(b) was to provide “an array of annuity options, some of which guarantee income for the life of the participant, regardless of how long they live.” Again, this benefit is of little or no value, anybody who has a 403(b) can choose to “annuitize” his or her money (trade it in for a lifetime income stream). In fact, it would be very unwise to limit yourself to the monthly payout schedule of one company (such as the valuebuilder). If you choose to annuitize you should shop around to see what company has the best monthly payout, most times you will find a comparable company with a payout schedule that is much better (referred to as a single premium immediate annuity). Every argument for the benefits listed by the NEA on why you should purchase a variable annuity in a 403(b) are groundless. Yet you pay for it. Boy do you pay for it!

As if high fees and worthless benefits weren’t bad enough this product has what is called a surrender charge and surrender penalty. Each purchase you make is stuck in the contract for 7 years. If you want your money out earlier you will pay up to a 7% surrender charge. Worse yet, this penalty applies to each individual payment, meaning if you made monthly contributions for 10 years (or any time period) some of your money would still be subject to a surrender penalty. Why? Each contribution must stay in the contract for 7 years, so the contributions in the 10th year have another 7 years to go. It’s an endless vicious circle called the “rolling surrender charge.” How does this “further the member’s interests?” Good question, I’m still trying to figure that out myself.

Investment Options

Perhaps they make up for a poor product by offering superior investment choices. Wrong again. The high fees bring down the performance of any option available, and the options available aren’t very good. They offer 34 fund choices from 9 families all of which have higher than normal fees. These high fees work to significantly reduce the performance. Fees have such a harmful effect that even the most conservative investment available in the program has a negative return (return measured from its inception through Sept. 30, 2001). The Dreyfus Money Market fund has a -.10% return since inception, when fees are taken into account, imagine losing money in a money market account. This is the first time I have ever seen a money market account with a negative return. If you take out all the fees charged this account you would have earned 4.81% from inception. Bottom line, fees matter regardless of investment choices. The funny thing is that a risk averse investor would have done much better in a simple money market mutual fund outside an annuity. So much for the NEA’s suggestion that this variable annuity is for risk averse investors.

What about Index Fund Choices

The NEA Valuebuilder TSA claims to have criteria to evaluate which funds to include. The three criteria are:
1. Investment option performance
2. Range of options
3. Financial industry leader

If these were my criteria, it would not point to the funds offered by the NEA program. Considering most mutual funds fail to beat their index, you would think that index funds would be included among the options. Mysteriously, they are absent. There are only a few companies that fit the above criteria, Vanguard being one of them. Why aren’t they an option? I asked John Wendland of the NEA why index funds weren’t offered and was told, “…we are looking into adding index funds to the asset categories.” However, when pressed further about when and if a timetable existed I received no response. I suspect index funds don’t pay high enough fees to be included in the program.

What about the 403(b)7 Offering? (Straight Mutual Funds)

The NEA does offer a separate product for those not interested in variable annuities, however I am suspect as to how hard this option is actually pushed. Repeated calls to the NEA Valuebuilder hotline gave me little information on the program, nobody seemed to understand it, they kept confusing it with the variable annuity program. In addition, Security Benefit (the company administering the program) would not tell me what percentage of the total assets was held in straight mutual funds. In the NEA’s own communications, it indicates that most, if not all assets are in the variable annuity program. I was finally able to get a prospectus for each fund available in the custodial account and I was not impressed. The fees were lower overall, but still much higher than they should be. Neither the NEA or Security Benefit would disclose to me how much the commissions were on either choice or if commissions were higher on one product than the other. I was told it was “confidential.” I’ll bet you the reps no how much the commission is. Why is it that an insurance agent with no connection to the NEA gets to know the commission level, but a member of the NEA who is actually paying the bills, doesn’t? Any company that won’t disclose the commissions on its policy should not be dealt with. Why hide this information?

Why have two choices?

Why does the NEA have to offer two choices anyway? Why can’t they make it simple and offer one program, a low-cost 403(b)7 mutual fund program. I can’t give you the answer, but surely if they were truly trying to further their member’s interest, they would not be offering what they are currently. After doing some research on the Internet, I came across a letter from Mark Littrel, a college professor in Los Angeles. He was writing to US News and World Reports about the problems in the 403(b) arena and the fact that the NEA program was fat with fees. He brought up an interesting point when he said; “I have long wondered if nationwide (former plan administrator, now Security Benefit) made some kickbacks to NEA bosses or made some fat contributions to political entities officially blessed by the NEA in return for the NEA endorsement.” I decided to ask the NEA about this, I asked them, “how does the NEA benefit monetarily- meaning soft dollars or hard dollars from its relationship with Security Benefit (program administrator)?” The response was as follows:

“Funding received by NEA member benefits comes only from product suppliers and is intended strictly to cover only the marketing costs and overhead of NEA member benefits. We do not seek to profit from the program’s members. The specific funding is proprietary.”

While I appreciate the answer, it doesn’t tell us anything. After all, there is potentially over $30 million in fees generated each year; that’s a lot of money! If a portion of it goes to the NEA why shouldn’t its members know how much that is, after all it’s their money.

Why conform when you can reform?

When asked about the high fees the NEA responded that their fee structure conforms to the industry and is competitive. My question is why should an organization that is 2.6 million members strong simply conform? Why don’t they take a stand and try to make positive changes in the 403(b) arena? If anybody has the influence it would be the NEA. In my last correspondence to them, I wrote the following:

“In response to the "fees" issue, just because the fees appear to be in-line with the industry it doesn't mean that they are right, the 403(b) industry is the backwater of the financial services industry and I believe a member organization such as the NEA has the power to make a real, positive change. You guys have the opportunity to save your members literally billions of dollars over the coming decades, I think that conforming to the industry is not in the best interest of NEA members, especially since they have the clout of 2.6 million members - you and your organization could do so much to change the status quo, if you are willing to do that, I am willing to give of my time to help. Please join us in improving 403(b) benefits for all Teachers, it's in their best interest.”

I never received a response back to my invitation; apparently the NEA simply doesn’t care about the opportunity to save potentially billions of dollars for its members over the coming decades, or about working to reform the 403(b) and offering a product that would truly work in its members best interest. An organization representing 2.6 million members would rather conform than reform, disappointing but true.

In conclusion, I know the NEA does many wonderful things for its members and that the leaders are hard workers who truly care about each member. However, somehow these leaders have made a mistake or perhaps an oversight. Somehow they have put their interests, whether knowingly or unknowingly ahead of its members. I urge everyone who has been sold this product to review what you have been sold and to do some research as to how that purchase will affect your long-term accumulation of wealth. Then urge your NEA leaders to stop conforming and start reforming. After all, an employee benefit such as the 403(b) should not have to be filled with high fees, high commissions, long surrender periods and charges, expensive worthless additions (riders), poor investment choices, and negative money market returns. I believe Teachers should be treated better, they should be allowed low cost investment choices. According to the NEA it’s a mistake to “invest in products that carry high sales commissions and management expenses.” Perhaps the NEA should start practicing what they preach.

Written by: Scott Dauenhauer, CFP
President of Meridian Wealth Management, A Fee-Only Registered Investment Advisory Firm dedicated to protecting Teachers Best Interests.

I'll have some comments later about this lawsuit.

Scott Dauenhauer, CFP, MSFP, AIF

Summary and Overview of 403(b) Regs

Ashland Summary

Ashland Overview

CCH Comments on New 403(b) Regs

Tax Newsletter - 2007

Monday, July 23, 2007

Final 403(b) Regulations Released - Eff 12/31/2008

Its finally happened - the final regs have been released by the IRS for the 403(b). I haven't had a chance to read them (bet you it won't be nearly as fun to read about as the iPhone) yet. I'll review and let you know my thoughts. I'll also post stories about them as they are written.

The effective date is 12/31/2008, get ready schools, here they come.

Scott Dauenhauer CFP, MSFP, AIF

NEA Valuebuilder Lawsuit

Here is a link to the lawsuit against the NEA Valuebuilder product.

Scott Dauenhauer CFP, MSFP, AIF

Tuesday, July 17, 2007

2 teachers sue union over retirement plan - Los Angeles Times

2 teachers sue union over retirement plan - Los Angeles Times

Kathy Kristof has followed the goings on of the 403(b) world for quite some time and chronicled the problems. This is a quick article on the lawsuits filed against the NEA and the product they sell to educators called the NEA Valuebuilder.

Scott Dauenhauer CFP, MSFP, AIF

Lawsuit Says Teachers Are Overcharged on Annuities - New York Times

Lawsuit Says Teachers Are Overcharged on Annuities - New York Times

For years I've railed against the NEA and their horrible product, the NEA Valuebuilder (some have termed it the ValueKiller). I wrote an article many years ago titled, "Does the NEA Practice What It Preaches?" skewering the NEA Member Benefits program for selling a product that is excessive in fees and kicks back many millions of dollars to the NEA Member Benefits program each year.

Now the Valuebuilder product is getting its day in the sun, a lawsuit by Keller Rohrback was filed last week in Washington State saying that the product and its promotion violates ERISA. It's an interesting arguement and I hope it has legs.

I think the National NEA should have stepped in many years ago and killed this product, instead they continue to misrepresent the product to educators. The NEA has always had the opportunity to educate its members about 403(b) plans and work to make them better, instead they chose to join the financial services industry in the raping of educators retirement accounts.

My wife is a teacher and her local and state union work hard to ensure that her district offers good health benefits, they don't go out and sponsor a health plan and then sell it, the lobby for better plans - I believe that is the role the union should take when it comes to 403(b) and 457(b) plans. It's been my experience that many of the local unions in California have become to take on the role of advocate in this arena, kudo's to them, perhaps they can lead the national NEA back to where it needs to be.

I'll follow this lawsuit closely and report on what happens. In the meantime, if you are an educator, voice your opinion to your union and let them know that you want them to work for you, not try to make money off of you.

Scott Dauenhauer, CFP, MSFP, AIF

Overhaul overdue for nonprofit plans - baltimoresun.com

Overhaul overdue for nonprofit plans - baltimoresun.com

A good article on how some school districts are beginning to deal with the new 403(b) regs (that should be finalized soon).

No new information, but a good article that school employees and district officials should read.

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, July 10, 2007

Why Schools Lack Low Cost Investment Options

Written by an individual who is an educator, attorney, and a financial planner....

The paper is rather bland at the beginning as it gives an overview and history of the 403(b)(it is supposed to be an academic paper!), however it does make some good points toward the end and is a great educational piece.

The call for school districts to start suing unions is a bit over the top - instead of suing each other, the two should be working in concert to promote good savings options and education, however that doesn't always happen.

The writer makes a good arguement, one that I've been making for awhile that school district benefit when employees save money into their 403(b) and they benefit even more if employees save money in reasonably priced 403(b) accounts. Employees who have saved money other than in their pension will feel more secure and are more likely to leave teaching earlier - which creates openings for newer teachers at lower salaries - which helps with the school budget long term. School districts would be wise to begin looking at the 403(b) as an important benefit for both the employee AND the school district.

Scott Dauenhauer, CFP, MSFP, AIF

The Fleecing of 403(b) Participants Parts 1 - 4

Scott Simon, writer for Morningstar Advisor (and a financial advisor himself) has written a series of articles on how teachers are getting fleeced in their 403(b) retirement plans. What follows are links to the Four part series.

Scott does a good job of laying out the issues and though I don't totally agree with his solutions, the information is worthy of a read through. Educators, school districts, and unions need to know this stuff.

Fleecing 403(b) Participants (Part 1)

Fleecing 403(b) Participants (Part 2)

Fleecing 403(b) Participants (Part 3)

Fleecing 403(b) Participants (Part 4)

Scott Dauenhauer, CFP, MSFP, AIF

Friday, July 06, 2007

CalSTRS and TIAA-CREF Team to Expand Retirement Savings Plan for California Educators - Forbes.com

CalSTRS and TIAA-CREF Team to Expand Retirement Savings Plan for California Educators - Forbes.com

The California State Teachers' Retirement System (CalSTRS) and TIAA-CREF, the national financial services organization and the leading provider of retirement services in the academic, medical, research and cultural fields, today announced they have joined forces to expand CalSTRS' supplemental retirement savings program, which is open to about 800,000 Californians. Through this relationship, CalSTRS, the second-largest public pension fund in the United States and TIAA-CREF will provide low-expense retirement savings vehicles for public school employees in more than 1,400 school districts and community college districts across California.

"We are very pleased to inaugurate this unique partnership with CalSTRS - an organization with which we share a common mission, set of values and commitment to serving those in the academic field," said Herb Allison, Chief Executive Officer, TIAA-CREF. "This relationship speaks to TIAA-CREF's commitment to giving clients high value and high quality retirement savings vehicles that can help individuals build financial security to and through retirement."

TIAA-CREF will perform all record keeping and trust functions and act as custodian of program records and assets for CalSTRS' existing 403(b) program. Further, the organizations are working together to increase the number and types of investment products by adding a 457(b) plan and Roth 403(b) plan this year and Traditional and Roth Individual Retirement Account (IRA) offerings in the coming year. Each of these plans offer school employees access to low-expense and high quality tax-advantaged savings vehicles.

"The combined strength of two leaders in the educational market will provide California's educators with enhanced savings options from a provider in which they can have confidence," said Jack Ehnes, Chief Executive Officer, CalSTRS. "TIAA-CREF, with their non-profit heritage, was the best choice. Their depth of experience in managing retirement plans, comprehensive and time-tested understanding of the needs of our members and transparent approach are the perfect fit for us."

CalSTRS members, like many individuals across the United States, will need to supplement their retirement income from defined benefit retirement plans with other forms of replacement income to help meet their needs and desired lifestyles in retirement. California's teachers do not receive Social Security for their time in the classroom and a career teacher can expect their CalSTRS pension to replace only about 62 percent of their salary.

TIAA-CREF will assume custodial duties for approximately $170 million in assets from current program participants when the new program becomes effective in fall 2007. TIAA-CREF mutual funds, other TIAA-CREF investment strategies, including the TIAA Real Estate Account, which invests directly into a diversified array of commercial and residential properties, as well as third party mutual funds, will be offered in the program.

This is not the first time CalSTRS and TIAA-CREF have worked together. In 2002, in an effort to cut through the clutter created by the nearly one hundred 403(b) providers from which California teachers can choose to invest, CalSTRS and TIAA-CREF teamed up to create a new online information bank called 403bcompare.com (www.403bcompare.com). The Web site, established by California law and administered by CalSTRS, is designed to help California teachers make informed investment decisions. It allows California teachers to more easily evaluate 403(b) investment options from different companies across consistent criteria such as fees and service levels and provides definitions to commonly used terms. The Web site was developed in close consultation with teachers in California and was the outgrowth of extensive focus groups and consultations with California teachers.

About CalSTRS

With a $171.1 billion investment portfolio, the California State Teachers' Retirement System is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California's 795,000 public school educators and their families and 1,400 school districts. For more information on CalSTRS, visit www.calstrs.com.


TIAA-CREF is a national financial services organization with more than $414 billion in combined assets under management (3/31/07) and the leading provider of retirement services in the academic, research, medical and cultural fields. Learn more about TIAA-CREF.

TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members NASD, distribute securities products. TIAA (Teachers Insurance and Annuity Association) New York, NY issues annuities.

Monday, June 11, 2007

Great American Insurance Agent Attempts Scam on Retiring Teacher

Wonder how far an insurance agent will go to make a commission? How about proposing a ridiculous plan to a teacher to induce her to retire (prematurely) and offering to do her taxes for life for free.

The link above will take you to series of posts on the 403bwise discussion board where a son steps in and asks for help in combating an idiot insurance agent hawking equity indexed annuities sold by The Great American Life Insurance company - a company that is not being "Great" to Americans (in my opinion). The agent stood to make an enormous amount of money while sticking a teacher into a series of products that were not in her best interest.

The teacher put in for her letter of resignation before her son was able to review the proposal from the agent, now she has no job and has to retire - early than she should have.

The 403(b) world has a problem and it is being ignored.


Friday, May 25, 2007

New 403(b) rules give employers more control

New 403(b) rules give employers more control - 25 May 2007

The new 403(b) regs are coming and this article provides a short, short summary emphasizing that employers will need to take control of their plans.

I've spent a lot of time going over what work will need to be done in order to really comply with these regulations and when I say the work is a daunting task, I am not being overly dramatic. The changes that are about to befall the 403(b) industry are going to be massive.

Scott Dauenhauer, CFP, MSFP, AIF
Consultant on Government Retirement Plans

Sunday, May 20, 2007

Prepare for Changes in 403(b) Plans - WSJ.com

Prepare for Changes in 403(b) Plans - WSJ.com

Andrea Coombes interviewed me last week for this article and I'm quoted throughout the article! This is an article about how the upcoming 403(b) regulations will affect participants who are currently in these plans.

It's a relatively short article and a good primer for what to expect. I would expect many more of these articles to pop up over the next six months.

A big thank you to Andrea Coombes for quoting me!!

Scott Dauenhauer, CFP, MSFP, AIF

Wednesday, May 16, 2007

Friday, May 11, 2007

How Close Is the 403(b) To Becoming History? 401(x)...

Governing Management Letter/Girard Miller/May 2007

Girard Miller paints an great picture about the problems in the 403(b) and 457(b) market and lets us in on a little known fight that is going on in Washington behind the scenes - the fight for 401(x) - basically the new term for President Bush's proposal several years ago call ERSA (Employer Retirement Savings Accounts).

401(x) would consolidate 403(b), 457(b) and 401(k)'s into a single plan (they are now all pretty similar as it is). As you would expect, the insurance industry is fighting tooth and nail against this. Is the future of the 403(b) a transformance into a 401(x)? Nobody knows, but is seems inevitable and it would be best for the participants.

This is a short article that I encourage you to read, I for one support the 401(x).

Scott Dauenhauer, CFP, MSFP, AIF

Wednesday, May 09, 2007

CalSTRS Awards Recordkeeping RFP TO TIAA-CREF

Award of Contracts

From CalSTRS Website:


Notice of Intent to Award

Third Party Administrator for Record Keeping of Assets
Request for Proposal Number 2P200610

The California State Teachers' Retirement System (CalSTRS) intends to award a contract to TIAA-CREF as the successful Proposers in the Request for Proposal process entitled Third Party Administrator for Recordkeeping of Assets, pending the Teachers' Retirement Board approval.

CalSTRS has elected to terminate the Third Party Administrator for Compliance component of this RFP. There will be no contract award resulting from the Compliance component of the RFP process.


Commentary and Disclosure:

Details are not yet public, but CalSTRS has decided to move away from CitiStreet as its recordkeeper and award TIAA-CREF the new contract. The contract will goto the board for approval in June, the fund lineup and pricing should be announced in July. More information about the new program will be forthcoming in the next few months.

The RFP for Compliance was not awarded, instead it was reissued as a separate RFP and can be found at www.calstrs.com/rfp.

In the interest of full disclosure, I (Scott Dauenhauer, CFP, MSFP, AIF President of Meridian Wealth Management) acted as a consultant for the Recordkeeping RFP and continue to act as a consultant on the new Compliance RFP bid.

Scott Dauenhauer, CFP, MSFP, AIF
Meridian Wealth Management

Thursday, May 03, 2007

School Districts and Fiduciary Responsibility

If you are a school district board member, Superintendent, or administrator you need to read this article.

Scott Dauenhauer, CFP,MSFP, AIF

Wednesday, May 02, 2007

Plan Compliance Group Update

starbulletin.com | News | /2007/04/28/

Update on Plan Compliance Group

Man guilty in UH, DOE pension scam
Question: What ever happened to Plan Compliance Group, the California company accused of losing nearly $2.3 million from retirement accounts of Hawaii Department of Education employees and $420,000 from the accounts of University of Hawaii workers?

Answer: Education officials are still trying to have the company, which filed for bankruptcy in December 2005, pay back the money. The DOE and UH have reimbursed some 10,000 affected employees.

The university used risk-management money to replace the funds missing from the retirement accounts of its workers, said spokeswoman Carolyn Tanaka. The university is now managing the accounts, she said. The DOE also used state funds to make up for the money lost, said spokesman Greg Knudsen.

The owner of Walnut Creek, Calif.-based PCG, Francis William "Bill" Reimers, pleaded guilty last month to six counts of mail fraud and one count of money laundering in federal court, according to the U.S. Department of Justice. In a deal with federal prosecutors, Reimers admitted to carrying out a fraud scheme that caused more than $7 million in losses to more than 250 investors.

Reimers, 62, faces up to 20 years in prison for each of the seven counts, plus substantial fines and restitution. His sentencing has been scheduled for Aug. 3.

Reimers, who also owned Advisory Services Group, a financial investment services company, admitted to using money from investors to pay his mortgage and to buy luxury cars, vacations and hunting trips. Meanwhile, he would give individual investors false account statements and divert the money to run PCG and Univest Capital Management, which managed benefits for federal employees.

In 2005 the DOE sued PCG for fraud, negligence and breach of contract over the disappearance of the money. UH has also filed a lawsuit to retrieve the funds, said Darolyn Lendio, the university's vice president for legal affairs and general counsel.

When it filed for Chapter 7 bankruptcy, PCG estimated its assets at less than $500,000.

This update was written by Alexandre Da Silva

Scott Dauenhauer, CFP, MSFP, AIF

Friday, April 27, 2007

The Re-Education of CalSTRS

II Magazine Americas

An extensive history of how CalSTRS got to where it is today. This article also profiles the CEO and CIO, a good read for any teacher in California.


Friday, April 20, 2007

Another 403(b) TPA Files Bankruptcy

QUADS Financial Group, Inc

Add Quadsweb to the list of third party administration firms that service 403(b) plans that have filed bankruptcy. Quadsweb was not a traditional TPA in the 403(b) sense and they didn't, as far as I know steal any money. They have been taken over by a conservator and are reorganizing under Chapter 11.

We can't put this failure in the same category as Plan Compliance Group, NEBSonline, and Flagship/Horizon as this entity was taken over before money could be stolen (not saying there was any attempt to steal money). However, its failure is further proof that districts need to take great care in who they do business with.

Scott Dauenhauer, CFP, MSFP, AIF

Wednesday, April 18, 2007

Friday, April 13, 2007

Beginning of The End For NEA Valuebuilder?

Class Action Newsline

It looks like the NEA Member Benefits is about to reap what it sowed, it will be sued. Though only an investigation, Keller Rohrback would not go public if they didn't have the evidence needed to go after this horrible product.

What follows is the press release:

Keller Rohrback L.L.P. Announces Excessive Fee Investigation Regarding NEA Valuebuilder Program

SEATTLE, April 7, 2007 (PRIME NEWSWIRE) -- Keller Rohrback L.L.P. (www.erisafraud.com) today announced that it is investigating the National Education Association ("NEA") Valuebuilder 403(b) variable annuity plan. The plan, which is sold by an insurance company called Security Benefit, is the only retirement program endorsed by the NEA. In exchange for the endorsement, Security Benefit provides compensation to the NEA. Keller Rohrback is evaluating whether the NEA endorsed the program because of the payments, as opposed to a prudent evaluation of whether the plan is in the best interests of NEA members.

A 403(b) plan is a tax-deferred retirement plan available to employees of educational institutions and certain non-profit organizations. A common 403(b) plan investment option is a variable annuity. A variable annuity is an annuity plan that enables participants to direct their salary deferral into certain specific mutual funds. As many commentators have noted, 403(b) annuity plans often charge excessive fees that substantially diminish participants' retirement savings. In addition, 403(b) providers often choose mutual funds for their plans based on revenue sharing deals with the mutual fund companies, as opposed to a prudent evaluation of the merits of the fund option. Recent articles have drawn attention to the fees charged by the NEA Valuebuilder plan.

If you are a participant in the NEA Valuebuilder 403(b) variable annuity plan, and would like to speak with us regarding our investigation, please contact any member of our team: paralegal Jennifer Tuato'o or attorneys Cari Campen Laufenberg, Derek Loeser, or Lynn Sarko, toll free at 800-776-6044, or via e-mail at investor@kellerrohrback.com.

Keller Rohrback is one of America's leading law firms handling ERISA retirement plan litigation. We are committed to helping employees and retirees protect their retirement savings. Keller Rohrback serves as lead and co-lead counsel in numerous ERISA class action cases, including cases against Enron, WorldCom, Inc., HealthSouth, and Marsh & McLennan Companies, as well as ERISA cash balance pension plan cases, including JP Morgan Chase & Co. Keller Rohrback has successfully provided class action representation for over a decade. Its trial lawyers have obtained judgments and settlements on behalf of clients in excess of seven billion dollars.

CONTACT:  Keller Rohrback L.L.P.
Jennifer Tuato'o, Paralegal
(800) 776-6044

Friday, April 06, 2007

Imperfect Union - Forbes.com

Imperfect Union - Forbes.com

Neil Weinberg details the class action brought against the New York State United Teachers and ING accusing wrongdoing in their 403(b) plan.

Scott Dauenhauer, CFP, MSFP, AIF

Trust Sued Over Backing Retiree Plan - New York Times

Trust Sued Over Backing Retiree Plan - New York Times

NYSUT, the New York Union that settled with Elliot Spitzer is now being sued as part of a class action under a very interesting theory.

This is a good development in that these entities need to know that abusing their members is not going to go unpunished. Its only a matter of time before the NEA Valuebuilder product is targeted, the NEA Member Benefits organization in my opinion is one of the worst providers of 403(b) products in the nation.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, March 26, 2007

Reimers Pleads Guilty - FBI Says $7 Million Gone

LawFuel - The Law News Network

Francis "Bill" Reimers pleaded guilty on March 23rd to six counts of mail fraud and one count of money laundering. Bill stole from school districts and individuals. A guilty plea, while nice, is of little solice to those who lost so much while Bill and his family lived high on the hog.

I never met Bill, but did talk to him on several occasions. I hope God will forgive him, there are many out there who have been wronged that I think probably won't. They are now stuck living a retirement that they thought would be secure.

I have a feeling this isn't over, more will come out as time goes on.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, March 19, 2007

Quotas tied to benefits irk advisers

Quotas tied to benefits irk advisers - InvestmentNews

Ever wonder if the agent selling you that 403(b) had other things on his or her mind? Perhaps the policy being sold to you wasn't in your interest, or perhaps the policy was sold to you for other, more nefarious reasons. Many companies offer wonderful vacations to reps who sell certain, usually proprietary products, however, a story by Investment News is shedding light on another interesting perk that is affected by product sales......Health Insurance.

It turns out that at least three major players in the 403(b) market use health insurance benefits as a way to get their reps to sell the companies own proprietary products. If reps or agents don't sell enough of the firms products they won't get health insurance for themselves, their spouse, or their children...can you say conflict of interest?

I don't believe you should ever purchase proprietary products, and this is just one more confirmation of that belief. The question remains, are you being sold a product because it is best for you or because your advisor needs it in order to ensure (actually insure...no pun inteneded) the health of his family? Advisors shouldn't be faced with this dilemma, but then again, they choose who they work for, in this case, it isn't you.

Most advisors are not fiduciaries (required to put your best interest firs) and most firms cannot allow them to be fiduciaries because of conflicts such as utilizing health insurance benefits to force agents to sell more proprietary products. What a shame.

The 403(b) industry needs reform.

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, March 13, 2007

Feds charge Danville investment executive Reimers

ContraCostaTimes.com | 03/12/2007 | Feds charge Danville investment executive Reimers

Here is an update on the Bill Reimers/Plan Compliance Group scandal.

Plan Compliance Group is the third party administrator for school districts that stole over $3 million of school district money and spent it on a lavish lifestyle. He also stole money from a federal insurance program and from several individuals who trusted him.

Scott Dauenhauer, CFP, MSFP, AIF

Monday, March 12, 2007

Investment Expenses Higher Than They Seem

Dallas Morning News | News for Dallas, Texas | Scott Burns: Columns 2007

Good column on why it is important to watch fees in your retirement plans, they are essentially like another tax on your money. High fees rarely lead to higher returns. Scott Burns has a fee calculator on his website.

Scott Dauenhauer, CFP, MSFP, AIF

Thursday, March 08, 2007

Tuesday, February 27, 2007

New public employees should work to 65

Article - Opinion - California Focus: New public employees should work to 65

Here is an article written by Keith Richman that is advocating all new public employees work till 65. This might be a good idea for most public employees, but I do not believe it is a good idea for public school teachers.

For one thing, I am doubtful that there will be much cost savings in getting educators to work an extra 2 - 10 years till age 65. Assume that a 60 year old educator who wants to retire today has a total compensation package of $90,000, and a new teacher has a total compensation package of say $45,000. The present value of the difference in compensation is about $200,000.......I say let that educator retire.

I work with a lot of educators and on average, by the time they reach 55 they are getting tired. They haven't lost their passion for kids, its just that 30 years of being in the classroom can really wear someone down. Don't get me wrong, just because a teacher has reached the age of 55 doesn't mean they are no longer effective, in fact many of them have more energy than I feel I do at times. It's just that there are some educators who reach these stages and feel that continuing to teach will begin to wear on them physically and mentally, they need a break. They need to retire.

Allowing an educator who has spent his or her life serving the children to retire on a timeline that is reasonable (the current system is reasonable) not only encourages more and better teachers to enter the profession, but it encourages those teachers who feel like they just can't do it anymore to retire with grace. Imagine if we forced a teacher who simply didn't want to teach to continue to teach, just so they wouldn't be impoverished in retirement.....is this best for our educators and our students?

Perhaps I see where Mr. Richman is going with this. A teacher who is forced to teach till age 65 might be more worn down and statistically may not live as long.......thus reducing the pension liability.

I'm all for fiscal responsibility, in fact my stomach churns when I see the deficits being piled up everywhere I look, but when it comes to our teachers in California, we need to take a hard look at so-called "simple solutions", they may not turn out to be so simple.

Scott Dauenhauer, CFP, MSFP, AIF

Thursday, February 22, 2007

The American Spectator

The American Spectator

Provocative article about the now closed Social Security loophole that allowed educators to get spousal benefits by working only one day in a job covered by social security. The cost to the government is in the billions.

This article is referring to the Government Pension Offset (GPO) which affects social security benefits of spouses who work in the public arena and are covered by a public pension, but don't pay into social security. What the article leaves out is how unfair the GPO is to educators. Let me give you an example:

Suppose Sally went to work in the private sector and paid into social security, Sally's husband stayed at home with the kids and raised them, not ever working in a paying job or in a job paying into social security (notice how I didn't say "not working!"). John, who stayed at home, is not eligible for social security benefits on his own, instead the he is eligible based upon Sally's contributions. Sally's contributions INCLUDE a spousal benefit. John will recieve 50% of the amount that Sally receives and upon Sally's death, John's benefits from social security will be the same as what Sally was recieving.

The key in this story is that John is eligible based on his spouse, Sally, even though he never worked. Sally's contributions earned her a spousal benefit for her husband. Now, let's suppose that instead of staying home all those years with the kids, John went to work after the kids were old enough to goto school. John in fact went to work as a teacher. He paid into his state teachers pension fund, but in his state he was not required to pay into social security. When John retires he will NOT be eligible for a social security spousal benefit based on Sally's contributions (technically he might be eligible for something, there is a formula, but that is beyond our discussion).

The only difference between the two situations is that John worked in a public pension system and didn't contribute to Social Security. In both situations John didn't contribute to social security, but in one he recieved a benefit, in the other he didn't. This makes no sense. Either Sally earned a spousal benefit or she didn't - which is it?

The teachers in The American Spectator are made out to be criminals - they are not, they are simply trying to collect on something that should rightfully be theirs. They went through a perfectly legal process to gain these benefits and they shouldn't be punished or have these benefits taken away - they are not criminals like Dennis Koslowski.......to whom they were compared.

My only concern is that its a bit unfair that those 20,000 teachers got to do it, and the hundreds of thousands of others didn't. I agree that it is a major drain on social security, but that is a funding problem. Social Security if fundamentally flawed in its operation and needs to be reformed, but the same can be said for the Governement Pension Offset.

To all you Texas Criminal Teachers (TCT's) out there.......You have at least one supporter! I do ask one thing of you, perhaps think about spending a little bit of that extra money you receive on helping the rest of the teachers get reform for the GPO.


Tuesday, February 20, 2007

Teachers Sue Metlife


A story about teachers who were allegedly lied to, misled, and are now fighting back. There are more and more stories coming out about teachers who have had enough with being misled by the entities they trust.

Is the NEA next? It seems to me that the NEA is much worse.

I'll follow this lawsuit and keep you up to speed. If I remember correctly there is another union in California that endorses Metlife......


Tuesday, February 06, 2007


The dinner guests were sitting around the table discussing life.

One man, a CEO, decided to explain the problem with education. He argued, "What's a kid going to learn from someone who decided his best option in life was to become a teacher?"

He reminded the other dinner guests what they say about teachers:
"Those who can, do. Those who can't, teach."

To stress his point he said to another guest; "You're a teacher, Bonnie. Be honest. What do you make?"

Bonnie, who had a reputation for honesty and frankness replied, "You want to know what I make? (She paused for a second, then began...)

"Well, I make kids work harder than they ever thought they could. I make a C feel like the Congressional Medal of Honor. I make kids sit through 40 minutes of class time when their parents can't make them sit for 5 without an I Pod, Game Cube or movie rental...
You want to know what I make?" (She paused again and looked at each and every person at the table.)

I make kids wonder.
I make them question.

I make them criticize.
I make them apologize and mean it.
I make them have respect and take responsibility for their actions. I teach them to write and then I make them write. I make them read, read, read. I make them show all their work in math.
I make my students from other countries learn everything they need to know in English while preserving their unique cultural identity. I make my classroom a place where all my students feel safe. I make my students stand to say the Pledge of Allegiance to the Flag, because we live in the United States of America. Finally, I make them understand that if they use the gifts they were given, work hard, and follow their hearts, they can succeed in life.

(Bonnie paused one last time and then continued.) "Then, when people try to judge me by what I make, I can hold my head up high and pay no attention because they are ignorant... You want to know what I make?

I MAKE A DIFFERENCE. What do you make?"

"Teachers make every other profession "
Karen E. Clarke

Thursday, January 25, 2007

NEA Valuebuilder AKA ValueKiller Articles

With the recent announcement of the NASD partnering with the NAIC and the NEA Member Benefits (distributor of the high cost NEA Valuebuilder Variable Annuity) I thought it appropriate to link to a few articles that mention this horrible product.

LA Times Article - Unions Advice is Failing Teachers

San Diego Union Tribune Article - Saving For Retirement Harder wtih New 403(b) Law

403bWise Article

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, January 23, 2007

NASD Partners with NEA Valuebuilder?

NASD - Press Room - News Release - 11/8/06

This has to be a joke. This link will take you to a press release that announces a grant that will involve the NEA Member Benefits with investment education. What follows is my e-mail to the NASD:

"I wanted to convey to you my shock with regards to the NASD partnering with NEA Member Benefits. The NASD should be investigating the NEAMB, not partnering with them. The NEA has been selling the NEA Valuebuilder product - an excessively priced Variable Annuity and Mutual Fund program to its members for years. This program is worse than the one Spitzer busted in New York (ING and NYSUT). The NEAMB is an RIA and they are not fulfilling their fiduciary responsibility to the plan. There is excessive revenue sharing, poor oversight, and kickbacks to unions and agents involved. You should not be endorsing NEAMB, by doing so you are endorsing an entity that exists to transfer retirement assets from its members to the NEAMB (probably to subsidize other programs). You should be sending subpoena's, not endorsements."

This is absolutely ridiculous. NEA Member Benefits has been ripping off teachers for about a decade now and they are getting rewarded for it by regulators, what world are we living in.

Scott Dauenhauer, CFP, MSFP, AIF

Friday, January 19, 2007

Plan Sponsor: Revenue Sharing

Magazine Articles [PLANSPONSOR.com]

If you read this article you would think that a revolution is happening, it isn't. Providers are not rushing to disclose revenue sharing agreements, they are only doing so when forced and they are being dragged kicking and screaming along the way.

Instead of figuring out the best way to disclose revenue sharing agreements (Let's be honest, Kickbacks), why don't we simply do away with them?

Scott Dauenhauer, CFP, MSFP, AIF

Tuesday, January 02, 2007

Government Retiree Health Benefits Cost Could Top $100 Billion

Ventura County Star: County News

This is a good article on governement retiree health care costs. It basically is telling us that the taxpayers are going to have to cough up about another $100 billion over the next 20 - 30 years to pay benefits promised, but not reserved for by governement entities in California. Ouch. That is a lot of money - as the old saying goes, a billion here, a billion there, pretty soon it adds up to a lot of money!

It's not just the public sector that has these problems, the private sector does too. It is all these unfunded liabilities that may end up bring two enemies together on a single issue - Government run healthcare. The private sector would like nothing else than to pawn off its liabilities to the government, this way they could become more competitive (so the saying goes) with companies whose home nation pays these costs. The public sector will have a hard time finding the money to fund these obligations and raising taxes is not something that keeps a politician in office for long. Thus unions and quite possibly corporate interests may come together to lobby for a government run healthcare system in order to get out of benefits they promised, but never saved up for.....in the end we (the taxpayer) still foot the bill.

I believe our health care system could use quite a bit of reform, but I don't believe government is the answer.

I also don't believe former state republican senator Keith Richmann's answer is the right. He advocates moving the retirement age from 60 to 65 or 70 for all public employees. While I do generally support a rise in retirement age, I don't believe Richmanns ideas make sense. Why keep an employee who wants to retire on the books? They'll be less productive, they'll get paid more (remember, government rewards longevity) than a new employee would (by probably a 2 - 2.5 to 1 margin), and at least in school districts could do harm to our children (a teacher who is sick of teachings won't do as good a job). These negatives outweigh the positives of a forced extension. However, I am in agreement that something needs to be done.

Scott Dauenhauer, CFP, MSFP