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
www.meridianwealth.com

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
www.meridianwealth.com

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
www.meridianwealth.com

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
www.meridianwealth.com
949-916-6238

Saturday, July 28, 2007

Big Change to Teachers' Funds

Big Change to Teachers' Funds
Clearer Rules, New Options
Are Coming in 403(b) Plans
By JILIAN MINCER
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.
SUBSTITUTE FOR TEACHERS

• 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
www.meridianwealth.com

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....

ScottyD

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.
www.Meridianwealth.com

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
www.meridianwealth.com
949-916-6238

NEA Valuebuilder Lawsuit

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

Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com

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
www.meridianwealth.com

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
www.meridianwealth.com

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
www.meridianwealth.com
949-916-6238

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.

About TIAA-CREF

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.