Friday, September 11, 2009

TDS Appears Desperate In Latest Memo

"TDS has not, is not, and will not charge the employees or school districts for our services"


Evidently TDS hasn't read California law, you can read my in-depth analysis:

Here.

In this latest memo TDS attempts to settle down district CBO's who appear to be jumping ship.

TDS maintains their service is free and they will charge vendors..
"TDS will now charge vendors a nominal monthly fee per participant. Many plan administrators do this already and the "vendor pay" model is an acceptable industry standard"


Again, perhaps TDS needs to consult with the law on this, all the documents a district needs to determine whether vendors can be charged in California are located Here..

In a previous post I demonstrated that TDS is only promising to do common remitting in the service agreement with providers - there is no information sharing, which is necessary for compliance.

Also, the TDS nominal fee is an addition to the commission they earn on the products they sell. Plus the nominal fee of $3 per participant is 50% more expensive than full service TPA's available now in California.

While vendor pay may be acceptable in other states, who may have fewer vendors, it is not currently allowed by law in California, of course I've also described in previous post how a loophole has developed where vendors "pay on behalf" of the participants.

TDS believes that charging vendors will not result in a reduction of vendors:

"Despite rumors to the contrary, this change in our model will not result in vast vendor defections from your plan"


On the contrary, its a simple law of economics, the higher the cost to play, the fewer players. Vendors will drop off, whether or not this is a bad thing depends on who drops off. But it is ridiculous to state that there will not be a reduction in vendors if the vendors have to start paying. It is also ridiculous to state that employees will NOT be charged, they will. The employees will pay the $3 fee either as a direct pass through or worse, through much higher product fees or much worse product crediting rates - its a simple law of economics. You can't raise the cost to a product and expect them to simply absorb it, the cost will eventually make it to the employee (which is why perhaps it would be best for the employee to pay the cost directly out of payroll, simple and clean).

TDS goes on to state:

"Please rest assured that TDS will not make any changes to your plan without your approval and understanding."

This, despite the fact that they sent out vendor service agreements that don't provide any documentation that the employers have given TDS permission to act on their behalf to charge this fee. Employers, TDS would be your alter-ego according to the Attorney General and you would in fact be charging the vendor the fee.

Secondly, my understanding is that TDS HAS made changes to employer plans (457(b)) without the approval or understanding of the employers. Of course, I could be wrong, but when all the TDS representatives were released, the broker of record on all those 457 plans must have been changed. The questions the employer must ask are the following:

When TDS let go of the TDS representatives, who became the new Broker of Record and WHO authorized the changes? Thousands of plan participants that were working with a representative suddenly have a new Rep, yet this new rep was not determined by the employer.

Who is this new rep?

Who is now receiving the compensation?

Was the employer for each of these 457 plans notified of the change?

Did a prohibited transaction occur?

No accusations here, the employer is at risk of fiduciary breaches with their 457 plans and when changes are made, they should be aware of them and be involved in the those changes BEFORE they happen. All I'm saying is that the employers should ask the questions.

Am I biased here, absolutely. All I'm doing is providing the information, you can make your own decisions and you can ask your own questions.

Scott Dauenhauer CFP, MSFP, AIF





TDS Memo 8262009
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