Thursday, January 08, 2015

Public School Employers Deceived By Shifty 403(b)/457(b) Providers

You may not know this, but if you are a public school employer and offer a 403(b) or 457(b) plan you are required to prove to the IRS that you've met with every employee every year to inform them about the plan. You might not know about this pesky requirement because it's completely made up, there is no such rule or regulation. Of course this doesn't stop what are in my opinion, deceptive providers of 403(b) and 457(b) programs, from claiming they must meet with all your employees each year.

Recently, my wife (a public school teacher) was informed that she needed to attend a mandatory meeting after school to learn about the retirement plan offered by her District. My wife had no choice but to attend the meeting (it was actually held during a normal mandatory staff meeting time). Both her and I knew it would be a couple sales reps hawking 457(b) and 403(b) products under the guise of "education" and "planning."

The reps attempted to explain the defined benefit plan (CalSTRS) and pre-tax deferrals as well as the advantage of the time value of money. They then talked about the 457(b) and 403(b) briefly, but mostly focused on the 403(b).

The whole presentation was made in order to sell 403(b) and 457(b) products for a likely commission. It was done under the guise of 457(b) regulations and likely 403(b) "Meaningful Notice" regulations, however neither plan have any sort of rule that states employees must attend sales presentations from brokers.

In addition, it was strongly inferred that each person in attendance was required to fill out a form to leave behind, you know, so that the district could be in compliance. I've provided a copy of the form below - it's what we in the industry call a "lead sheet."

In my opinion, these meetings are not designed to help a school district comply with IRS regulations or to help employees get into retirement plans - they are designed to produce product sales that generate commissions (or fees). The people making the presentation are not full time fiduciaries and are in fact sales people.

Is it really a responsible use of our public school teacher's time to subject them to sales presentations? It's one thing if unbiased and objective data is being presented by someone who does not have a financial interest in the outcome - it's another when school employees are being sold products for commissions while technically still on the clock.

I want as many school employees to be in supplemental savings programs as possible, but it should be done in an ethical manner by people without a financial incentive. At a minimum, full disclosure by the sales people should be made both in writing and orally.

Scott Dauenhauer CFP, MPAS, AIF


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