The Teachers Advocate

403(b) Paperwork is Out of Control - Thank You IRS

2011-09-26T13:10:00.000-07:00

Last week I helped a client rollover a 401(k) to an IRA. The IRA was already opened and all we had to do was get online and make the distribution, a few clicks and we were done. Conversely, it could have been done over the phone in just a few minutes. For most 401(k) plans it is a simple thing now to get a rollover processed - not so for non-ERISA Government 403(b).I just finished the paperwork for a client and have my fingers crossed it will make it to all its destinations and not be rejected along the way - my estimate for time of receipt of rollover funds is anywhere from 60 - 120 days. Here is the process:

Open the IRA if it isn't already.
Contact provider of where 403(b) account is held and receive their paperwork.
Contact the TPA of employer where the client worked and find out if they require paperwork...they do.Send all the paperwork to the client to sign (this takes a few weeks to get the forms back and may or may not require a phone call to walk through it with them)
Receive paperwork back and fill it out, check for errors.
Create cover page and send both sets of paperwork (Current Vendor and TPA) to the IRA holder so that the IRA can sign that they are accepting the rollover.
Pray that the IRA provider reads the coverage and keeps the originals, signs where required and then forwards the originals to the TPA.
Pray that the TPA approves the request and doesn't require more paperwork and that the TPA actually forwards the originals to the current 403(b) vendor.
Pray that 403(b) Vendor receives back their account paperwork in good working order and an approval from the TPA to process.

As long as all those steps happen, the rollover should happen...should!Gotta love the 403(b) market.

BTW - the paperwork is having fun traveling, here is a list of its destinations:
Murrieta to Hemet
Hemet to Murrieta
Murrieta to Cincinnati
Cincinnati to Florida
Florida to North Carolina
Check goes from North Carolina to Cincinnati...

Scott Dauenhauer CFP, MSFP, AIF

Lincoln Financial Group - "...extremely profitable business....403(b)"

2011-09-15T08:09:00.000-07:00

Lincoln Financial Group has an interesting press release today about how profitable they are, stating:

With $164 billion in assets under management as of July 1st, 2011, Lincoln Financial Group hopes to further increase their already extremely profitable businesses: annuities, disability, life, and group life insurance, as well as 401(k) and 403(b) and savings plans.

I always want the companies doing business in the 403(b) market to be profitable, this leads to better and more innovative services - however it is disturbing to hear a company describing their 403(b) business as "extremely profitable." There is only one way for 403(b) business to be "extremely profitable" and that is on the backs of those participants in their 403(b).Scott Dauenhauer, CFP, MSFP, AIF

403(b) Regs Waste Enormous Amounts of Money

2011-07-21T08:48:00.000-07:00

I'm trying to help a client rollover an account at an old employer in another state. It is a 403(b) and she stopped working for the district back in 1993. It has taken me nearly four months and two paperwork submissions for me to be told that the district can't verify my client ever worked for them - so the plan administrator will not process the rollover. Keep in mind my client has an account that is in the name of that district's plan - thus proof she was employed there. The administrator has had to waste time on this, I've spent several hours on it and now the school district will be forced to go through employment records all the way back to 1993 (which likely means ordering boxes from storage) all so a $5,000 account can be rolled over.

Are you happy IRS? Your regulations could have served to ease the burden on employers and make the 403(b) a better, easier plan -instead it has become an endless drain. Its time to reform the reform.

Scott Dauenhauer, CFP, MSFP, AIF

A Tale of Two Cities...er, Retirement Plans

2011-07-18T09:03:00.000-07:00

A call for revolution in the Government Defined Contribution Retirement plan arena. Click on the link above.

Brian Graff at LAUSD Oversight Part 1 (of 4)

2011-06-22T15:19:00.000-07:00

Brian Graff at LAUSD Oversight Part 2 (of 4)

2011-06-22T15:18:00.001-07:00

Brian Graff at LAUSD Oversight Part 3 (of 4)

2011-06-22T15:18:00.000-07:00

Brian Graff at LAUSD Oversight Part 4 (of 4)

2011-06-22T15:17:00.000-07:00

TSA Consulting Group Buys Great American Plan Administrators

2011-06-20T09:42:00.000-07:00

The good folks over at TSA Consulting Group have dug deep and entered into an agreement to buy Great American Plan Administrators, or GAPA. GAPA was an arm of the commission fixed and equity indexed annuity company Great American. Great American essentially used GAPA as a loss leader to maintain payroll slots or obtain payroll slots. This allowed them to continue to sell their retail fixed and equity indexed annuity products via commission based sales agents.

There is no disclosure as to what, if any agreement was reached as to keeping those payroll slots open when the administration transfers over to TSA Consulting Group. Though it is unlikely they would sell to a company that planned to shut them out.

TSA CG has a big job ahead of them. Traditionally, GAPA offered free administration services to districts, now those districts will have to pay (though I'm pretty sure the structure will be a vendor pay model). All in all, TSA CG is vastly superior to GAPA and this should expand TSA's reach into parts of the country they don't have a presence.

Scott Dauenhauer CFP, MSPF, AIF

LSW, Veritrust & Equita Under Investigation

2011-05-24T13:53:00.000-07:00

A California insurance investigator, Mark Colbert is investigating Life Insurance of the Southwest, Veritrust Financial and Equita Financial.

From Mark's website:

In California, Arizona, Texas, Florida and Nevada, agents who've sold life insurance policies, annuities and/or 403(b) products for The Life Insurance Company of the Southwest (LSW), Equita Financial Group, and/or Veritrust Financial Services (VFS) are currently being investigated.

Insurance victims have claimed agents promised that life insurance policies (also referred to as Life Solutions will be "paid-up" in as few as five to seven years and work just like a ROTH IRA.

If you, or someone you know, owns a Life Solutions plan, you/they are encouraged to have an insurance or financial professional (other than someone at one of the companies named above) review it. I have already seen nearly a hundred of these cases in California and Texas and would be happy to speak with anyone who currently owns one of these policies.

You can contact Mark at www.markcolbert.com

Scott Dauenhauer

P & I: 403(b) participants hurt by unfair rules

2011-03-24T17:07:00.000-07:00

I've been saying this for years, its nice to see others echo it.

The link above may not work, so some of the story is reprinted below, it begins:

While there has been significant convergence between 401(k) and 403(b) plans, 403(b) participants are still treated as second-class citizens when it comes to getting the best pricing on their savings for retirement.

401(k) plans are free to have the most appropriate and cost-effective investment structure — including mutual funds, annuities, commingled trusts and separate accounts. But not 403(b) plans.

Instead, because of anachronistic laws, 403(b) participants are limited to mutual funds and annuities — regardless of the size of the plan. This is unfair and counter to our social policy that seeks to encourage working individuals to contribute toward their retirement security.

Essentially arcane 403(b) rules limit participants ability to buy into cheaper investment options. In some plans I work with we can use Collective Investment Trusts to dramatically lower expenses or provide investment flexibility to participants - this cannot be done in 403(b)'s and leads to higher costs.

Of course, this is not the only issue with 403(b) plans, but its a start that Congress should get to work on now.

Scott Dauenhauer CFP, MSFP, AIF

Ronald Reagan: Collective Bargaining = Freedom

2011-03-20T19:07:00.000-07:00

Does this sound like the Republican party of today? For all the talk of how Reagan is the role model for the Republican party one wonders if they actually know what Reagan stood for. I rarely get political in this blog, however, the title is The Teachers Advocate and what has happened in Wisconsin is not only a blow for freedom, but an attack on people who are not the ones who have caused this economic depression (that would be government and Wall Street).

Reagan once said that he didn't leave the Democratic party, it left him. I wonder if he would say the same about the Republican party of today.

Scott Dauenhauer CFP, MSFP, AIF

Two New TIAA White Papers

2011-03-10T13:20:00.000-08:00

I have NOT had a chance to evaluate either of these papers. They are for your review only. When I do read, I will be sure to post my comments and thoughts.

Scott Dauenhauer CFP, MSFP, AIF

Reforming K-12 Educator Pensions: A Labor Perspective

Pensions and Public School Teacher Retirement

Jon Stewart: Crisis In Dairyland Part III of III - Those Darn Teachers!

2011-03-09T11:11:00.000-08:00

The Daily Show - Crisis in Dairyland - For Richer and Poorer - Teachers and Wall Street
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Jon Stewart: Crisis In Dairyland Part II of III - Those Darn Teachers!

2011-03-09T11:10:00.000-08:00

The Daily Show - Crisis in Dairyland - For Richer and Poorer
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Crisis In DairyLand: Jon Stewart's take on Wall Street vs. Teachers

2011-03-07T09:16:00.000-08:00

Who is more important Wall Street or Teachers?

I might have a unique perspective because I worked on Wall Street and am married to a teacher (full disclosure, I do consulting work for Teacher Retirement Plans). I'm here to tell you, it isn't Wall Street - but you'd never know it by the current discourse. Jon Stewart skewers some people who still cling to the notion that the average teacher is a part-time worker. My wife is a teacher and I can tell you - there is nothing part-time about her work.

Scott Dauenhauer, CFP, MSFP, AIF

The "Benefit Counselors" Provision in 403(b) TPA Contract

2011-02-02T07:38:00.000-08:00

Recently I came across a contract between a 403(b) Compliance TPA and a school district in California that had an interesting provision:

"The "XXX XXXXX" (name of TPA), through its licensed financial professionals ("Benefit Counselors"), will assist Plan Participants regarding their rights, benefits or elections under the 403(b) annuity arrangement upon reasonable request of the Employer. The "XXX XXXXX" may, as part of its Administrator duties, limit access to Plan Participants to those Benefits Counselors who meet its qualifications including professional licensing and adherence to a Professional Code of Conduct."

I cannot be sure that this contract is still in-force, so I'll limit my comments to what I believe is wrong with such provisions in general.

To provide a bit of background, this particular TPA charges a premium fee over most other TPA's in California (80% more compared to a few of the larger players) AND this TPA employs sales agents to sell 403(b) and 457(b) plans. The sales agent part is what is concerning as this TPA is now referring to them as "Benefit Counselors" and is attempting to exclude any other individual from working with the employees of this school district, essentially attempting to establish a monopoly. What is interesting to note is that the Employer via this arrangement has now made a Fiduciary delegation to this TPA to vet potential Benefit Counselors. I have been unable to find anything that talks about what qualifies these individuals to act as "Benefit Counselors" (BC's) and I do not see anything in this agreement that requires these BC's to act in the best interest of the participants, i.e. act as Fiduciaries. The fact that these people are licensed and adhere to a professional code of conduct is meaningless - are they held to a Fiduciary standard? The answer is that they will not be.

So you have an Employer who likely doesn't understand what they are doing making a Fiduciary delegation to a conflicted entity who ONLY allows Benefit Counselors that are loyal to the TPA and owe no fiduciary duty to the participant.

I'm not harping on the monopoly aspect of this, I could support that if the environment was one that contained a duty of loyalty and was based on Fiduciary principles - I am deeply concerned that plan participants may be exposed to sales agents masquerading as qualified "Benefit Counselors" who will NOT act in the best interest of plan participants.

Captive Benefit Counselors of a TPA with full delegated powers who owe no fiduciary duty is dangerous combination.

Scott Dauenhauer CFP, MSFP, AIF

Bloomberg: Indexed Annuities Cap Gains, Obscure Fees as Sellers Earn Trip to Disney

2011-01-21T13:39:00.000-08:00

Another great article regarding the pitfalls of Equity Index Annuities.

Scott Dauenhauer

Money Mag: Index annuities are a safety trap

2011-01-19T07:13:00.000-08:00

I am not a fan of Indexed Annuities. Equity Indexed Annuities (EIA) are the reason I started working with educators, so I guess they've done some good! Back in 1997 I came across my first teacher with an Equity Indexed Annuity, one sold by Americo - it was toxic. Sure, you could never lose money (unless you surrendered in the first ten years...), but the index formula was so stacked against the client and so easily manipulated by the insurance company that I believed the client would be lucky to earn 2% annually. I found that this was not only common, but rampant and the last decade has seen nothing but huge growth in these products.

When people ask me if Equity Indexed Annuities are good for retirement, I tell them yes, as long as you are talking about the retirement of the agent selling them. Commissions are huge, incentives are amazing (trips to every exotic locale you can imagine) and most of the agents have never read the contract or can even do the actual crediting method calculation.

Great job to Money Magazine for exposing these scams (something I've been doing now for 13 years).

Scott Dauenhauer CFP, MSFP, AIF

9th Circuit says regulatory safe harbor for employee pension benefit plans is limited

2010-12-23T10:04:00.000-08:00

It looks like the NEA suit is dead:

"The “Valuebuilder Plan” could be construed as referring to the individual Valuebuilder annuities offered by Nationwide and Security Benefit. However, these annuities were not established or maintained by either the employees' school district employers or by the NEA. These annuity contracts could not, therefore, be “employee pension benefit plans” covered by ERISA. Insofar as the employees used the term “Valuebuilder Plan” to refer to these individual § 403(b) annuities, they failed to state an ERISA claim. The judgment of the district court had to be affirmed."

In America there are two defined contributions systems - one that is governed by ERISA and one that is not. Those who are in non-ERISA plans are apparently able to get away with just about anything. This needs to change.

Scott Dauenhauer

Can Retirement Plan Fiduciaries Accept Gifts/Perks?

2010-12-07T14:22:00.000-08:00

There are some fiduciaries out there who don't have an issue accepting gifts from vendors they do business with or may do business with. The following two articles provide some perspective from a legal basis:

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B_j6Iy8Ev55_ZWVkNWNlMWUtYzJhNS00ZTVmLWJlM2UtY2I4MWQ0Y2NmYWNk&hl=en

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B_j6Iy8Ev55_NjhkODQ4OTItZWYxMC00ZTM2LWE5Y2ItNDBmN2ExMWVkNjY2&hl=en

You decide, I think the answer is clear.

Scott Dauenhauer CFP, MSFP, AIF

Marcia Wagner: Plan Sponsor's Duty To Avoid Conflicts of Interest

2010-11-10T16:17:00.000-08:00

You'll need to click the above title to be taken to the article by attorney Marcia Wagner (who has a number of great articles). This article speaks mainly to ERISA plans, but all Plan Sponsors should take heed of its contents and follow them.

There are many in this 403(b)/457(b) industry (on the government) side who ignore the existence of ERISA because it doesn't technically apply to them. They don't feel a tinge of guilt when they break nearly every prohibited transaction rule and even find foolish reasons to defend their actions.

There are those in the public arena that take great care to run their plans on a fiduciary basis, unfortunately they are currently in the minority.

My advice if you are reading this article is to keep a copy if you are a plan sponsor or administrator, read it every quarter and distribute it to all that work with you. If you are a participant, print it out and send it to your plan sponsor or administrator - hold them accountable.

We need accountability in this 403(b) world, without it bad things happen to good people. There are some in this industry that profess to be Fiduciaries and then do the exact opposite in private, hoping not to be found out or believing that if they are found out that no one will care. YOU KNOW WHO YOU ARE.

Scott Dauenhauer, CFP, MSFP, AIF

TIAA Issues New IRA Contracts With Lower Guarantee

2010-10-26T12:45:00.000-07:00

That free lunch that TIAA was offering...gone, for the most part. Up until October 10th you could open an IRA with TIAA-CREF and if you qualified you could get a 3% minimum crediting rate and guarantee - with full liquidity. Those days are gone (thank you Ben Bernanke). The new minimum rate is somewhere between 1 and 3% - my experience is that it is now 1.25%. It still has full liquidity, so its still a reasonable option, its just not an amazing option (like it was before).

You can bet this move is based upon TIAA belief that interests rates will likely remain low for an extended period of time. I don't like the move, but I understand it. For those of you who have TIAA products with a 3% guarantee, you should be careful when moving money so as not to mess that up.

Below is the press release (which I missed):

The effective date of this change has been updated from October 13 to October 11, 2010.

Beginning October 11, new Investment Solutions IRA contracts which contain TIAA Traditional Annuity will have an adjustable guaranteed crediting rate of 1% to 3%.

The TIAA Traditional Annuity in IRAs pays a guaranteed crediting rate while offering the opportunity for additional interest amounts, as declared by the TIAA Board of Trustees. Additional amounts, when declared, remain in effect for the “declaration year” which begins each March 1.

This change does not affect the minimum crediting rate for other TIAA Traditional retirement products, including Retirement Annuities (RAs), Supplemental Retirement Annuities (SRAs), Group Retirement Annuities (GRAs), or Group Supplemental Retirement Annuities (GSRAs).

This change only affects the TIAA Traditional Annuity in Investment Solutions IRA accounts opened after October 11, 2010. TIAA-CREF IRAs that do not offer the TIAA Traditional Annuity product are unaffected by this change.

The prospective change to the Investment Solutions IRA TIAA Traditional Annuity crediting rate reflects the prevailing low interest rate environment and conforms with state insurance laws, which allow insurers to adapt more quickly to the interest rate environment than in years past. TIAA holds the highest insurer financial strength ratings from all leading independent rating agencies.

Questions & Answers

Will my Investment Solutions IRA contracts be subject to a change in the guaranteed minimum crediting rate?
This change only affects Investment Solutions IRA accounts opened after October 11, 2010. TIAA-CREF IRAs that do not include the TIAA Traditional Annuity are unaffected by this change.

Who is eligible to open a TIAA-CREF Investment Solutions IRA?
The TIAA-CREF Investment Solutions IRA is available to participants and their spouses or partners who work for institutions that are eligible to use TIAA-CREF products for their retirement plans. Please note that TIAA-CREF offers other types of IRAs to the investing public.

How is the minimum crediting rate on the TIAA Traditional Annuity account in the TIAA-CREF Investment Solutions IRA changing?
The minimum crediting rate for the TIAA Traditional Annuity in the TIAA Investment Solutions IRA contracts issued on or after October 11, 2010 will change to a minimum guarantee of between 1 percent and 3 percent, compared with a guarantee of 3 percent for Investment Solutions IRAs opened before that date. These changes, which are in conformance with state insurance laws, reflect the current low interest rate environment. Minimum crediting rates for the TIAA Traditional Annuity in existing IRAs and the TIAA Traditional in other TIAA contracts such as the RA, SRA, GSRA and GRAs are unaffected by this change.

Where can I get more information on IRA products?
TIAA-CREF offers several IRA solutions to meet investors’ needs. For more information, please visit www.tiaa-cref.org/ira or speak with an advisor at 800 842-2776.

What is TIAA’s insurance financial strength rating? What does this mean?
TIAA holds the highest insurer financial strength ratings from:

A.M. Best Company as of 12/2009 — A++
Moody’s as of 7/2010 — Aaa
Fitch Ratings as of 4/2010 — AAA
Standard & Poor (S&P) as of 5/2010 — AAA
These ratings are for TIAA as an insurance company and do not apply to variable annuities, mutual funds or any other product or service not fully backed by the claims-paying ability of TIAA. Ratings are subject to change. There is no guarantee that current ratings will be maintained.

The insurance financial strength ratings are one means of assessing the financial strength of an insurance organization, including the ability of the insurer to meet its obligations. TIAA’s capital and contingency reserves – which determine its claims-paying ability – are among the highest in the company’s history, ending the first quarter of 2010 at $24.1 billion, an increase of $1.3 billion over year-end 2009.

This message is informational only and not intended to solicit any TIAA-CREF product or promote any contract transaction.

Guarantees are based on the claims-paying ability of TIAA.

Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, NY. Brokerage Services are provided by TIAA-CREF Brokerage Services, a division of TIAA-CREF Individual & Institutional Services, LLC, members FINRA and SIPC.

Government DC Plan Disparity

2010-10-22T11:41:00.000-07:00

In my last piece I talked about the problems in Government DC plans - see Thrown To The Wolves. This is just a quick update.

In the past few months the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) has been busy. They have done some excellent work in updating fee disclosures, transparency and fiduciary obligations, specifically they have released the following regulations or proposed rules:

408(b)2 Interim Final Regulations
404(a) Participant Fee Rules
Definition of Fiduciary Proposed Rule

There are substantial changes including increased disclosures, greater transparency and more participant protections and yet, none of these rules apply to Government Defined Contributions plans such as 403(b) and 457(b). Sure, many government employers will adopt some or all of these rules/regs but the majority will not. Why is that one set of employees in America is treated so differently than another set just because their income comes from the Government. Is it ironic that these government plans are not subject to government rules/regulations?

Its time that Government employees receive the same rights and protections that private-sector employees receive in relation to their Defined Contributions plans.

Scott Dauenhauer CFP, MSFP, AIF

Labor Dept. eyes reports of advisers exploiting retirees

2010-10-12T19:24:00.000-07:00

If only the Department of Labor had state jurisdiction - you'd see a different Government DC marketplace.

This article details some of the abuses taking place in 401(k) - you can bet if they are taking place in 401(k), its much worse in 403(b) and 457(b).

Scott Dauenhauer CFP, MSFP, AIF

Government Employees: Thrown To The Wolves

2010-10-08T22:51:00.000-07:00

Why California Is Wrong To Believe That Our Pension Problems Will Be Solved By A Move To Defined Contribution Plans

If you listen closely to the politics of the day you might hear that many of our budget problems would be solved by a simple switch from Defined Benefit (DB) plans to Defined Contribution (DC) plans. Not true.

The problem isn't with our pension plans, it is with our politicians promising what cannot be delivered. But aside from that it would be irresponsible to move our public employees (even "just" future employees) to DC only plans. Why? Because we would be throwing them to the wolves.

You see, in California and many states around the country public employees do not enjoy the same protections that private employees receive when it comes to Defined Contribution plans (403(b) and 457(b)). Government defined contribution plans are not governed by the same laws, namely ERISA that private plans are. There is no Department of Labor that protects our public employees from the wolves in sheep's clothing that stalk our public employees. EBSA might as well mean Employees Being Sold Adrift (EBSA is a division of the Department of Labor and really stands for Employee Benefit Security Administration).

Yes, there are some fiduciary laws on the books in California and other states across the U.S., but they are rarely enforced. The term Fiduciary is bantered about and there are some revolutionaries who take up its banner, but by and large our public employees are bait when it comes to their DC plan.

The new 408(b)2 rules are great rules; except they don't apply to Government DC plans.

It is so bad that in some places criminal behavior has become the norm. What would ordinarily be punished in the private sector as criminal is rewarded in the public sector, even encouraged. Transparency is the exception, rather than the rule (at least the public sector has one thing in common with the private sector!).

The term Fiduciary is truly the "F" word when it comes to public schools - not because employers don't care, but because it isn't a priority - and why should it be? I'd much rather have my local school district spend their time focusing on education - not figuring out the Alpha, Beta and Sharpe of a certain mutual fund. The issue is not that people don't care, its that it isn't even on the radar. In addition, even if it was on the radar there is no enforcement.

Politicians across the U.S. are campaigning on the issue of over-abundant pensions. Maybe they are right, maybe they are not (full disclosure: my wife if one of those people who works her....uh, well she works really hard every day as a school teacher and thus is a beneficiary of a government pension, so I may be a bit biased)...its up to the voters to decide. What is wrong with the pitch that is being made is that these politicians have absolutely no clue that they are throwing these public employees to the wolves. What is worse is that these public employees have been the prey of the wolves for decades and nobody has done anything about it (save a few good souls at CalSTRS...full disclosure: I have done and hope to continue to do consulting work for them).

Two Americas

For some reason we have divided DC plans into Two Americas - those in the public sector and those in the private sector. Those in the private sector enjoy the protections of ERISA (but please don't get me started on 404(c)); those in the public sector are subject to whatever the state legislature MIGHT have put into place for the state's DB plans (with few exception). Why should public employees not be entitled to the same disclosure rules under 408(b)2 (essentially full transparency of service providers) that the private sector will be entitled to come July of 2011?

Why do we have two systems of regulation for DC plans in the US (forgive me, one system of regulation, another system that is essentially unregulated).

Good people are getting hurt and suffering because of this. Moreover, when corruption occurs (and trust me, it occurs) it is not punished - in fact it is rewarded. It is an injustice that has no protector. When a government employee is sold an investment because the individual selling that investment earns a trip to some exotic locale - that employee should at a minimum be disclosed such facts and in reality the person selling the investment should be punished (It shouldn't be allowed in the first place).

Government employees DESERVE to have their DC plans run by competent Fiduciaries, not people who put their own interest ahead of participants.

Conclusion

I've seen too much to sit back and let the prisoners run the asylum, its time that all Government DC plans were held to a higher standard - a Fiduciary standard. Its time that those who seek to undermine public employees Income Security (hmm..perhaps we should create PERISA - the Public Employees Retirement Income Security Act) are held accountable for their actions and are duly punished, not rewarded. It is time that the Duty of Loyalty that should be owed to our public employees DC plans actually means something.

Many public employers currently do the right thing (I know because I work with them on a daily basis), but too many public employees are in plans that are not in their best interest.

I challenge all that believe in a Fiduciary Standard to join me as I work to create a Fiduciary Standard for all government employees that is actually enforced....in other words, Stay Tuned.

Scott Dauenhauer, CFP, MSFP, AIF

"I Have Not Yet Begun To Fight"

2010-09-30T12:38:00.000-07:00

According to Wikipedia:

During his engagement with Serapis, Jones uttered, according to the later recollection of his First Lieutenant, the legendary reply to a quip about surrender from the British captain: "I have not yet begun to fight!"

Spotting a Fake Fiduciary

2010-09-08T13:01:00.000-07:00

Recently I've come across numerous situations that really tick me off. When I set out to help change the School Employees 403(b)/457(b) world I knew it would take a long time, real change doesn't happen overnight. Don't get me wrong, we've made a lot of progress, but sometimes it feels like employers are taking one step forward and two steps back. What has recently set me off are insurance agents that masquerade as "Consultants" for 403(b) and 457(b) programs. In most cases the insurance agent has convinced the employer that they are knowledgable and will act as a fiduciary - but in the end they are usually looking for a payday. This is of course my experience and my opinion (If you didn't already know, my first amendment right to criticize has been severely curtailed).

These fake "Consultants" even appear to conduct Request for Proposals processes and many times even invite good providers to compete. However the invitation to the good providers is usually just a farce used to gain credibility - the fix is in from the beginning - the consultant already knows who they are going to choose. The chosen providers typically have a revenue agreement with the Consultant. So - how do you spot one of these Wolves in Sheep's Clothing? Look for the following and ask the questions:

Questions for the Consultant?

Do you have a financial relationship with any of the proposed vendors?

Are you licensed to sell the specific product the vendor is offering and do you plan on receiving commissions or fees or trips for selling that product?

Please disclose all compensation you could potentially receive from each of the potential winning vendors?

Do you require a vendor to "Pay to Play" in order to make the finalist list? In other words, will the winning vendor(s) be required to pay money to the "Consultant" if they win? (Note: This is different than a bidder paying agreed administrative payment to the Plan, which the Plan Sponsor may pay out to compensate a Consultant)

Has the vendor paid for any trips you have taken in the past seven years? This is a no-no.

I could list dozens more questions to ask, but I think you get my drift - a True Fiduciary is someone who always acts in the best interest of the participants - ALWAYS.

A True Fiduciary will not take trips paid for by vendors or potential vendors, those trips will be paid for by the Fiduciary him/herself as a cost of doing business. A True Fiduciary will not enter into undisclosed agreements with vendors to receive commissions (or even disclosed agreements). A True Fiduciary will receive income only from their client, not from a vendor. A True Fiduciary will not utilize his/her position of power to benefit him/herself.

Fake Fiduciaries abound, in fact they are the majority. True Fiduciaries are Independent and will put in writing that they are Fiduciaries. True Fiduciaries will always act in your best interest and will not receive income from any source other than their client. They will disclose their conflicts of interest and try to avoid them whenever possible.

The state of the School Employees 403(b) and 457(b) world has trended toward the Fake Fiduciary, in fact it is dominated by Fake Fiduciaries. I come across them everyday. They are scared to death to have any light shed on them and their practices as they will be exposed for what they are - Self-Interested Fakes. This country is in desperate need of True Fiduciaries...School Employees are in desperate need of True Fiduciaries.

School Employees need to demand accountability and employers should work only with True Fiduciaries.

I am a True Fiduciary, are you?

Scott Dauenhauer CFP, MSFP, AIF

Free Speech Non-Existent in San Diego

2010-08-31T16:40:00.000-07:00

More to come, but be careful if you criticize a public figure in San Diego - the First Amendment no longer protects you.

ScottyD

Quoted in Forbes: Teachers Facing New Financial Pains

2010-06-26T09:08:00.000-07:00

Quotes:

"They have no faith in the stock market and feel they've been misled that stocks produce a higher return [than bonds] or that they'll be rewarded for stock market risk if they just hold on long enough," he says.

Many school districts are also barred from giving financial advice or restricting vendors selling high-cost annuities from campuses, Dauenhauer said. That makes some teachers easy pickings.

"The insurance agents prey on the teachers fears," he said.

What's to be done? For starters, expect that your 403(b) will be as large a part of your retirement as your pension plan, and invest it accordingly. While some teachers may think that their non-pension retirement savings can be invested more aggressively because there is a backstop, Danhauer argues that teachers may find themselves on the hook for more of their health care costs down the line because of the shaky state of government finances.

"The 403(b) has been thought of as supplemental," he said. "My mission is to convince teachers that it is essential to a healthy retirement."

Scott Dauenhauer CFP, MSFP, AIF

SASH - Bad Choice

2010-03-05T14:48:00.001-08:00

Douglas Holt of TDS & The Lotter Group Finds New Broker/Dealer

2010-02-26T15:08:00.000-08:00

Looks like Mr. Holt found a home, Lighthouse Capital Corporation.

I don't know much about this company other than they are small, though I did come across some weird connections on google, you can review and decide.

Securities and Exchange Commission v. Diversified Lending Group, Inc., et al., United States District Court for the Central District of California, Civil Action No. 2:09-cv-01533-R-JTL

Lighthouse was mentioned in this Dow Jones article as having some connections to Diversified Lending Group, though it is unclear if there are any regulatory issues stemming from this apparent scam.

This seems to me an interesting place for the Lotter Group and Holt to land (assuming the group went with him). The question becomes whether all that 457 money was bulk transferred from his previous broker/dealer to this new one.

Were the school districts affected notified of this? Seems like pertinent information to me.

Security Benefit - Operator of NEA Valuebuilder - Sold to Guggenheim

2010-02-16T08:51:00.000-08:00

Not sure of the implications, but we'll follow.

Scott Dauenhauer CFP, MSFP, AIF

Architect to VALIC

2010-01-13T07:50:00.001-08:00

Former IRS official and 403(b) expert Bob Architect has joined VALIC.

In an unrelated story, VALIC is sued in California, click here.

Developing....Architect to VALIC

2010-01-11T15:14:00.000-08:00

Press Release to follow.

Former IRS official famous for his leadership and knowledge in 403(b) has joined VALIC.

Scott Dauenhauer

Remember This Story - Puplava and FBC

2010-01-11T08:59:00.001-08:00

I am reposting the link to this story mainly because the FBC has decided that two days of deposing me is not enough. They are pissed at my involvement in the story behind the scenes and have chosen to subpoena all sorts of stuff. They even made what could only be taken as a threat to sue me in the last deposition (they meaning Dan Shinoff, the FBC attorney). The FBC is suing the former advisors and those advisors are countersuing the FBC. I am not being sued, just deposed....yet! The price you pay for standing up for the little guy I guess. I wonder how much taxpayer money is being spent on this lawsuit?

Scott Dauenhauer CFP, MSFP, AIF

What Happened to TDS's Doug Holt?

2009-10-29T12:08:00.000-07:00

I heard a rumor that Doug Holt of TDS is no longer with TDS, as of yesterday. I don't usually report rumors, only things that I can substantiate. I decided to check out his FINRA status on BrokerCheck and sure enough, he is no longer registered and it shows "Termination", though it doesn't state why. I should note that this termination is from Questar, his broker-dealer, so I can't say for sure that he is not with TDS. I'm awaiting an e-mail reply from TDS.

Update: Latest sources tell me Doug hasn't been terminated from TDS, only Questar (his Broker/Dealer). I wonder who the new broker will be on all those 457(b) accounts.

By the way, this is a tad strange as usually you can transfer to a new broker/dealer, there must have been some reason he didn't, we should find out soon.

10/30/2009 Update:

According to FINRA Holt was discharged by Questar on September 14, 2009 for the following reason:

"Registrant was terminated after internal review evidenced failure to provide prompt written notice and obtain written approval to participate in a private securities transaction and used unapproved marketing material."

I have given TDS a chance to respond to this, they have thus far refused.

Scott Dauenhauer

SchoolsFirst to Begin Charging Vendors for Compliance

2009-10-27T11:36:00.000-07:00

SchoolsFirst has now joined the ranks of those charging vendors for compliance, citing the high costs of keeping districts in compliance. It makes one wonder how those who claim to do it for free are able to do so (the answer is they are losing money and hoping to make it up on product sales volume of their TPA partners).

For those districts utilizing SchoolsFirst, since the service is no longer free, perhaps it is time to look at the other available TPA's.

Scott Dauenhauer CFP, MSFP, AIF

Schools First Letter 10-14-09

TIAA Cracks Down On Switchers

2009-10-20T15:40:00.000-07:00

Evidently enough people caught on to a secret trick that allowed one to reset their interest rate at TIAA (TIAA Traditional). Basically, you would sell into the money market (out of Traditional) on one day and then buy back in the next. This would effectively increase your rate to the new rate. So if you are earning 3% now and TIAA changes the rates to 3.5% you simply sell today into the money market and then repurchase back in a few days later and voila, you are now earning 3.5%. Well it turns out that this little trick caught on last year or TIAA knows that its going to have to raise rates in the future and doesn't want people resetting their rates (at least very often), so they are instituting the following new policy:

When you transfer out of TIAA Traditional and transfer back within 120 days, the amount, up to your original transfer, will be credited with the same interest rates that would have applied if the transfer out had not taken place. Such interest will be credited from the date the transfer in was made. Interest will not be paid for the period from the date of transfer out to the date of transfer in. Do you wish to continue with this transfer?

This will help, though lets say rates jump to 5% on the Traditional and I'm earning only 3%, you think I care if I lose out on 120 days of interest? I'll take that trade any day.

In reality this is a smart move, a daily liquid account like this is dangerous when you have volatile rates.

Scott Dauenhauer CFP, MSFP, AIF

Ed Siedle Speech: "Perspectives on the Future"

2009-10-13T10:17:00.001-07:00

Click above to goto a great speech by Ed Siedle.

Since the 1980s the financial services industry has experienced explosive growth. Over the decades dealing with brokers, money managers and other financial advisers ceased to be limited to the wealthy few. As a result of shifting responsibility for retirement planning onto workers and financial product innovation, virtually all Americans (and foreign investors for that matter) that had accumulated any degree of wealth turned to financial services firms for expert, independent investment advice and investment products.

Scott Dauenhauer CFP, MSFP, AIF

Former TDS Representative Sues TDS Group and Robert Lotter

2009-10-10T18:08:00.000-07:00

Below is the copy of the lawsuit that Emily Wang has filed against Robert Lotter's TDS Group (Tax Deferred Services). This lawsuit gives considerable insight into what happened during the transition to Lotter. I'm going to decipher some of it for you in commentary to come.

Scott Dauenhauer CFP, MSFP, AIF

TDS Group Sued By Former Rep

Calling a Spade a Spade - Brokers Giving Investment Advice

2009-10-09T15:18:00.001-07:00

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091004/REG/310049996&ht=spade

Shared via AddThis

The "Free Education" Fallacy

2009-10-09T14:55:00.000-07:00

Why most financial education programs in the Public School 403(b) and 457(b) world are really just covers for commission-based product sales.

A question that I continue to hear from Public School employers these days is “how do we best educate our participants?” Several companies that work in the 403(b) and 457(b) world have begun to develop and market “education programs” that purport to “raise financial literacy across the entire workforce.” I am all for financial literacy, in fact I think it is imperative that financial literacy is incorporated into our public school curriculum, however it is clear that financial education in relation to defined contribution participants (401(k), 403(b) and 457(b)) has failed.

There is plenty of evidence to support the failure of participant education:

Many participants are eligible for a match (free money) and fail to take advantage

The average participant account balance underperforms

The average participant couldn’t tell you the difference between a stock and a bond

More than 60% of participants don’t participate (about a third in 401(k)’s)

If you look at the dispersion of who is contributing to their 403(b) or 457(b) by age group those who are closer to retirement make up the overwhelming majority. These facts do not support the notion that participant education is working.

Participant education in Public School 403(b) and 457(b) retirement plans is very different than in 401(k) plans. In 401(k) plans there typically is a single plan and signing up is relatively easy, an advisor holds a plan meeting, provides some “education” and then helps people enroll or directs them to a website. This is not the case in 403(b) and 457(b) government retirement plans.

Most 403(b)/457(b) Public School retirement plans are “multi-vendor,” which means that the employer doesn’t have a single provider for their plans, they may have five or ten or in California, up to 76. Not only do these employers have multiple vendors, but many of these vendors also offer multiple products. In many districts in California its possible to have nearly 300 different products available to a participant. Each of these products may be sold by multiple agents, meaning that the number of choices between vendor, product and sales agent are almost too numerous to figure.

Imagine being an employee in one of these plans, you would be completely overwhelmed.

California has a website, www.403bcompare.com in which each of the 403(b) products are disclosed in terms of fees and returns, yet it is unreasonable to expect the average employee to actually analyze all the available options. Its tough enough for the average 401(k) participant to analyze the twenty-to-forty investment options available to them, imagine the school teacher who has to manage nearly eighty vendors, nearly three-hundred products and potentially thousands of investment options within those products and then finally choose from whom she wants to purchase that 403(b). No amount of “participant education” or “increased financial literacy” will enable the average participant to fully understand what is being offered to them.

It is the “multi-vendor” environment that feeds the perceived need for more “participant education.” The sheer number of options overwhelms people and pushes them either into paralysis or into the arms of a commission-based salesperson, who shows up on campus under the guise of “education.” If the education was truly unbiased and not related to commission-based products, there might be an increase in participants making the right choices, however there is no evidence there would be an increase in the number of participants overall.

The true reason behind the push for “participant education” in the 403(b)/457(b) School District retirement plan world is commissions.

While many firms represent that they only want to provide “unbiased” financial education, they are lying. Think about it for a second, can you think of any non-profit financial education companies that are not tied to product manufacturers in some form or fashion? You can’t, its because they don’t exist. When someone comes to your workplace to provide “education” on a 403(b) plan (in a multi-vendor environment) it is for one reason and one reason only, they want to sell you a product in order to earn a fee or commission. They are not interested in protecting your best interest, they have no duty of loyalty to you and they are not providing the “education” in order to increase your financial literacy. Financial education is a front for product sales. There is a reason that the Department of Labor is making changes to the highly conflicted regulations under ERISA that allowed for salespeople to give investment advice.

A few Third Party Administrators (TPA) for Compliance in California sell their “free” services and wrap them in the blanket of “free financial education.” Even worse, some charge for their compliance services and then offer to provide “free financial education.” This is dangerous for both the employer and the employee. Free financial education, if offered without commission-based product sales is fine, but that is not what is offered. The TPA essentially is acting as an agent for the employer - to the employee the TPA appears to be “endorsed” by their employer (either implicitly or explicitly) and this leads to the assumption (right or wrong) that the representatives of that TPA are selling products that have been approved by the employer.

Essentially the employees are trusting the employer made the right decision and they transfer that trust to the TPA representatives, this is exactly what the TPA Representatives want. Once the TPA and its reps have the confidence of the employees (based on the implicit employer endorsement) they need only to get in front of them to sell commission-based products. The means to get in front of them is “participant education.” The TPA is simply a front for the sale of high-cost, commission-based financial products that are rarely in the best interest of participants.

These education conflicts can be avoided by not hiring a TPA or provider of 457(b) plans that earns a commission or a hidden fee for selling financial products. They can also be avoided by not allowing sales agents on campus to “provide education.” There is no evidence this education works and it only facilitates an employee providing a commission to a sales person who has no duty of loyalty to that employee.

If you doubt me, simply ask the TPA sales organization to put in writing that all of their sales representatives will act as a Fiduciary (under ERISA) at all times when working with your employees, none of them will do this.

So what is the solution to the education problem? That’s a story for another time.

Full Disclosure: I am a consultant to the CalSTRS 403bComply and Pension2 service offerings. CalSTRS provides financial education and does NOT receive commissions or fees in exchange for the sale of financial products.

Is There Really “Appropriate Separation” Between ZUK and Great American Plan Administrators?

2009-10-07T11:47:00.000-07:00

UPDATE: SEE BELOW AFTER YOU READ THIS SECTION, IMPORTANT NEW INFORMATION PROVING THE QUID PRO QUO.

In a recent letter to School Business Officials (SBO’s) regarding 403(b) Compliance, a ZUK representative claimed it “has appropriate separation between the TPA, product manufactures and education providers thus eliminating conflicts,” but is this statement true? My opinion is that it is not.

One of the “free” Third Party Administrators (TPA) that ZUK uses or at least recommends to some of the districts they service is GAPA, or Great American Plan Administrators. I decided to test this “separation.”

I guess one can measure “appropriate” however one desires, for my purposes “appropriate separation” will mean that the TPA does not benefit financially in the form of commissions from the sale of 403(b) and other financial products. This seems like a reasonable way of defining “appropriate.”

Let’s exam the relationship between ZUK, product manufactures, education providers and GAPA.

GAPA or Great American Plan Administrators is a subsidiary of the Great American Life Insurance Company (GALIC) and is also affiliated with Annuity Investors Life Insurance Company (AILIC).

Great American is a product manufacturer and markets '14' 403(b) products in California according to 403bCompare.com (vendor numbers 1167 and 1092). Each of these products pay a commission to selling agents and Great American earns revenue from the sale and ongoing servicing of these products. My research shows that Great American and Annuity Investors Life Insurance Company are both on all “Approved Vendor” lists that Great American Plan Administrators does the “compliance” for (in California). Does this sound like “appropriate separation” when the administrator who supposedly does the work for “free” benefits financially when certain products are pushed over others? Utilizing my definition of “appropriate,” this relationship doesn’t pass the test and I think we’ve discovered how Great American Plan Administrators can offer “free” compliance.

Of course, it doesn’t end there. We’ve established that there is NO separation between the TPA and the product manufacturer, let alone “appropriate separation,” but what about the appropriate separation between the TPA and the “education providers”.

Who are the “education providers” in this case? ZUK financial advisors. Are conflicts eliminated by allowing ZUK advisors to provide “education” and are the ZUK advisors really separate from Great American?

I’ll let you decide. I went to the public ZUK website and clicked on “The Advisors” link and looked up each advisor that works for ZUK on the state of California Insurance website to see who these advisors were registered to do business with, it is publicly available information.

Of the 19 advisors listed on the site, 16 were licensed and appointed with GALIC and 18 with ALIAC. Only one representative is not appointed with a company affiliated with Great American Plan Administrators. This doesn’t mean that every ZUK representative sells Great American annuities and life insurance or that any of them are required to sell Great American annuities and life insurance. However, it is interesting that ZUK recommends GAPA and states they are “eliminating conflicts” when in fact the conflicts that exist are quite large. Not only does GAPA offer products for sale, almost the entire ZUK advisor team is licensed to sell them. I can tell you from experience in working with clients that were former ZUK clients that nearly every client I took over from ZUK had at least one product sold to them from GALIC or ALIAC. So, is this how GAPA offers capital intensive “compliance” services for free? I think the mystery is solved as to why ZUK offers the GAPA TPA service and how it is offered for free.

Its one thing to advertise yourself as “unbiased and objective” its another thing to be unbiased and objective and I don’t think the evidence presents a case that ZUK “has appropriate separation between the TPA, product manufactures and education providers thus eliminating conflicts.”

Free is an enticing word, however the IRS wasn’t joking when they created the new 403(b) regulations and they expect employers to comply. Using a free service that does not generate revenue from compliance is an open door to problems in my opinion. Entities that perform free services to subsidize product sales will inevitably end up cutting corners (at least in my experience), something employers cannot afford. Employers need a partner whose primary business is 403(b) compliance, not 403(b) product sales.

Full Disclosure: I am a consultant to the California State Teachers Retirement System 403(b) Comply and Pension2 service offerings.

IMPORTANT NEW INFORMATION UNCOVERED PROVING THE QUID PRO QUO

A client of mine is now contributing to a new 3121 plan (commonly referred to as a Social Security Alternative Plan) and that plan is now with Great American. Why is this important? The employer that this plan is with hired the gentleman from ZUK whom I refer to above to take their 403(b), 457(b) and 3121 plan out to bid. Whether the employer knew or understood that this individual worked for ZUK and was a product peddler is unclear at the moment, but an RFP (request for proposal) was conducted and guess who won the bid - ZUK. ZUK brought in their own 457(b) that pays their reps a commission and brought in Great American Plan Administrators as the TPA (the "free" TPA). It was a foregone conclusion who would be hired, imagine ZUK being hired to "consult" and then choosing someone else. So who did ZUK choose to offer the 3121 plan? None other than Great American Financial Resources's insurance subsidiary Annuity Investors Life Insurance Company and guess who is the agent on the policy? The ZUK consultant....sound like appropriate separation to you? This is the Quid Pro Quo, the free administrator is awarded with annuity product sales made by ZUK. Only in the land of non-ERISA 403(b) could this occur.

Five Steps To Restoring Trust in the 401(k) (or 403(b)) System

2009-09-30T21:56:00.000-07:00

If you don't know or haven't read Matt Hutcheson's work.....you should.

Matthew Hutcheson Testimony

Scott Dauenhauer CFP, MSFP, AIF

TDS Appears Desperate In Latest Memo

2009-09-11T10:43:00.000-07:00

"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

TDS Wants $3 A Participant For A Payroll Slot

2009-09-11T09:44:00.000-07:00

Below is a letter sent to TIAA-CREF from Tax Deferred Services on August 12th which includes a copy of a "Vendor Services Agreement." Keep in mind that on several occasions, CalSTRS called TDS and spoke with them asking for a copy of the Vendor Services Agreement and were told that one did not exist. The entire time, they had already sent one to the record-keeper of Pension2 (full disclosure: I work as a consultant for CalSTRS). There are some frightening things in this Vendor Services Agreement and some frightening things that were left out.

The strangest provision is number four, which states:

"In consideration for making Vendor's financial products available to Plan Participants and providing the Services defined above, Vendor agrees to pay the Plan Administrator $3 per month for each Plan Participant who contributes to one or more of Vendor's financial products through a payroll deduction processed by the Plan Administrator."

First, "in consideration" implies that the $3 fee is a fee that is charged for a payroll slot. The vendor must pay consideration in order for their products to made "available to Plan Participants." This is a no-no in California, see my previous post.

Secondly, TDS wants this "consideration" for "providing the Services defined above," those services "above" include only the following:

1. Accepting premiums (contributions) from the employer on behalf of the employee
2. Remitting said premiums (contributions) from the employer to the Vendor
3. Review those premiums (contributions) for compliance (in other words, making sure they don't over-contribute)

To sum up the "services" offered for $3 per month, the vendor is paying ONLY for common remitting of funds. That seems a bit out of whack to me considering the current going rate for FULL SERVICE COMPLIANCE in California is about $2 per participant.

No where in the letter does TDS state they will provide full service compliance to the district and in no place do they ask the vendor to "share information" which is necessary and required in order to do actual compliance. Is this letter and agreement an admission by TDS that they don't actually do compliance (real compliance)? It would appear so.

In addition, the letter doesn't say with what employers this agreement applies, nor does it show any documentation that any of the employers have in fact authorized TDS to collect this fee on their behalf.

Who is in charge over there anyway?

This is scary stuff, in an age where school districts need competent TPA's to ensure compliance they are getting something that is far less.

As an employer, would you authorize an entity who not only charges $3 per head for common remitting only (the letter apparently proves this) but then also solicits your employees for 403(b) and 457(b) product sales that produce commission for TDS and the reps they employ? I can tell you this, in an ERISA world - this would not fly.

Scott Dauenhauer CFP, MSFP, AIF

TDS Vendor Agreement

2008 AG Opinion Does NOT Say Vendors Can Pay For Compliance

2009-09-11T07:21:00.000-07:00

A few companies running TPA's in the state are now telling school districts that while their services are now free to the district, they must now charge the vendors for their services. In other states this is legal, in California I don't believe it is - I'll post the documents, you decide. Let's forget for a minute that vendors that must pay the fee will ALWAYS pass that fee through to the participant, which might be okay if it was a straight pass through, however most of the time it is hidden with higher fees and or lower crediting rates.

There is a long legal history in California of school districts paying for compliance type services, it started back in 1974 with an AG Opinion (all are below). This opinion (see section 5. Service charges) refers to what was originally Ed Code Section 13009 and is now Ed Code Section 44041, it stated:

"The governing board of each school district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount....."

The key term here is "without charge," the AG found that this term "reflects a distinct legislative determination that school districts must themselves bear the administrative costs of providing tax-sheltered annuities to their employees"

All of this came to a head again in 2002-03 when another TPA decided that they would begin charging vendors for their compliance services, this led to a big fight that eventually was once again resolved by an AG Opinion, issued by Bill Lockyer and Gregory Gonot on February 18th, 2004, No. 03-1005 (below). The question posed was:

"In light of a school district's broad authority to conduct its programs and activities, may a school district assess a fee upon providers of deferred compensation plans to cover its costs of administering the plans for district employees?"

The conclusion was the same as the 1974 opinion:

"Even though a school district has broad authority to conduct its programs and activities, it may not assess a fee upon providers of deferred compensation plans to cover its costs of administering the plans for district employees"

Thus it was once again established the vendors could not be charged. This would not be the end though.

When the IRS issued new proposed 403(b) regulations in 2004 it was clear that the school districts and public employers where going to have to spend more money on compliance as the compliance duties would be much heftier than in the past where they mostly collected money and remitted it. This led to Assembly Bill No. 2462 that was passed in 2006 that did several things:

Created new disclosure laws for all Third Party Administrators (most of which are not following them)
Allowed CalSTRS to create a Third Party Administrator
Changed Ed Code 44041 to allow employers to pass the cost of compliance onto the employee

A few things are important to understand in this legislation (which is also below)

Ed Code Section 24953 (g) reads as follows:

"The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of 87040"

So what does 44041 say?

Ed Code 44041(b) was changed to read:

"For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity
program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employee of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."

The key phrase changed was from "without charge" to "with or without charge." This changed allowed employers to charge employees for compliance (assuming they could work it out with Labor). However, the law says even more, in to places it states the following:

"The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction."

Then,

"For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."

Many TPA's are jumping on this language to claim that something regarding charging vendors (whom are not listed) is now allowed by law. They are claiming that the terms "organization or entity" refer to vendors or deferred compensation providers. While it is not entirely clear why these extra words were added, it is important to read the entire sentence. Again, the sentence reads "....may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."

So, the employee can pay via their paycheck or via their 403(b) account, however it does not say that the vendor can pay, the sentence ends with "entity authorizing the deduction." Who is the only entity that can authorize a payroll deduction? The employee. A vendor cannot authorize a payroll deduction, in fact the employer cannot even authorize a salary deduction unless it is first authorized by the employee (which is why there is no Auto Enrollment in California). Regardless of the language saying "organization or entity" there is no other entity that may authorize a deduction other than the employee. That is it, this bill didn't expand the law to allow employers to charge vendors. If it did, it would have specifically mentioned them, it doesn't.

But wait, there is more, yet another AG Opinion, this one (which I refer to as the FBC Opinion) was issued by AG Ed Brown and Deputy AG Taylor Carey on August 25th, 2008, No. 06-408 (below). This opinion asks about preferred providers and whether school employees can receive commission (they cannot) from 403(b) vendors. But it also states the following:

"With respect to 403(b) plans in particular, the Education Code provides that a school district, as an employer, may offer 403(b) plans to, and collect the costs of regulatory compliance and administrative services from, it participating employees"

In section 2. Compensation for Promotion, it states:

"Before Assembly Bill 2462 was passed, school districts were not allowed to charge employees for the administrative costs and other expenses associated with processing 403(b) plans. In recognition of sharply increasing administrative burdens on school districts that offer 403(b) plans, AB 2462 gave school districts the authority to recover the costs associated with 403(b) transactions."

It goes on to cite Ed Code Section 44041(b).

In my professional opinion (I am not a lawyer) the law has not changed around whether a vendor can be charged for compliance services relating to a 403(b) plan. AB 2462 did not change this, nor did the most recent AG Opinion.

So the question must be asked...why are TPA's in California telling school districts that they can pass their fees onto the vendors and citing state law and AG Opinions that do not support doing any such thing?

Perhaps they think the districts won't check out what they are saying or perhaps the TPA's don't understand what they are reading.

If I'm wrong on this, great, but somebody needs to show me the progression and prove to me that I'm wrong.

At least two TPA's are currently charging vendors or plan on charging vendors in California, how are they getting away with it?

I believe they are doing it with a wink and a nod. They are saying to the vendors "You must pay us, but we are not charging YOU, we are charging the employees account (which is legal), but if you can't arrange for the debit from their account, you can pay the fee on behalf of the participant." The TPA then excludes vendors who cannot arrange or won't pay the costs.

There you have it, the full history and examination of how the 403(b) compliance is paid for in California, along with all the documentation.....review and decide for yourself.

Original 1974 AG Opinion

AG Opinion 06-408 (the FBC Opinion)

ab_2462_bill_20060830_enrolled

200403-1005 Lockyer AG Opinion

ING/NYSUT Kickback Lawsuit Dismissed

2009-09-08T09:20:00.000-07:00

403bingsuit

ASEA & Nationwide - Fun, Food & Frolic

2009-09-03T12:33:00.000-07:00

The Alabama State Employees Association is in a bit of trouble:

In a report posted on the state personnel Web site on Aug. 21, the Alabama Securities Commission, the state’s securities regulator, described how the folks who run the employees association hit up their plan provider, Nationwide Retirement Solutions of Columbus, Ohio, for millions in, ahem, “endorsement fees.”

Some of those fees took the form of a Napa Valley vineyard tour, player slots for a celebrity golf tournament, first-class airfare, souvenirs, Chicago Cubs baseball tickets and, for the executive director, a handsome boost in salary. Other goodies made it onto the Alabama perk list, too, but you get the idea.

Scott Dauenhauer CFP, MSFP, AIF

TDS Poaching Reps?

2009-09-01T13:12:00.000-07:00

Word is that Bob Lotter, the new TDS owner is making good on his promise to close districts to his representatives only and he's poaching the reps of his competitors. At least one competitor says that 10 reps went to Lotter after Lotter told the reps that he would be the one controlling access to the districts.

In a letter Lotter wrote last month he alludes to this control, which is not legal in California - good luck Bob.

Scott Dauenhauer CFP, MSFP, AIF

ZUK-ING...Uh, Maybe Not So Objective and Independent

2009-09-01T10:29:00.000-07:00

Recently ZUK financial, a 403(b) product sales company sent a letter to districts that misrepresented the CalSTRS 403bComply program. ZUK attempted to paint themselves as objective and without conflicts, while stating that CalSTRS has conflicts of interest. ZUK greatly misrepresents the CalSTRS programs and fails to mention how CalSTRS manages conflicts (of which there are few). DISCLOSURE: I do consulting work for CalSTRS.

Of course ZUK wasn't so quick to point out their own conflicts (the fact that they represent many 403(b) vendors and sell products from TPA's/Remitters that they recommend to school districts). On their own website they state:

"Zuk Solutions is not a one size fits all program, but a customized, comprehensive, unbiased and objective partner ensuring total transparency and the latest and best business practices."

Hmmm, unbiased and objective might be traits of a company that did not accept commissions from companies that will be in the compliance programs they recommend (or the products of TPA's they recommend), of course that is not the ZUK offering. What are the chances that ZUK offers up the CalSTRS 403bComply program? Zero. Instead they will offer ING, Great American and their newest employee's company Envoy - entities they have some degree of control over so that they can come in and provide "education." Education from ZUK will not be "objective or unbiased," as the people providing it are sales representatives of 403(b) products.

Don't believe me, you need to look no further than ZUK's own website. It states clearly "ZUK financial group, a representative of ING." If they are representing ING, how can they be representing YOU? This isn't an attempt to demean or even pass judgement on ING (whose product I have not reviewed), simply to point out that ZUK is NOT unbiased and objective using reasonable definitions of the terms.

I don't have a problem with ZUK wanting to sell 403(b) products (other than the fact that my clients were sold a bunch of terrible annuities from Great American when they were with ZUK), but I do have a problem when they send out letters lying or misrepresenting other programs and then put themselves forward as the objective and unbiased solution when nothing could be further from the truth.

If you want further proof of where ZUK's loyalties are, simply pull up their website and copy the names of the representatives and then goto the California Insurance website and look them up, you'll see who they really represent - Insurance companies.

Scott Dauenhauer

Tax Deferred Services Sues Former Affiliates

2009-08-28T14:48:00.000-07:00

So I was checking to see if Tax Deferred Services had filed any lawsuits lately (Bob Lotter threatened to sue me several times on a phone call a few weeks ago and you might say I'm a bit paranoid, he's the new money man behind TDS).

Guess what I found, TDS made good on their promise to sue their former reps. You can track it by clicking the link below and entering the case number below. I've embedded the documents that have been posted so far, there is a hearing scheduled September 15th.

Some interesting things to note is that National Benefit Services is somehow involved in this whole mess, though its unclear to exactly what extent. It appears Great American Plan Administrators and NBS along with an unnamed Florida TPA were all trying to get the business from the reps who used to work with TDS.

The first doc is just the complaint and should load quicker, the second doc is all the filings thus far and is about 221 pages, so give it some time.

I'm not done reading the documents, but will certainly be updating you on what I find.

Case Lookup

Insert 34-2009-00055591 to bring up the case documents

TDS Compalint
Tax Deferred Services Lawsuit

Scott Dauenhauer CFP, MSFP, AIF

TDS Not Requiring New Vendor Agreements?

2009-08-20T15:50:00.001-07:00

Tax Deferred Services has begun sending out letters and contracts to school districts stating that they are going to start charging for their "compliance" services. However, the preferred method of charging is for TDS to charge the vendor the $3 fee (see my previous post on this topic). As a consultant to the California Teachers Retirement System's 403(b) program (Pension2) I was concerned that they would need to sign a new "vendor agreement."

After a call by CalSTRS to TDS the response was that they would use the existing agreement and not require a new one. This is strange and further proof that TDS is more interested in creating a revenue stream than actually protecting the school districts and providing competent compliance services.

If you were going to charge vendors for your compliance services, wouldn't it be nice to have that in writing? Lets say that TDS receives about $40 million a month in contributions from their school districts (a number that I've been led to believe is about right). While for certain this number will and probably already is plummeting do to employers canceling their contracts with TDS, lets pretend it only falls by half to $20 million. We'll also assume that the average contribution amount is $1,000 (its actually far lower), thus about 20,000 potential participant contributions to charge on. At $3 per participant contribution you are looking at $60,000 per month (less in the summer months) in revenue.

Wouldn't you want that revenue secured by a contract?

Call me crazy, but I would want an agreement in place with the vendors that are supposed to be paying me. This is just one more reason that I don't believe this company can be taken serious when it comes to handling district money and 403(b) compliance.

Scott Dauenhauer AIF

TDS to Charge Vendors $3 for "Compliance"

2009-08-14T12:53:00.000-07:00

Below is a letter written to Business Managers who use Tax Deferred Services. In it TDS reveals that they are in the process of moving from giving away services for free to charging vendors $3 per contributing plan participant per month.

Here we have a company that has admitted to compliance service issues who now wants to charge 50% more than compliance firms who have had full systems in place at least since the beginning of the year. They are attempting to get the districts to go along with trusting them by saying that they are going to charge vendors and thus the districts still won't pay. Of course this will lead to fewer vendors and higher costs for the participants.

In addition, the way the letter is worded it seems to indicate that it is the vendor charging for the processing of contributions,

"Some vendors may pass the additional costs on to the participants. In these cases, we require the vendor to notify the participant in advance and allow them to redirect their contributions to a vendor who does not charge for processing their contributions (emphasis added)."

Let's be very clear, vendors do not charge for compliance or for processing participants contributions (okay, they do charge administrative fees as either part of the embedded expenses or via a spread). It is Tax Deferred Services charging for "processing....contributions," and then passing these charges onto the vendor, who then may pass the costs onto the participant. Keep in mind, in the long term, the fees will always be passed to the participant as the vendor MUST cover the new costs somehow. I don't have a problem with a compliance firm charging a fee (though I do not consider TDS a compliance firm) for their services, in fact I encourage it. However, that fee should be charged to the employer or employee. In fact, in California an employer is not allowed to charge vendors for compliance.

The pertinent sections of AB 2462 is as follows, Ed Code Section 44041.5 (b):

"For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an
annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which
provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction."

I've bolded the applicable sections, 44041.5 used to read "without charge..", it was changed to "with or without charge.." in order to give school districts flexibility in how they pay for their deferred compensation programs. They could pass it on to the employee (assuming the collective bargaining units agree) or pay for it themselves. It does not state that they can charge vendors. It does say that they "may collect that cost from the organization, entity, or employee requesting or authorizing the deduction." This is the line that presumably TDS and others are using to say "gotcha" we can charge vendors. However, there is nobody other than the employee who can "request....or authorize" a deduction (the vendor can't) and thus this fee can only be collected from the employee, not the vendor. So how are the "vendor charging TPA's" getting around this? Notice that the Ed Code states "may collect these costs from the participating employee, the employee's participant account, or...". this is the key. The TPA's tell the vendor (with a wink and a nod) that they must debit the client account for the compliance fee, but if they choose to, the vendor can pay that fee on behalf of the participant. Thus, vendor pays and the TPA gets their fee - the participant however is left holding the bag - being forced to change vendors or pay higher costs or accept lower interest credits so that their vendor can pay the fee. At the end of the day the participant gets hurt, it would be much better if the participant paid the fee directly.

To give you an idea of the vendor reduction taking place when the vendors are required to pay, the FBC in San Diego charges vendors and according to their website they have 37 vendors available (there is some duplication in that number) versus the CalSTRS 403bComply program, which the employer or employee pays - the number of vendors is at 57 and includes Vanguard (The FBC does not at this point). Full Disclosure: I am a consultant to CalSTRS for Comply and Pension2. The employer/employee pay option allows for more choices (54% more in this case) and lower cost options (Vanguard). The new TDS chairman told me that "choice" was the single most important aspect of a deferred compensation plan (which I won't address now) yet he wants to push a model where choices are greatly reduced and fees for participants will have to rise.

So there you have it, vendors are charged 50% more than the marketplace cost for unproven "compliance" and participant choice is greatly reduced. If that is the plan you want, I guess you should stick with the new Tax Deferred Services. Maybe the new motto should be "Less choice, higher costs, same lousy services!"

The document below is what was sent out.

Scott Dauenhauer CFP, MSFP, AIF

TDS Fee Changes

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2009-08-10T09:38:00.001-07:00

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SDCOE's FBC Subpoena's Me In Advisor Lawsuit

2009-08-10T07:25:00.000-07:00

The sue happy Fringe Benefit Consortium, a subsidiary of the San Diego County Office of Education has served me with a subpoena to appear for a deposition in their case against Barry Allred, Christopher Dougherty, Chris Furtado, Mary Seki, Lori Lin, and Michael Zeiger. I believe the defendants are countersuing the FBC.

Dan Puplava's attorney was CC'd on this subpoena, for those of you who read this blog you know that he threatened me for linking to the San Diego Union Tribune article that was not friendly toward his client (Dan Puplava).

There is no reason for my name to be pulled into this lawsuit.

FBC

Lots of Changes in California TPA's

2009-07-23T13:40:00.000-07:00

Though there have been no press releases, my sources have told me that much is ado in the world of California Compliance TPA's.

Keenan has sold Envoy Plan Services (and Retirement Solutions Group) to Zuk Financial Group, closing around September 1st.

Tax Deferred Services has apparently been sold to the Newport Beach company R.A. Lotter, though no press release has been found.

Gatekeeper seemed to almost go out of business after major compliance nightmares and not sending money in a timely fashion, but was scooped up by CPI Qualified Plan consultants.....who then sold out to CUNA (Credit Union Backoffice).

The FBC had some problems of their own when the San Diego Union Tribune published a piece that pointed to one of the employees being involved in what appears to be less than ethical behavior (you can read about that on this blog).

Lots of action, it isn't clear to me how the participant will benefit from any of these transactions, the likelihood is that they will be offered more commission based products with what appear to be an endorsement from the employer.

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

FBC/Nationwide Exchange Out Form for 403(b)

2009-07-23T11:56:00.001-07:00

From the FBCRetire.com website:

Outgoing Exchange Form

To obtain this form, please contact your FBC / Nationwide Retirement Specialist.

Use this form to transfer or exchange your FBC / Nationwide 403(b) account to another approved vendor.

Fax the completed form to (800) 597-8206.

You see, the FBC is going to require that you speak with one of their "registered reps" before they allow you to move money out of their 403(b) plan - they make money from the plan and have a vested interest in keeping you in the plan. Even if you somehow obtain a form on your own (which is the purpose of this post) you will probably receive a call trying to "save" the assets from leaving. Ironically, the representatives that are touted as CFP's and advisors are not allowed to give investment advice. Of course, this doesn't stop them from doing so. Last year a client of mine was given the advice of putting 25% in the American Growth Fund, 25% in American Capital World Growth and Income, 25% in one of the American Balanced funds and 25% in the Vanguard Short Term Bond Index. The "advisor" told my client that things could get bad.....yet my clients allocation to stocks was increased by this move (keep in mind I like Vanguard and American). So, FBC reps DO give advice, they just aren't supposed to and it DOESN'T appear to be very good.

If you want to get your money out of the FBC/Nationwide plan and don't want to talk with one of their "advisors", you can utilize this attached form (unless of course they change it.....at which point I'll find it and post again).

Complain to your employer that this practice of withholding forms so that an FBC paid advisor can try to talk you out of moving your money is unethical in my opinion and should be stopped.

Scott Dauenhauer CFP, MSFP, AIF

FBC - Outgoing Exchange Form

Puplava Threatens Me With Legal Action

2009-07-10T19:57:00.001-07:00

So I post a link to an article from the Union Tribune regarding potential nefarious activities by a county official, Dan Puplava (click on the above title to go to that post). Today I get a letter from his attorney threatening me if I don't remove the link and the picture (that of a what the attorney says is a Used Car Salesman). Funny, I'm pretty sure that I can link to articles from other publications as long as those publications don't mind me linking to them.

Just so everyone is aware, I have extended a generous offer to Mr. Puplava to tell his side of the story - I'll post it word for word. Of course there are many questions that I'd also like for him to answer that I'm sure he won't.

Anyway, thought you'd be interested to see how some are yet again attempting to censor me....this time for something I didn't even write.

Scott Dauenhauer CFP, MSFP, AIF

Rebuilding Target Date Investment Options

2009-06-18T09:07:00.000-07:00

Rebuilding Target Date Investment Options

Alabama cancels compensation plan with Nationwide

2009-06-18T09:05:00.000-07:00

It seems what is at issue are payments Nationwide makes to the Union that some feel were not properly disclosed.

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

Gatekeeper Acquired by CPI

2009-05-13T15:13:00.000-07:00

Gatekeeper, a 403(b) Third Party Administrator that has come under scrutiny lately for slow payments to vendors has been acquired by CPIQualified Plan Consultants.

Plansponsor reported:

Fred Schneyer – 05/13/2009
CPI Qualified Plan Consultants, a Great Bend, Kansas-based third-party administrator (TPA) and recordkeeper, agreed to acquire Gatekeeper Administration & Consulting, a Flagstaff, Arizona-based TPA specializing in the education industry.

A CPI news release said the combined companies intend to provide CPI Common Remitter Services through a newly organized operations division under the management of Theresa Leiker, manager of Government and Tax Exempt Services at CPI. The deal is expected to be finalized no later than July 31.
As director of Retirement Consulting Services for Public Educators, Tamara Middleton, President/CEO of Gatekeeper, will be establishing a new CPI consulting division to focus on 403(b) and 457 plans within the public education sector, according to the news release.
The CPI 403(b) Gatekeeper Services will feature multiple service levels that will allow plan sponsors to decide how much or how little daily involvement they will have with the administrative aspects of their 403(b) retirement plans.

Scott Dauenhauer CFP, MSFP, AIF

Insurance Lead Program attempts to "Plant Thoughts"

2009-04-23T07:48:00.000-07:00

Here are a few highlights:

Join Dean Cipriano, President of Insurance Selling Systems, as he reveals his cutting-edge subconscious selling techniques that some experts have said are too powerful, too persuasive, and should be banned.
We weren't sure that we should even have this free telephone seminar because of the controversy surrounding the topic. You see, there is an underground selling technique that is so powerful that, if used improperly, can be used to influence someone against their will. Traditional sales trainers don’t teach it because most of them are unaware that it exists.

But we decided to have the call because our goal is to help you gain every advantage possible…and the simple yet powerful breakthrough sales techniques you'll discover will not only give you a HUGE advantage, but will help you close sales faster, and dramatically increase your commissions.

On this 70-minute call, you will discover:
How to plant thoughts in your prospect's mind!
Instantly know what your prospect is thinking!
Compel prospects to agree with you and say "yes!"
Discover one simple phrase that melts away prospect resistance!
Develop rapport with anyone in 4 minutes or less! Even in your marketing message.
Five easy steps to skyrocketing your sales!
How to subconsciously influence your prospects!
How to get qualified leads to respond to your advertisements as if they were in a hypnotic trance.
Why you should never disqualify people before using this simple technique... (You are losing a lot of sales if you don't do this.)
How to become a sales superstar who earns huge commissions with literally no extra work or effort!
If any of this sounds interesting to you... you OWE it to yourself to attend this upcoming free teleseminar, where I'm going to reveal every mind boggling secret about my little known, but amazing lead methods and hypnotic sales techniques that will Explode Your Commissions like a fireworks display on the fourth of July!

During This Eye-Opening Teleseminar You're Going To Be Exposed To The Most Electrifying Lead Techniques And Astonishing Selling Methods Ever Created!

Do these guys sound like Fiduciaries?

What a farce.

Scott Dauenhauer CFP, MSFP, AIF

Gatekeeper 403(b) Fired

2009-03-26T08:27:00.000-07:00

Gatekeeper, the 403(b) compliance company out of Phoenix is apparently struggling with growth, usually not a bad problem to have. The problem is that its attracting headlines and not good ones. One of the problems many 403(b) TPA's are having in this new regulation environment is that the massive demand for their services is overwhelming their ability to provide those services.

I predicted a year ago that we will see several failures of "TPA's" and the loss of money, there doesn't appear to be any loss of money in this situation and the TPA has not failed.

In some cases I think the districts need to be patient, but the first rule should always be the old Reagan rule "Trust, but verify".

Scott Dauenhauer CFP, MSFP, AIF
949-916-6238

Dan Puplava of Fringe Benefit Consortium (San Diego County Office of Education) Accused of Wrongdoing

2009-03-17T09:13:00.000-07:00

Dan Puplava, Deferred Compensation Manager of the San Diego County Office of Education's Fringe Benefit Consortium 403(b) and 457(b) plan evidently has been earning commissions from product sales to employees and participants of San Diego County (as well as Riverside and Imperial Counties). According to the San Diego Union Tribune article "In 2006, Puplava collected at least $355,000 in commissions as a broker for AIG Financial Advisors Inc., according to documents obtained by The San Diego Union-Tribune. He was named to the 2008 Achiever's Council, an honor reserved for agents of AIG Financial Advisors whose commissions and fees exceed $250,000 a year."

This is an interesting article and a case that warrants further attention from participants and authorities.

"Puplava's work as a broker also appears to have been done at county offices. Client statements obtained by the Union-Tribune list Puplava's phone number at the county schools office as his primary contact.

“It certainly strikes me as an apparent conflict of interest,” said Ronald F. Duska, director of the Mitchell Center for Ethical Leadership at The American College in Bryn Mawr, Pa. “It just sets up incredible temptations for the guy who's supposed to be acting as a manager.”

The conflicts of interest that exist when a fiduciary of a plan is also selling products are huge and its clear that this should be examined further. The article states "The arrangement does not appear to violate federal securities laws, but it tests the limits of the state education code and has become one of the main sticking points in litigation involving the office."

The article goes on to say "Running an outside business is legal for full-time county Office of Education employees. But according to the California Department of Justice, a deferred compensation program manager is supposed to be a neutral party – not someone who profits from marketing financial products.

“The statute prohibits school employees from acting as sales agents for 403(b) vendors in return for commissions,” according to an August opinion from the Attorney General's Office analyzing the state's education code."

The reporter found documents linking AVIVA (a purveyor of fixed annuities for 403(b) plans) commissions with Puplava as well:

"Court papers also say Puplava negotiated a deal with Aviva Life and Annuity Co. that paid him 30 percent of all commissions the partnership received from Aviva. In 2006, Puplava personally collected more than $26,000 in Aviva commissions from February to October, the cross-suit says."

Puplava denies wrongdoing but has refused to go on the record, this blog has invited him to refute in writing any and all allegations against him. We have extended an offer to allow him to submit his rebuttal in writing and we will not edit it.

Puplava has also had his attorney send this blog (and its editor) a threatening letter to remove all links to the San Diego Union Tribune article. Click on the link above to be taken to the article.

Scott Dauenhauer CFP, MSFP, AIF

HotChalk: What To Do After The Crash, 2009 & Beyond

2009-02-15T15:46:00.000-08:00

Article by Dan Otter and myself.

Some Relief for 403(b) Sponsors

2008-12-11T13:57:00.000-08:00

403(b) plan sponsors still have to comply, but they have some relief available to them.

ScottyD

NEA Valuebuilder Parent Downgraded (Security Benefit Life)

2008-10-13T14:25:00.000-07:00

I can't stand Security Benefit Life or the product pushed on unsuspecting teachers (NEA Valuebuilder).....turns out the parent company wasn't so smart - buying into toxic CDO's that are giving them problems.

ScottyD

Nurturing The Nest Egg

2008-09-29T14:32:00.000-07:00

School districts get new federal duties in overseeing workers’ 403(b) supplemental retirement accounts.

Educators Eye Exposure to U.S. Financial Turmoil

2008-09-18T10:34:00.000-07:00

Good article looking at exposure that educators have to the recent financial crisis. Check out 403bwise.com.

Clarifying 'Information Sharing Agreements'

2008-08-22T21:06:00.000-07:00

Bob Toth of Baker & Daniels clarified Information Sharing Agreements.

Scott Dauenhauer, CFP, MSFP, AIF

Lawsuit Claims Fraud in Teacher Retirement Plan

2008-05-19T14:59:00.000-07:00

Ouch, this one is going to really hurt VALIC. Of course, they changed their name to AIG Retirement......coincidence?

To be fair, I don't know all the facts in this case and won't pass judgement. But this is a good illustration of people using sales organization that are not held to a fiduciary duty to help with their finances......the organization is going to act in the organizations best interest.

ScottyD

www.meridianwealth.com

Threats & Apologies - American Fidelity Wants Me Quiet

2008-02-19T13:31:00.000-08:00

I received the above letter today from American Fidelity Assurance Company. They are trying to shut me up because I don't like their company.

A quick background:

My wife's school district utilizes American Fidelity Assurance Company as their provider of Section 125 Cafeteria plans. I've been in several Sec. 125 plans over the years and this one is the most onerous and conflicted I've encountered. From what I understand (and I could be wrong), American Fidelity Assurance Company does the administration for free, however as a condition of offering the plan for free they require that they meet with each employee each year in order to get their elections. The way they require it is that if you don't meet with the AFA reps your Health Insurance premiums will be deducted After-Tax, instead of Pre-Tax.

You don't have to buy anything from these insurance agents, but if you don't meet with them you don't get to participate in the section 125 plan and suddenly you are in a very small group of people who actually have their health insurance premiums deducted after-tax. Contrary to what the district has been told - an individual does not need to make a positive election each year to have health insurance premiums be deducted pre-tax. AFA requires this so that their insurance agent representatives can meet with you. Why would they do that? Is it to better serve their clients? Is it an attempt to sell more products and services? They do offer additional products like 403(b), disability, life, and Cancer insurance. I think I might feel pressured, kind of like attending a time share presentation. If I want to contribute to a 125 plan, I should be able to go online, or fill out a form and be done with it - not so with this plan.

Here is where it gets interesting. I have an alert on Google for "403(b)" and the other day I received an e-mail that a story or press release containing the term 403(b) had been posted - I clicked on the link and proceeded to read that a school district was about to hire American Fidelity as their 403(b) plan administrator. Given my bad experience with them I sent the school district an e-mail stating the following:

"Your district is looking to approve or begin talks to approve American Fidelity as your 403(b) administrator - I implore you to table this vote and look for another provider. American Fidelity is a wolf in sheep's clothing. They have one goal - to sell expensive, bad 403(b) products to your employees. They have been banned by the Pentagon from Military bases because of their poor behavior. They are not a good company to do business with. If you like I can give you names of companies to look at - but American Fidelity is not a good company.

I live in California and subscribe to a google alert on 403(b) plans - that is how I saw this was up for a vote. I have nothing to sell you, just don't want to see the teachers suffer by purchasing poor products from salespeople."

I made a mistake however - it turns out there are TWO American Fidelities. One is American Fidelity Life Insurance company, the other American Fidelity Assurance Company. The press release only stated "American Fidelity," thus I believed the company they were going to hire was the same that had been banned by the Pentagon - American Fidelity Life Insurance Company - you'll see the New York Times Article below doesn't make the distinction either. So, I incorrectly stated that the company the district was hiring was banned by the Pentagon - they were not. However, my opinion of American Fidelity Assurance company has not changed - I still do not like them.

It was the e-mail that I sent that prompted the above letter to me to Cease and Decist.

They threatened to sue me and to investigate me for stating my opinion about the company through my experiences with the company. This would be like me writing to a school district who chose Pepsi over Coke and told them not to choose Pepsi because I had a bad experience with them and they don't taste as good - Pepsi could not sue me for my opinions based on facts. American Fidelity Assurance company would like me to keep my opinion to myself by threat of lawsuit. This is clearly an infringment on my free speech.

By the way, I'm not the only one who has had a problem with AFA and voiced it, the article below is easy to find on the net:

American Fidelity Assurance Deception

I want to make clear that I was wrong to state that American Fidelity Assurance Company was banned by the pentagon - however, in my defense I never once said American Fidelity Assurance company was banned by the military. The press release mentioned American Fidelity and American Fidelity is a company that was banned by the military. For all of you who are confused, there are two American Fidelity's, apparently unrelated - American Fidelity Assurance Company, a company that I dislike - but is not banned by the Pentagon from military bases and American Fidelity Insurance Company - a company that IS banned by the Pentagon - and another company I dislike.

Bottom line - this letter and threat are another reason I would be very wary of allowing a company like American Fidelity Assurance Company (who is not banned by the Pentagon) to be my administrator.

Keep in mind that I called AFA and apologized for confusing their company with that of another company with nearly the exact same name - however I would not take back my opinions based on experience. This didn't resolve anything as it is my opinions they were upset about, not necessarily the fact that they were confused with another company by the same name.

In the future, American Fidelity SHOULD make sure that when they are mentioned in a press release that it state American Fidelity Assurance Company - not simply American Fidelity.

Amazingly, American Fidelity Assurance Company to my knowledge (I searched all of Google's archives) has not issued a press release to state that they are a different company from American Fidelity Life Insurance Company - something you'd think they would do to ensure people don't get confused. I couldn't find a single press release, doesn't mean they didn't release one, I just can't find it. I did find a few articles about them that aren't so nice:

Federal Jury Orders American Fidelity To Pay 10.8M

Fisher Invokes Fifth Amendment Over 40 Times (in AFA case)

Below is the article from the New York Times that fails to specify whether the American Fidelity they are referring to is American Fidelity Assurance of American Fidelity Life Insurance.

New York Times Makes Same Mistake

Just so we are clear - I made a mistake in thinking that American Fidelity Assurance Company was some how affiliated with American Fidelity Life Insurance Company - an easy mistake to make. American Fidelity Assurance Company is not and has not been banned by the Pentagon......I still don't like them though. Also, to make matters more confusing, they do have a subsidiary named American Fidelity Amerilife.

I stand by my comments - minus the pentagon barring.

Scott Dauenhauer, CFP, MSFP, AIF

FREE Training - Learn how to tap the lucrative 403(b) Market

2008-02-12T13:29:00.000-08:00

FREE Training - Learn how to tap the lucrative 403(b) Market

You've got to see this. This is the baloney that the agents who sell Equity Indexed Annuities respond to.

Pure drivel.

Scott Dauenhauer

School workers find costlier choices in saving for retirement

2008-02-11T07:38:00.000-08:00

The new regulations may be helping the IRS to track 403(b) plans better, but it is at the expense of teachers retirement. In Texas, even fewer low-cost providers are showing up on the approved statewide vendor list, meaning higher fees for participants and lower account balances at retirement. The new regs are having the short term affect of solidifying the high-cost, non-fiduciary based products as the ones that are offered. I hope this will change as the years pass.

ScottyD

Senate Passes Bill on Roth Arrangements in 457 Plans - ICMA-RC

2008-01-29T18:41:00.000-08:00

Senate Passes Bill on Roth Arrangements in 457 Plans - ICMA-RC

Tips To Survive on Teacher's Salary

2008-01-25T10:14:00.000-08:00

11Alive.com | Education - Tips To Survive on Teacher's Salary

A Retirement Plan Horror Story

2008-01-25T09:57:00.000-08:00

A Retirement Plan Horror Story

More teachers ripped off by unscrupulous agents.

ScottyD

Gatekeeper - New Regulations & Updates

2007-12-18T08:05:00.000-08:00

Gatekeeper - New Regulations & Updates

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

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Changes made by IRS could impact school district staff

2007-11-29T12:21:00.000-08:00

Changes made by IRS could impact school district staff

Interesting article about a school districts struggle with the new 403b regs.

Scottyd

Swindler gets 9 years in prison for scamming Danville neighbors

2007-11-19T08:37:00.000-08:00

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

Teacher retirement plans more limited, confusing

2007-10-29T07:02:00.000-07:00

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
www.meridianwealth.com
949-916-6238

Motley Fool Skewers AIG VALIC on Fees

2007-10-25T13:18:00.000-07:00

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!

ScottyD
949-916-6238
www.meridianwealth.com

A LESSON IN STEALING PENSIONS

2007-10-24T09:33:00.000-07:00

A LESSON IN STEALING PENSIONS

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.

ScottyD
www.meridianwealth.com
949-916-6238

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

2007-10-17T07:46:00.000-07:00

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

2007-10-17T07:29:00.000-07:00

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
www.meridianwealth.com
949-916-6238

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

2007-09-19T08:25:00.000-07:00

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

403(b) Company, American Fidelity Banned By Pentagon

2007-09-17T09:36:00.000-07:00

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

2007-09-17T09:11:00.000-07:00

Deloitte's take on the new regs.

Scott Dauenhauer, CFP, MSFP, AIF

Dechert Publishes Newsletter on 403(b) Regs

2007-09-17T09:09:00.000-07:00

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

2007-09-17T09:07:00.000-07:00

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.

Sincerely,

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

ENDNOTES
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.

DANVILLE MAN PLEADS GUILTY TO MULTIMILLION DOLLAR FRAUD SCHEME - Update on other Belly Up TPA's

2007-09-12T22:57:00.000-07:00

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

IRS to Non-Profits: Take Charge of Retirement

2007-09-10T16:29:00.001-07:00

Decent article on the upcoming reg changes. Nothing new.

Scott Dauenhauer, CFP, MSFP

Nonprofit workers face retirement-plan deadline - Money Magazine

2007-09-07T05:47:00.000-07:00

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

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

2007-09-04T09:03:00.000-07:00

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

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

2007-08-28T13:15:00.000-07:00

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

90-24 Today, Tomorrow, and Beyond

2007-08-27T07:25:00.000-07:00

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

Final 403(b) Regulations Offer Planning Opportunities and Some Surprises for Plan Sponsors

2007-08-23T19:50:00.000-07:00

McDermott - Newsletters - Final 403(b) Regulations Offer Planning Opportunities and Some Surprises for Plan Sponsors

Another summary of the newly issued 403(b) regulations.

ScottyD

Mistakes We See - 403(b) - Reish

2007-08-13T08:04:00.000-07:00

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