Thursday, May 02, 2013

Farewell, About Time and WTF?

Farewell, But Not Goodbye

It was announced a few days ago that Julia Durand, Director of Defined Contribution Solutions at the California State Teachers Retirement System (CalSTRS) would be leaving to accept a position as the Deferred Compensation Manager at the San Francisco City and County Employees' Retirement System.

This is a bittersweet announcement for me as I've had the pleasure of working with Julia since 2008 and she has become a real 403(b) Advocate (and friend).  Given that there are so few 403(b) advocates, it's tough to lose one.  But I know she'll continue to be vocal in support of the things that matter to those in government defined contribution programs.

Julia was in charge of all the major defined contribution programs at CalSTRS and they all grew under her tenure.  The 403(b) industry is not the easiest to deal with, but she approached it with a zeal and a poise that disarmed those who would oppose her.

The Pension2 program at CalSTRS has come a long ways and all the staff at CalSTRS should be proud of this accomplishment.  I'm highly biased, but I believe it to be the best 403(b) program available in California and a role model for the country.

CalSTRS will soon be conducting a search to determine who will take Pension2 and the other Defined Contribution programs into the future and I'm confident a new 403(b) Advocate will rise to the occasion, like Julia did.

We will miss you Julia, don't be a stranger!

About Time 

Plansponsor recently ran an article focusing on those who were critical of the PBS Frontline documentary "The Retirement Gamble."  As I was reading through I found an interesting quote from the head of ASPAA/NTSAA (National Tax Sheltered Account Association) that made me do a double take.  The quote in question, as follows (emphasis mine):

“We need to expand coverage to those without a plan at work. We need to make it seamless for workers to save through greater utilization of auto-enrollment. And we need to make sure we focus on outcomes so the system produces the retirement results reasonably expected by both plan sponsors and participants.”
I'm a big advocate of auto-enrollment, in fact I just finished a four-part series titled "Make It Automatic" which you can find here, here, here and here. One of the biggest opponents I've encountered to auto-enrollment is the NTSAA organization, which is part of ASPPA (for a bit of irony, read this).  The NTSAA believes that individual insurance agents and registered representatives should enroll people and that there should be an unlimited number of products available for 403(b) plans - the exact opposite situation needed for auto-enroll.

So when the head of an organization that actively lobbies to defeat any chance of auto-enroll in 403(b) retirement programs says "We need to make it seamless for workers to save through greater utilization of auto-enrollment." I have to wonder whether he was misquoted.  I actually agree with his whole quote, in fact it sounds like something I would say, what gives?

My suspicion is that the current head of ASPPA is no longer in a dual role as head of NTSAA.  This allows him the freedom to push the goals of ASPPA which might differ from the goals of NTSAA.  It seems odd to me and counterproductive to have an organization whose underlying members represent diametrically opposing viewpoints.

The question really becomes this, "Does the NTSAA stand behind the ASPPA director's viewpoint on auto-enrollment as it applies to government employees?"  Furthermore, will the NTSAA work to spend money to stop auto-enroll while ASPAA spends money to push for auto-enroll?  Can these two organizations really stay under the same umbrella given their divergent belief systems?

At this point, I'll take it as a win and say that ASPPA/NTSAA now supports my viewpoint that auto-enroll is critical to the success of helping those in education retire comfortably.

WTF (Why The Face) 

Financial Advisor magazine ran the following headline:

The relevant quotes are as follows:

“We’re getting more than 2 percentage points of fees from the assets that are part of our annuity business,” Mark Grier, Prudential’s vice chairman, said at a Citigroup Inc. financial-services conference in Boston today. “In your businesses, you probably would dance in the street over 40 or 50 or 60 basis points.”

“The quantitative evidence is that that pricing is sustainable in the market,” Grier said today. “People want to pay for the features that these products provide and they’re willing to pay those kinds of prices.”
Now you know what makes insurance companies dance, but are they overcharging?  It seems that if the pricing were enough to cover the risks and a reasonable profit, nobody would be dancing, just reasonably happy.  This guy sounds downright giddy.  Is it possible that the benefits now offered on most annuity products are so benign as to not represent a real cost to the insurance provider and thus the extra fees really are gravy?

Only time will tell.  After the next financial crisis we'll find out whether this guy was just another idiot AIG fellow or a company genius who helped design products that really didn't do anything, except overcharge clients.

Scott Dauenhauer, CFP, MSFP, AIF
The Teacher's Advocate