Friday, April 22, 2016

NEA Still Not Practicing What It Preaches

The NEA Valubuster Plan Is Up To 21x The Cost of Their Own 401(k)
Fifteen years ago I exposed the National Education Association's (NEA) poor practices when it comes to the 403(b) in a piece titled "Does The NEA Practice What It Preaches?". Very little has changed. The NEA's wholly owned subsidiary NEA Member Benefits Corporation continues to operate, market and profit from the selling of 403(b) products to their members, all the while installing a top notch retirement plan for themselves.

Almost nothing about the product, the NEA Valubuilder (affectionately referred to here as the NEA Valuebuster) has changed. It's still expensive, still marketed by non-fiduciaries, still pays the NEA gobs of money every year (which is not fully disclosed as to the amount, but is at least $2.7 million annually) and still offers needless high cost insurance riders. They did lower the threshold at which the highest fees apply (from $50,000 to $25,000), but other than that it's all the same.

Well, one thing at the NEA has changed since, the employees at the NEA have access to one of the best retirement plans in the nation. This plan is not available to the members and their is no national effort to make such a plan available to it's members (at least that I'm aware of). Employees who work for the NEA have access to a 401(k) run by Vanguard and according to my calculations (which may not be correct since I'm using Form 5500 data that might be stale, incorrect or misinterpreted, but should be close) costs only about .20% annually. To put that into perspective, the typical NEA employee pays just $20 per year, per $10,000 invested. By contrast, the lowest cost a person with a $10,000 balance would pay in the NEA Valuebuster product would be $260 annually, thirteen times what an NEA employee pays. What's worse, the potential cost could rise to $415 per year or nearly 21 times the NEA 401(k) cost (this assumes a balance of less than $25,000 and the maximum riders).

The NEA knows how to bargain for a good defined contribution plan. They've done a tremendous job for their own employees. They have contracted with Vanguard, have only one 401(k) provider and offer very low cost Vanguard mutual funds with very small administrative fees. The evidence supports that the NEA knows what they are doing when it comes to buying a good retirement plan. But when it comes to their nearly 3 million members they seem to have amnesia. Large revenue sharing payments can do that.

Here's an idea. Instead of trying to profit from their membership perhaps they should use their power to bargain for better 403(b) programs, perhaps one that looks similar to what they offer their own employees.

Unions are important and the NEA does a tremendous amount of good standing up for their membership across the country. My wife is a NEA member and I'm positive her income and benefits are higher today because of it. However, this is not an excuse for selling their members out to make a few extra bucks. It's time the NEA brings the terrible NEA Valubuster program to an end and starts working for the best interest of their members.

On April 6th, 2016 the National Education Association signed onto a letter to Congress to support the new Department of Labor Conflict of Interest rule, the letter said (emphasis added):

Dear Member of Congress:
As organizations that support of the Department of Labor’s (DoL) rulemaking to update and strengthen protections for retirement savers, we commend Secretary Perez and his staff for issuing a final rule to protect hard-working Americans from losing money because of a conflict of interest when a broker or other financial professional provides retirement investment advice.  The release of this final rule is a tremendous accomplishment in the fight to improve our nation’s retirement income security.

While we will carefully review the details of the rule in the coming days, our initial assessment is that it will at long last require all financial professionals who provide retirement investment advice to put their clients’ best interests ahead of their own financial interests.  By taking this essential step, the rule will help all Americans — many of whom are responsible for making their own decisions about how best to invest their retirement savings — keep more of their hard-earned savings so they can enjoy a more financially secure and independent retirement.

It is especially important to remember that small account holders and moderate-income retirement savers stand to benefit most from this rule.  The academic literature makes clear that it is the less wealthy, frequently financially unsophisticated retirement savers, who are most at risk when it comes to investment recommendations that are not in their best interests.  Often, those recommendations promote investment products with high costs, substandard features, elevated risks or poor returns. While the financial adviser may make a substantial profit off these recommendations, the retirement saver pays a heavy price for investment advice that is not in his or her best interest, amounting to tens or even hundreds of thousands of dollars in lost retirement income.

Strengthening the protections for hard-working Americans who try to save for a secure and independent retirement is a key priority for our organizations, and to its credit, the DoL has worked diligently to make important and needed changes to an outdated rule.   We urge all Members of Congress to join us in supporting this common sense and long overdue initiative and to reject all efforts to block its implementation, whether through a stand-alone bill, the Congressional Review Act, or a rider to a spending bill.  Your hardworking constituents deserve no less.
All I can say is WOW! The NEA gets it!!! 

This is a proud moment for the NEA, but it's marred by the fact that they continue to not practice what they preach. This DOL rule will not apply to the 403(b) product they continue to market. What is going on at the NEA that on one hand they are supporting a fiduciary duty and then on the other hiring non-fiduciary salespeople to push a junk product that could be up to 21 times more expensive than the product they offer their own employees?

The website, run by Professor Dan Otter published a Bill of Rights for 403(b) participants and the third one is Union Ethics, specifically:

"Unions must cease accepting "donations" or any other financial support from financial institutions that sell 403(b) products to their members. Furthermore, Unions should take an active roll in demanding better 403(b) plans."

It's time the NEA led the nation's teachers toward better defined contribution plans that look more like the one they offer their own employees, it's the right thing to do and the right time. I'm tired or writing posts like this and fighting with an organization that should be on my side, in fact, was on my side in support of the DOL Conflict of Interest Rule.

Scott Dauenhauer, CFP, MPAS, AIF