No Losses For Orange County School Districts

After speaking with the President of Envoy Plan Services I have been assured that no Orange County School Districts (or any Envoy school districts) have been harmed or lossed money due to Envoy's sub-contractors legal problems and allegations of theft. Envoy stopped using Plan Compliance Group in October after running the September payroll.

Plan Compliance Group allegedly stole or misappropriated nearly $3 million from school districts as it acted as a conduit from the districts to 403(b) vendors. The alleged theft took place in September. I will be providing a full report soon on what has taken place.

It is clear that school districts going forward are going to need to put better safe guards in place to ensure the employee's money is not lost due to bad Third Party Administrators. Plan Compliance Group is the third TPA to be accused of theft in the last year.

To be clear - Envoy Plan Services no longer uses Plan Compliance Group for Common Remitting though will continue to use Plan Compliance Group for compliance functions and number crunching through the end of this month. PCG will not have any control of Envoy School Districts money and Envoy is not cited or alleged to have done anything wrong.

More on this too come.

Scott Dauenhauer, CFP, MSFP

25 Schools District Sold A Ridiculosly High Cost Retirement Plan

Press Release - RSG Elite Choice

Perhpas the most scary observation was the following from this press release:

"Denise Smith, Director of Human Resources for the Imperial County Office of Education says, "We found that Elite Choice offered the most comprehensive and competitively priced program. Elite Choice is a total solution for the district and employers. Elite Choice quite simply fits our needs, and so far has exceeded our expectations."

I've reviewed this Elite Choice plan and found it to be among the most expensive retirement options ever offered. The claim that this plan meets a districts fiduciary responsibility is laughable as the fees are absolutely outrageous.

If you've adopted this plan as a district you can expect to pay about 3% in fees annually.

Scott Dauenhauer, CFP, MSFP

The Fall of the TPA - School Districts Stuck With Losses

In September of 2003 I wrote a short story titled "The Rise of The TPA." At that time we were beginning to see school districts hire Third Party Administrators to help with compliance issues relating to their 403(b) & 457(b) plans. I devoted a lot of my attention in 2003 and 2004 to one TPA, Envoy Plan Services. I didn't like Envoy or how it conducted business and I wrote to several school districts expressing my concerns. Envoy is at this point still in business, however the company it uses (or used to use) to outsource its compliance and common remitting has apparently gone to the dark. Plan Compliance Group is being accused by three states of mishandling or stealing school employees retirement funds. There is no evidence that Envoy is involved, nor have they been mentioned in any reprots, investigations, or lawsuits. I am at this point unclear of the relationship with Envoy and Plan Compliance Group, though I have call into Robert Hornaday to find out.

Plan Compliance Group is being charged with stealing money from school employees and I have been unable to reach Bill Reimers, the President for over a month to find out if he has a side to his story. The Department of Education in Hawaii and the Attorney General of Hawaii are the first to sue Plan Compliance Group for money that has disappeared.

This is not an isolated event, Plan Compliance Group is just the latest in a series of TPA failures in the U.S. that has literally cost educators millions of dollars (actually it cost the school districts millions). Last year both Horizon/Flagship Benefits Administrators and NEBSOnline both failed after stealing money from school employees before sending their retirement contributions on to the intended retirement vendor.


I have compiled links to several articles regarding the failures of these companies and will continue to update you on the Plan Compliance Group situation.

Horizon/Flagship

Unions sue districts over missing retirement funds
REVOCATION of ohio salesperson license
HAROLD HOPKINS INDICTED ON 56 COUNTS OF SECURITIES LAW VIOLATIONS
Missing investment funds scandal spreads beyond islands
Local couple named in securities/pension lawsuit

NEBSOnline

Financial officer's death adds twist to probe at retirement administrator
Ontario-Montclair fights teachers' lawsuit

Plan Compliance Group

DOE sues California firm over lapse in pension fund
Department of Attorney General - Hawaii News Release
School District Deals with Missing Money - includes video
State of Hawaii DOE Files Legal Action Against Plan Compliance Group, Ltd.
California company accused of mishandling Hawaii funds
Missing investment funds scandal spreads beyond islands
Statement by Superintendent Patricia Hamamoto regarding Employee Tax Sheltered Annuity Funds
Schools share pension woes
State Investigates Company Managing DOE Retirement Annuity Includes Video

I will continue to track this developing story. I have put in several phone calls to Mr. Reimers without a response. I have also called Envoy Plan Services to get their response. At this point it is unclear whether a relationship still exists with Plan Compliance Group and Envoy or whether any funds are missing. As soon as I find out more information, good or bad, I'll update this blog.

Scott Dauenhauer, CFP, MSFP

Smart Stops on the Web

Smart Stops on the Web

The Journal of Accountancy has named my site one of the Smart Stops On The Web!

Thanks!

Scott Dauenhauer, CFP, MSFp

DOE loses $2.28M in pension deposits - The Honolulu Advertiser

DOE loses $2.28M in pension deposits - The Honolulu Advertiser

Districts, please read, this is of upmost importance. More on this to come....

ScottyD

Equity Indexed Annuity Debate

Last week I got into a rather heated debate with another advisor on the topic of Equity Indexed Annuities. I don't like them and feel they are misrepresented, he apparently likes them (and likes to misrepresent them - in my opinion). I get called a few names, but I can take it. It's a long post, but has a lot of good information on both sides. I believe I debunk quite a few of his myths.

Have fun.

Scott Dauenhauer, CFP, MSFP

10 Rules for Saving For Retirement

What follows are the 10 rules you need to know to effectively save for retirement. I will expand on each one as time goes by.

1. Start now
2. Make it automatic (either from your paycheck or checking account)
3. Diversify, Diversify, Diversify
4. Don't be overly conservative in your allocation
5. Don't be overly aggressive in your allocation
6. Consistently increase contributions
7. Tax Diversification - use both pre-tax & post tax accounts (Roth)
8. Don't borrow from your retirement savings
9. Keep overall expense low
10. Avoid products with long surrender periods and high surrender charges

If you follow these ten rules you will have a successful retirement savings plan.

Scott Dauenhauer, CFP, MSFP

Kiplingers: I Teach Teachers How To Invest Better

403bwise creator and author of two books on financial planning for educators (including the latest, Teach and Retire Rich) Dan Otter is featured in December's publication of Kiplingers magazine. For those of you who have never met Dan Otter the above link will take you to his ugly mug (Ok, he's not that ugly, but you didn't hear it from me)!

The article is about how Dan got into educating teachers on how better to invest. Recently Dan gave a presentation based on his book Teach and Retire Rich in San Diego to a crowd of over 100 educators and it was clear that they were Wowed. The crowd had never before heard the things Dan was saying and they came away with a sense of determination to improve their financial situation. They also bought a lot of Dan's latest book which is the most excellent piece of literature ever written for educators on the topic of finance, you can pick it up at www.teachandretirerich.com or his other website www.403bwise.com. I do not get any kickbacks from the sale of his books.

Dan and I collobarated on the first book, The 403(b) Wise Guide which has become THE book on 403(b) plans - though it is now out of print (though it may make a comeback once the final 403(b) regulations are published).

It's been five years since the 403(b) Wise revolution got started and a lot has changed, but as they say, you ain't seen nothing yet!

By the way, the "financial planner" mentioned in the article is me! Thanks Dan.

Educators and School Employees - if you want to learn how better to plan for your financial future you need to read Teach and Retire Rich.

Scott Dauenhauer, CFP, MSFP

Long Live The 20% Surrender Charge....

These days you'd think that excessive surrender periods and surrender charges would be gone, after all, didn't Eliot Spitzer clean up the financial services industry?

Unfortunately there are still many unscrupulous individuals and companies who sell fixed annuities that have low returns, high surrender charges, and long surrender periods. Much of the time the products are not fully disclosed. Not only that, but the products are sold by Certified Financial Planners (of which I am one). It seems that these days you can't even trust "the most trusted designation in the industry."

Recently I met a school employee who had worked in the past with a company by the name of Zuk & Associates. I have come across Zuk many times in the past and so far have never seen anything from them that impresses me. Zuk's idea of diversification during the tech bubble was to own five different Janus funds (if you don't believe me I can show you the statements). Zuk was also against AB 2506, the legislation that created a full disclosure databank online at www.403bcompare.com (I have copies of the letters they sent to client lying about the bill).

Zuk sells a lot of products from Great American, but also products from companies like AVIVA and even occasionally mutual funds. In this instance the school employee was sold several fixed annuities. Each had 10-12 year surrender periods and one (from AVIVA) had a surrender charge that started at 20%. Another of the products had a "bonus" that was supposed to make up for surrender charges in another product that the employee was told was possibly having financial problems (a whole other story). The bonus however doesn't show up until the 5th year and even then the employee doesn't actually get to keep the bonus until the 12th year. In addition, the bonus is reduced if withdrawals are made, considering the client was at retirement age when the product was sold it is unlikely the employee will ever see the bonus.

What is wrong with the 403(b) industry? I would say that these product sales were isolated instances, however when I look up who is behind the National Tax Sheltered Accounts Association (the trade organization for 403(b) agents) I find AVIVA and Great American as two of the major sponsors. The other sponsors aren't exactly pillars of wonderful products either. This indicates to me that poor products are not the exception, but the rule.

What is clear is that something needs to be done to clean this up. Selling a fixed annuity with a 20% surrender charge isn't illegal, however it is unethical, especially if it isn't properly disclosed. It is time that a new system is put in place, a system that takes the best of the 403(b) world and the best of the 401(k) world and combines it, who will do this?

School employees - it is up to you to take better care of your retirement, you are being taken advantage of every day and don't even know it. It's not all your fault, but now there are resources to help you like www.403bwise.com and www.403bcompare.com and hourly based financial planners. It is up to you to approach your union and districts and demand that they take responsibility for their retirement plans.

Scott Dauenhauer, CFP, MSFP

MSN Money - Teachers' investment plans flunk

MSN Money - Teachers' investment plans flunk

Tim doesn't get an A for accuracy oro balance, but the overall message is pretty good - School Employee Retirement Plans are for the most part BAD and they deserve better.

I continue to see simply eggregious behaviour on behalf of the industry serving school employees and I am sick of it. The self serving behaviour and flat out fraudulent behaviour has got to stop, it risks ruining educator retirements because they lack trust in the institutions delivering the services.

If you knew the things that I knew that went on behind your back you'd be ready to sue everyone in sight. It is high time that somebody stepped up to the plate and cleaned up this mess we call the 403(b). I have a vision for what that clean up would look like, but it will take a lot of hard work and faith for this vision to come true. Over the next 12 months I will slowly reveal my vision. I'd do it sooner, but I don't want to give ammunition to those who want to derail my efforts.

Scott Dauenhauer, CFP, MSFP

K Plan Features Offer Little Incentive to Participate (free login required)

I find this quite interesting considering every time I bring up the topic of 403b plans having much lower participation rates than 401k plans I get attacked about the lack of a match in the 403b. Turns out that the match doesn't account for the huge gap.

Now, of course the industry will always have the pension arguement to fall back on (since there is a pension there is less participation), but I don't wholly buy that arguement either (though I do believe the pension provides a false sense of security leading some to not participate or participate as much as they should). If 403b participation is in the 40% range and 401k's are in the 70% range the difference cannot just be the pension plan (of which there are still private sector employees who offer both), perhaps the difference can be explained by something else........structure.

The 403b is structured terribly, it is fragmented and has an ugly retail distribution model. The 403b needs reform and I believe the new regs just be provide that impetus. It's time that a new model was given a chance.

ScottyD

Some fear decline of 403(b) plans under new law - InvestmentNews

Interesting article, but I think it misses the point. Those fearing the decline of the 403b are sales agents, not educators and the decline they are referring to is commissions, not the actual demise of the 403(b). I think the new regs will have some dissapointing effects at first, but then I think the market will adjust and 403b's will become stronger than ever. There is always opportunity in chaos.

ScottyD

Public Sector (403b/457) Plan Sponsors Confront Participation Challenges

It's a tough world in the 403b/457 arena, but a few changes could make it easy - unfortunately they aren't addressed in this article.

Scott Dauenhauer, CFP, MSFP

Magazine Articles [PLANSPONSOR.com]

www.GovExec.com - Cost of managing TSP continues to shrink (9/19/05)

This plan is a good example of how a retirement plan can be run at a low cost, however this plan is not all it is cracked up to be. It can be vastly improved without much of an increase in costs. I think State Teachers Retirement Systems should take a cue from the TSP - basically using the vast economies of scale of millions of workers with commonality to build a large asset base and lower costs. However, I believe this plan can be vastly improved upon. The education, website, and recordkeeping are horrible. If the TSP gave me one hour I could give them enough suggestions to make this plan the darling of all investment plans.

Scott Dauenhauer, CFP, MSFP

www.GovExec.com - Cost of managing TSP continues to shrink (9/19/05)

Pay For Long Term Care Insurance via 401k or 403b?

This is a good idea and one that we should all support. We need to find a way to make long term care insurance affordable and the ability to use pre-tax dollars saved in 401k or 403b plans is one way we can do that.

CAHI

403(b) Proposed Regs Delayed - NTSAA Press Release

The following Press Release came from the NTSAA today.  The NTSAA is the leading organization against the implementation of the proposed regulations from the IRS.  
The new regs are needed and I believe will lead most 403(b)’s to actually become 403(b) PLANS – as opposed to arrangements.  I think this will lead to a system where districts will adopt a single vendor for their 403(b).  At this point 403(b)’s will begin operating very similar to 401(k) plans.
I am happy however with the following release because it gives districts more time to comply with the proposed regs.

Scott Dauenhauer, CFP®, MSFP
Congress has returned to Washington from summer recess. We would like to acknowledge and thank members who contacted Senators and Representatives while they were in their respective “home” districts. If you had success contacting your own representative or senator (or a member of staff) during recess, please be sure to report that information to the NTSAA as it is important to keep a record of interested members of Congress for possible future actions.
New: Treasury & IRS Remarks:
We wanted to report comments made by Tom Reeder of Treasury and Robert Architect of the IRS at a Washington D. C. conference held last week as reported in the September 9, 2005 edition of Tax Notes Today:
Tom Reeder of Treasury and Bob Architect of the IRS “devoted most of their time to discussion of proposed regulations on section 403(b) plans” and noted that the “regs will not be effective before January 1, 2007”. He also expressed optimism that the regs will be finalized in the first or second quarter of 2006. Architect also said, "that it is likely the effective dates of some entities, such as church plans will be pushed back even further.”
In terms of the controversial written plan requirement, Reeder said, “No where in the code does it say a 403(b) plan does not have to be written. In fact, the fact that the statute refers to the word 'plan' implies that there ought to be a written plan.” To further explain that requirement, he said, “We’re not talking about a plan document in a 401(a) sense. We’re talking about a plan document that someone can use to reference what the terms of the plan are.”
In referring to the repeal of Revenue Ruling 90- 24, Architect said, "that the Service wants to get beyond Rev. Rul. 90-24 because it has complicated efforts at compliance by employers and has made enforcement more difficult for IRS agents.” However, Tom Reeder did say that “the final regs might permit some transfers that would not be allowed under the proposed regs”.
What Do We Think?
We believe that your efforts should continue, but focus almost entirely on contacts with members of Congress. Sample letters and other information to assist with these efforts can be found at www.ntsaa.org, under the “Advocacy" link.
It is important to note that Tom Reeder’s reference to the fact that the statute refers to the word “plan” is evidently based on IRC 403(b)(12) (which covers nondiscrimination rules added in the Tax Reform Act of 1986) where in (A) it says “a plan meets the nondiscrimination requirements of this paragraph if”, and in (C) there is the title “State and Local Governmental Plans”, and Plan is also used in the body of that section.
The key question for members of Congress is whether the intent was to apply the rules of plans to 403(b) arrangements, when in fact, all previous legislative history took the opposite approach. Despite many opportunities to do so, Congress has never mandated a written plan requirement for 403 (b). Even so, discussions with Treasury indicate that both Treasury and the Service hold the belief that Congress intends this result (when, in fact, Congress may well not be aware of the ramifications of the proposed changes).
Finally, as we review the Examination Guidelines, it is made clear in the detailed explanations of 403(b), that “403(b) plans take a wide variety of forms. Even where a 403(b) plan takes the form of an arrangement rather than a plan, it is nevertheless subject to all of the requirements of 403(b)”. Note that unlike qualified plans, the requirements in the 403(b) statutes do not include a written plan. In the plan document section of the Guidelines, the statement is made, “Unlike qualified plans, 403(b) plans are not subject to the requirements of a definite written program (although Title I requires a written plan document for certain 403(b) plans).”
We will continue to keep you informed, and ask that you continue your efforts to get employers, unions, and participants to contact Members of Congress.
NTSAA http://www.ntsaa.org/advocacy1.php

Ellie Lowder
Technical Advisor
email: info@ntsaa.org

FOXNews.com - U.S. & World - California Facing Teacher Shortage

Perhaps teacher salaries will rise faster than inflation over the next decade. When California faced a nursing shortage (which it still does) wages rose (as supply and demand would indicate). With home prices where they are right now it is no wonder a person in college would choose a different career than teaching. Teacher wages are going to have to rise in order to attract and retain quality (heck even unqualified) educators.

ScottyD

Teachers have few defenses when investing in 403(b)s

The Wall Street Journal lays out a great case for better 403b plans and oversight, read this article carefully.

Scott

Teach and Retire Rich is now available.

Teacher Dan Otter has released his newest book, Teach and Retire Rich. I've had the opportunity to preview the book and it is a must read for anybody in education. Every single educator in the US should be required to read this book as it will give them the insights they need to retire.

The title may sound a bit outrageous, but believe me it is worthy of its title. Pick up this book now at http://teachandretirerich.com

Scott

Great article on 403bcompare.com

ScottyD

Tired of Those High Paid Teachers!

I, for one, am sick and tired of those high paid teachers. Their hefty salaries are driving up taxes, and they only work 9 or 10 months a year!

Its time we put things in perspective and pay them for what they do, baby sit! We can get that for less than minimum wage. That's right?

I would give them $3.00 an hour and only the hours they worked, not any silly planning time. That would be $15.00 a day. Each parent should pay $15.00 a day for these teachers to baby-sit their children. Now, how many do they teach in a day?.... maybe 25. Then that's 15 x 25 =
$375.00 a day.

But remember they only work 180 days a year! I'm not going to pay them for any vacations. Let's see? That's 375 x 180 $67,500.00. (Hold on, my calculator must need batteries!)

What about those special teachers or the ones with Masters Degrees?

Well, we could pay them minimum wage just to be that fair. Let's round it off to $6.00 an hour. That would be $6.00 times five hours times 25 children times 180 days = $135,000.00 per year. Wait a minutes, there is something wrong here!!!!

There sure is, huh ??????!!!!

Send this to any teachers YOU may know. I'm sure they'd gladly accept baby-sitting rates!

ScottyD (this was not written by me, I have no idea who wrote it!)

The Teachers Advocate Blog Returns.....

It's been almost 8 months since my last post to this blog, which means that people have probably stopped checking it. I am now attempting to revive it. My absence has been because I have been incredibly busy with my business. Things haven't slowed down for me, I am more busy now that last month, but I figured that this blog is important enough to fit in. I am also maintaining a blog for my company (and it's clients) at themeridian.blogspot.com. The Meridian will cover more general topics in personal finance as well as current events. This blog is more designed for educators.

A wonderful story was written yesterday by the San Diego Union Tribune. David Washburn, a reporter at the paper spent months tracking and writing this story and it paid off big time. The title of the story is "Teachers get Harsh Lesson on Investing" and you can find it at the following link - http://www.signonsandiego.com/news/metro/20050130-9999-1n30403b.html. The crux of the article is that teachers, in general are getting screwed. They are getting screwed by the district, the agents peddling poor products, the companies distributing to the agents, and themselves. Teachers need to take a more active role because it appears nobody else will do it for them, the article gives them a few tools. Another exciting thing about this article is that it wasn't just on the front page of the business section, it was on the front page of the Newspaper, above the fold - right next to a story on the Iraqi Elections..... I believe this is the most prominently published piece ever done on 403(b) plans.

I am very proud that my name appeard 8 times in the article....thanks Dave! But I am more proud of the educators who were willing to share their stories. It was also great to see 403(b) patriot Barbara Healy with some great quotes and insights. Finally, Dan Otter and his website were prominently featured as well, along with www.403bcompare.com.

In the coming days, weeks, & months I will begin blogging on a very important and upcoming issue that will affect our future educators - the Termination of CalSTRS. The Terminator (Governator) has set his target on public employee pension plans and promises to take this fight to the people. I will attempt to provide good, clean coverage of what issues are involved and whether it is a good or bad idea. Your thoughts are always welcome.

Unitll next time............

ScottyD

Equity Indexed Annuities Are Improperly Sold

I have never been a fan of the Equity Index Annuity. An EIA is a fixed annuity that allows for some extra growth tied to an index, typically a stock index.

They are sold by uneducated insurance agents everyday to an unsuspecting public that doesn't understand a word coming out of the agents mouth. In most cases - the agents don't understand the product either. The agent tells a great story and the customer buys it hook, line, and sinker.

Imagine this scenario.....Let's say that I could give you the returns of the market without the risk, would you like that? This is the basic pitch that agents use to sell high commissioned (typically 10%) EIA's. Who wouldn't want the market return without the risk? Unfortunately these products are mostly hot air - they have littl substance to them and are easily manipulated by the insurance company producing them.

In the latest issue of Senior Market Advisor, an annuity sales rep had the following to say about how he "uncovers risk aversion," as follows:

"To uncover risk aversion, Abedeen asks clients if they would prefer an investment that's earning 15% but could lose 20%, or an investment that's earning 8%, but can't ever have a return less than zero. Clients invariably choose the 8-percent option."

The unwitting prospect would almost always pick the latter option - if you could earn a guaranteed 8% (which is what he is insuating) versus 15% with a major loss potential why wouldn't you. There is so much wrong with this line of quesitoning this agent uses that I don't even know where to begin.

I will start with the fact that all people are "risk averse" - nobody wants to lose money if they don't have to. What is really bad is that stocks do not average 15% annually, sure they have in the past 15 - 20 years, but historically they have barely returned 10% - half of that from divideneds (which we will get to later). Next, stocks can fall by more than 20% - yes, i know that this helps boost his arguement, but it is still worth pointing out. The real point I am attempting to make is that he is telling people that they have a choice (and basically only one) between a 15% return with lots of risk (of which doesn't exist - the 15% at least) or an 8% with zero risk. I am here to tell you that there is no way Equity Indexed Annuities will return 8% or even close to it in the decades to come. Why? I don't have enough room to tell you why - but I will lay out a short case. An EIA's return is based on the growth of the market - not the total earnings (as is insuated by the agent in the above quote), the growth of the market has not average much above 5% in this last century and doesn't appear to be headed higher. EIA's do not include the return of dividends. Dividends have made up a siginificant portion of the return of the stock market in the last 100 years. Even if we say that the market will return in the 7% range for growth - highly unlikely for the market as a whole - the EIA annuity will not return anywhere near that - at best perhaps 5%. There will always be years where index annuities will have a great year and return double digits, but they will be few and far in between and the years in which they return zero will offset the double digit years.

EIA's may be an alternative to a fixed annuity, but I wouldn't put my clients money into them - if I did I would explain the actual risks and the actual potential returns possibilities and not lie in order to make a sale.

By the way - for every $10,000 in EIA sales an agent could make about $1,000 (which comes out of your return) - so in order for an agent to make $100,000 in a year he/she only needs to sell $1,000,000 worth of EIA's - not a difficult thing to do.

Next time you are approached by an agent about buying an Equity Indexed Annuity or anything that sounds similar - just say no, then tell your friends to stay away from that person.

ScottyD

Teachers Advocate Released

The latest edition of The Teachers Advocate e-newsletter has been released. Just goto www.403bretire.com to link to it. It contains a compendium of thoughts on many subjects afffecting educators.

ScottyD

403bCompare will be delayed

Several of the target dates related to the launch of the 403bCompare Web site
have been recently delayed. The 403bCompare Web site is now scheduled to be
fully functional and available to employees of local school districts,
community college districts and county offices of education on August 27,
2004. (For the purpose of California Education Code sections 25113 and 25114,
August 27, 2004 will be known as the “implementation date.”)

Some areas of the site will continue to be accessible before the
implementation
date; vendors can currently log on to register general information about their
company. However, the features allowing vendors to add specific product
information and for employers to designate their list of approved vendors will
not be available until after July 16, 2004.

The vendor registration period is unchanged; all vendors who wish to
participate in 403bCompare must communicate their intent to register to
CalSTRS
by June 25, 2004.

This notification will be given to participating vendors and employers, and
will be posted on the 403bCompare Web site.

If you have any questions, please contact the 403bCompare Administrator at:

(administrator@403bCompare.com)
403bCompare Administrator
403bCompare Program
Mail Station #38
P.O. Box 15275
Sacramento, CA 95851-0275
Telephone: (888) 394-2060
Facsimile: (916) 229-4202

Reagan's Final Goodbye

My Fellow American,

I have recently been told that I am one of the millions of Americans who will be afflicted with Alzheimer's disease.

Upon learning this news, Nancy and I had to decide whether as private citizens we would keep this a private matter or whether we would make this news known in a public way.

In the past, Nancy suffered from breast cancer and I had my cancer surgeries. We found through our open disclosures we were able to raise public awareness. We were happy that as a result many more people underwent testing.

They were treated in early stages and we were able to return to normal, healthy lives.

So now, we feel it is important to share it with you. In opening our hearts, we hope this might promote greater awareness of this condition. Perhaps it will encourage a clearer understanding of the individuals and families who are affected by it.

At the moment I feel just fine. I intend to live the remainder of the years God gives me on this earth doing the things I have always done. I will continue to share life’s journey with my beloved Nancy and my family. I plan to enjoy the great outdoors and stay in touch with my friends and supporters.

Unfortunately, as Alzheimer's disease progresses, the family often bears a heavy burden. I only wish there was some way I could spare Nancy from this painful experience. When the time comes, I am confident that with your help she will face it with faith and courage.

In closing let me thank you, the American people, for giving me the great honor of allowing me to serve as your president. When the Lord calls me home, whenever that may be, I will leave with the greatest love for this country of ours and eternal optimism for its future.

I now begin the journey that will lead me into the sunset of my life. I know that for America there will always be a bright dawn ahead.

Thank you, my friends. May God always bless you. Sincerely, Ronald Reagan.

A Real American Hero

Ronald Reagan passed away on Saturday and interestingly enough I am not saddened. This may sound odd, but I think a lot of people feel this way. No, I am not about to bash President Reagan - I am not sad because I know Reagan lived an incredible life and now we are finally able to celebrate it. I don't believe Nancy wanted the President to die, but I do think that it wore on her heavily - both emotionally and physically. Reagan was a hero to many, and to me as well. I have always admired President Reagan, even when I was a young boy. I was only six years old when Reagan took office, I didn't pay attention to politics and couldn't tell you what I was doing that year....but by the time Reagan was running for re-election I was aware of him. I remember staying up late to watch the polls come in, I remember being in awe of the man who won 49 states. I also remember the great optimism I felt about my life and about America in general. I remember being in the Just Say No club and receiving a letter from Nancy Reagan. I never did drugs growing up, though I did my share of drinking (always in a safe environment though!!). I can't say that I now agree with the war on drugs, but it is a noble cause - this is a subject for another time. I remember watching Reagan talk to us after the Shuttle Challenger disaster, I did not really understand what was going on, but felt comforted anyway. I remember hoping that they would change the consitution to allow for a third term in office for a President - just so Reagan could stay on. We now know that even if that happened, he would not have been able to fulfill it. I never met Reagan, I wish I had, though it isn't important - you didn't have to meet him to know what kind of man he was. For his detractors, of which there are many - among them are probably many of my clients - I think that you may have disagreed with him, but you never disliked him (of course I could be wrong). What I admired about Reagan was his ability to separate politics from friendship - many of my best friends, and clients have completely different political ideaologies, yet we are still friends, not only that, good friends.

To me, there is nothing better than watching old media shots of President Reagan - and nothing more inspiring than watching him utter those words "Mr. Gorbachev tear down this wall." His zeal for freedom and liberty electrified the nation and the world. When he remarked that he wouldn't allow age to be an issue in his re-election campaign because he didn't want to take advantage of his challengers youth and inexperience - I thought it was brilliant and even the folks who were avid Mondale supporters had a great chuckle. Ed Meece told a story the other day that made me laugh - Desmond Tutu came to the White House and just took to Reagan, complaing about every policy and basically trashing the President, the press, seeking and opportunity to exploit the controversy asked Reagan the next day about the meeting, to which the President replied - "Tu-Tu, So So" And with that quick, funny quip, he disarmed everyone.

I don't remember much about the first term of Reagan's presidency, but I do remember when he got shot. Perhaps that was the time that I fell in love with this American Icon, of course it was more than that. There has never been anyone like Reagan, nor will there every be anyone like him again, I am saddened by his death, but excited that we can celebrate his life. I trust that he is now up in heaven looking down on what he called "The Shining City Upon A Hill." I believe in America's greatness and Reagan is the one who taught me how. There is no other place on earth that people will literally risk death to get to, none.

What follows is Reagans Farewell address from the Oval office. May you Rest In Peace Mr. President.

This is the 34th time I'll speak to you from the Oval Office and the last. We've been together 8 years now, and soon it'll be time for me to go. But before I do, I wanted to share some thoughts, some of which I've been saving for a long time.

It's been the honor of my life to be your President. So many of you have written the past few weeks to say thanks, but I could say as much to you. Nancy and I are grateful for the opportunity you gave us to serve.

One of the things about the Presidency is that you're always somewhat apart. You spent a lot of time going by too fast in a car someone else is driving, and seeing the people through tinted glass--the parents holding up a child, and the wave you saw too late and couldn't return. And so many times I wanted to stop and reach out from behind the glass, and connect. Well, maybe I can do a little of that tonight.

People ask how I feel about leaving. And the fact is, 'parting is such sweet sorrow.' The sweet part is California and the ranch and freedom. The sorrow--the goodbyes, of course, and leaving this beautiful place.

You know, down the hall and up the stairs from this office is the part of the White House where the President and his family live. There are a few favorite windows I have up there that I like to stand and look out of early in the morning. The view is over the grounds here to the Washington Monument, and then the Mall and the Jefferson Memorial. But on mornings when the humidity is low, you can see past the Jefferson to the river, the Potomac, and the Virginia shore. Someone said that's the view Lincoln had when he saw the smoke rising from the Battle of Bull Run. I see more prosaic things: the grass on the banks, the morning traffic as people make their way to work, now and then a sailboat on the river.

I've been thinking a bit at that window. I've been reflecting on what the past 8 years have meant and mean. And the image that comes to mind like a refrain is a nautical one--a small story about a big ship, and a refugee, and a sailor. It was back in the early eighties, at the height of the boat people. And the sailor was hard at work on the carrier Midway, which was patrolling the South China Sea. The sailor, like most American servicemen, was young, smart, and fiercely observant. The crew spied on the horizon a leaky little boat. And crammed inside were refugees from Indochina hoping to get to America. The Midway sent a small launch to bring them to the ship and safety. As the refugees made their way through the choppy seas, one spied the sailor on deck, and stood up, and called out to him. He yelled, 'Hello, American sailor. Hello, freedom man.'

A small moment with a big meaning, a moment the sailor, who wrote it in a letter, couldn't get out of his mind. And, when I saw it, neither could I. Because that's what it was to be an American in the 1980's. We stood, again, for freedom. I know we always have, but in the past few years the world again--and in a way, we ourselves--rediscovered it.

It's been quite a journey this decade, and we held together through some stormy seas. And at the end, together, we are reaching our destination.

The fact is, from Grenada to the Washington and Moscow summits, from the recession of '81 to '82, to the expansion that began in late '82 and continues to this day, we've made a difference. The way I see it, there were two great triumphs, two things that I'm proudest of. One is the economic recovery, in which the people of America created--and filled--19 million new jobs. The other is the recovery of our morale. America is respected again in the world and looked to for leadership.

Something that happened to me a few years ago reflects some of this. It was back in 1981, and I was attending my first big economic summit, which was held that year in Canada. The meeting place rotates among the member countries. The opening meeting was a formal dinner of the heads of goverment of the seven industrialized nations. Now, I sat there like the new kid in school and listened, and it was all Francois this and Helmut that. They dropped titles and spoke to one another on a first-name basis. Well, at one point I sort of leaned in and said, 'My name's Ron.' Well, in that same year, we began the actions we felt would ignite an economic comeback--cut taxes and regulation, started to cut spending. And soon the recovery began.

Two years later, another economic summit with pretty much the same cast. At the big opening meeting we all got together, and all of a sudden, just for a moment, I saw that everyone was just sitting there looking at me. And then one of them broke the silence. 'Tell us about the American miracle,' he said.

Well, back in 1980, when I was running for President, it was all so different. Some pundits said our programs would result in catastrophe. Our views on foreign affairs would cause war. Our plans for the economy would cause inflation to soar and bring about economic collapse. I even remember one highly respected economist saying, back in 1982, that 'The engines of economic growth have shut down here, and they're likely to stay that way for years to come.' Well, he and the other opinion leaders were wrong. The fact is what they call 'radical' was really 'right.' What they called 'dangerous' was just 'desperately needed.'

And in all of that time I won a nickname, 'The Great Communicator.' But I never though it was my style or the words I used that made a difference: it was the content. I wasn't a great communicator, but I communicated great things, and they didn't spring full bloom from my brow, they came from the heart of a great nation--from our experience, our wisdom, and our belief in the principles that have guided us for two centuries. They called it the Reagan revolution. Well, I'll accept that, but for me it always seemed more like the great rediscovery, a rediscovery of our values and our common sense.

Common sense told us that when you put a big tax on something, the people will produce less of it. So, we cut the people's tax rates, and the people produced more than ever before. The economy bloomed like a plant that had been cut back and could now grow quicker and stronger. Our economic program brought about the longest peacetime expansion in our history: real family income up, the poverty rate down, entrepreneurship booming, and an explosion in research and new technology. We're exporting more than ever because American industry because more competitive and at the same time, we summoned the national will to knock down protectionist walls abroad instead of erecting them at home.

Common sense also told us that to preserve the peace, we'd have to become strong again after years of weakness and confusion. So, we rebuilt our defenses, and this New Year we toasted the new peacefulness around the globe. Not only have the superpowers actually begun to reduce their stockpiles of nuclear weapons--and hope for even more progress is bright--but the regional conflicts that rack the globe are also beginning to cease. The Persian Gulf is no longer a war zone. The Soviets are leaving Afghanistan. The Vietnamese are preparing to pull out of Cambodia, and an American-mediated accord will soon send 50,000 Cuban troops home from Angola.

The lesson of all this was, of course, that because we're a great nation, our challenges seem complex. It will always be this way. But as long as we remember our first principles and believe in ourselves, the future will always be ours. And something else we learned: Once you begin a great movement, there's no telling where it will end. We meant to change a nation, and instead, we changed a world.

Countries across the globe are turning to free markets and free speech and turning away from the ideologies of the past. For them, the great rediscovery of the 1980's has been that, lo and behold, the moral way of government is the practical way of government: Democracy, the profoundly good, is also the profoundly productive.

When you've got to the point when you can celebrate the anniversaries of your 39th birthday you can sit back sometimes, review your life, and see it flowing before you. For me there was a fork in the river, and it was right in the middle of my life. I never meant to go into politics. It wasn't my intention when I was young. But I was raised to believe you had to pay your way for the blessings bestowed on you. I was happy with my career in the entertainment world, but I ultimately went into politics because I wanted to protect something precious.

Ours was the first revolution in the history of mankind that truly reversed the course of government, and with three little words: 'We the People.' 'We the People' tell the government what to do; it doesn't tell us. 'We the People' are the driver; the government is the car. And we decide where it should go, and by what route, and how fast. Almost all the world's constitutions are documents in which governments tell the people what their privileges are. Our Constitution is a document in which 'We the People' tell the government what it is allowed to do. 'We the People' are free. This belief has been the underlying basis for everything I've tried to do these past 8 years.

But back in the 1960's, when I began, it seemed to me that we'd begun reversing the order of things--that through more and more rules and regulations and confiscatory taxes, the government was taking more of our money, more of our options, and more of our freedom. I went into politics in part to put up my hand and say, 'Stop.' I was a citizen politician, and it seemed the right thing for a citizen to do.

I think we have stopped a lot of what needed stopping. And I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: As government expands, liberty contracts.

Nothing is less free than pure communism--and yet we have, the past few years, forged a satisfying new closeness with the Soviet Union. I've been asked if this isn't a gamble, and my answer is no because we're basing our actions not on words but deeds. The detente of the 1970's was based not on actions but promises. They'd promise to treat their own people and the people of the world better. But the gulag was still the gulag, and the state was still expansionist, and they still waged proxy wars in Africa, Asia, and Latin America.

Well, this time, so far, it's different. President Gorbachev has brought about some internal democratic reforms and begun the withdrawal from Afghanistan. He has also freed prisoners whose names I've given him every time we've met.

But life has a way of reminding you of big things through small incidents. Once, during the heady days of the Moscow summit, Nancy and I decided to break off from the entourage one afternoon to visit the shops on Arbat Street--that's a little street just off Moscow's main shopping area. Even though our visit was a surprise, every Russian there immediately recognized us and called out our names and reached for our hands. We were just about swept away by the warmth. You could almost feel the possibilities in all that joy. But within seconds, a KGB detail pushed their way toward us and began pushing and shoving the people in the crowd. It was an interesting moment. It reminded me that while the man on the street in the Soviet Union yearns for peace, the government is Communist. And those who run it are Communists, and that means we and they view such issues as freedom and human rights very differently.

We must keep up our guard, but we must also continue to work together to lessen and eliminate tension and mistrust. My view is that President Gorbachev is different from previous Soviet leaders. I think he knows some of the things wrong with his society and is trying to fix them. We wish him well. And we'll continue to work to make sure that the Soviet Union that eventually emerges from this process is a less threatening one. What it all boils down to is this: I want the new closeness to continue. And it will, as long as we make it clear that we will continue to act in a certain way as long as they continue to act in a helpful manner. If and when they don't, at first pull your punches. If they persist, pull the plug. It's still trust by verify. It's still play, but cut the cards. It's still watch closely. And don't be afraid to see what you see.

I've been asked if I have any regrets. Well, I do.The deficit is one. I've been talking a great deal about that lately, but tonight isn't for arguments, and I'm going to hold my tongue. But an observation: I've had my share of victories in the Congress, but what few people noticed is that I never won anything you didn't win for me. They never saw my troops, they never saw Reagan's regiments, the American people. You won every battle with every call you made and letter you wrote demanding action. Well, action is still needed. If we're to finish the job. Reagan's regiments will have to become the Bush brigades. Soon he'll be the chief, and he'll need you every bit as much as I did.

Finally, there is a great tradition of warnings in Presidential farewells, and I've got one that's been on my mind for some time. But oddly enough it starts with one of the things I'm proudest of in the past 8 years: the resurgence of national pride that I called the new patriotism. This national feeling is good, but it won't count for much, and it won't last unless it's grounded in thoughtfulness and knowledge.

An informed patriotism is what we want. And are we doing a good enough job teaching our children what America is and what she represents in the long history of the world? Those of us who are over 35 or so years of age grew up in a different America. We were taught, very directly, what it means to be an American. And we absorbed, almost in the air, a love of country and an appreciation of its institutions. If you didn't get these things from your family you got them from the neighborhood, from the father down the street who fought in Korea or the family who lost someone at Anzio. Or you could get a sense of patriotism from school. And if all else failed you could get a sense of patriotism from the popular culture. The movies celebrated democratic values and implicitly reinforced the idea that America was special. TV was like that, too, through the mid-sixties.

But now, we're about to enter the nineties, and some things have changed. Younger parents aren't sure that an unambivalent appreciation of America is the right thing to teach modern children. And as for those who create the popular culture, well-grounded patriotism is no longer the style. Our spirit is back, but we haven't reinstitutionalized it. We've got to do a better job of getting across that America is freedom--freedom of speech, freedom of religion, freedom of enterprise. And freedom is special and rare. It's fragile; it needs production [protection].

So, we've got to teach history based not on what's in fashion but what's important--why the Pilgrims came here, who Jimmy Doolittle was, and what those 30 seconds over Tokyo meant. You know, 4 years ago on the 40th anniversary of D-day, I read a letter from a young woman writing to her late father, who'd fought on Omaha Beach. Her name was Lisa Zanatta Henn, and she said, 'we will always remember, we will never forget what the boys of Normandy did.' Well, let's help her keep her word. If we forget what we did, we won't know who we are. I'm warning of an eradication of the American memory that could result, ultimately, in an erosion of the American spirit. Let's start with some basics: more attention to American history and a greater emphasis on civic ritual.

And let me offer lesson number one about America: All great change in America begins at the dinner table. So, tomorrow night in the kitchen I hope the talking begins. And children, if your parents haven't been teaching you what it means to be an American, let 'em know and nail 'em on it. That would be a very American thing to do.

And that's about all I have to say tonight, except for one thing. The past few days when I've been at that window upstairs, I've thought a bit of the 'shining city upon a hill.' The phrase comes from John Winthrop, who wrote it to describe the America he imagined. What he imagined was important because he was an early Pilgrim, an early freedom man. He journeyed here on what today we'd call a little wooden boat; and like the other Pilgrims, he was looking for a home that would be free. I've spoken of the shining city all my political life, but I don't know if I ever quite communicated what I saw when I said it. But in my mind it was a tall, proud city built on rocks stronger than oceans, windswept, God-blessed, and teeming with people of all kinds living in harmony and peace; a city with free ports that hummed with commerce and creativity. And if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here. That's how I saw it, and see it still.

And how stands the city on this winter night? More prosperous, more secure, and happier than it was 8 years ago. But more than that: After 200 years, two centuries, she still stands strong and true on the granite ridge, and her glow has held steady no matter what storm. And she's still a beacon, still a magnet for all who must have freedom, for all the pilgrims from all the lost places who are hurtling through the darkness, toward home.

We've done our part. And as I walk off into the city streets, a final word to the men and women of the Reagan revolution, the men and women across America who for 8 years did the work that brought America back. My friends: We did it. We weren't just marking time. We made a difference. We made the city stronger, we made the city freer, and we left her in good hands. All in all, not bad, not bad at all.

And so, goodbye, God bless you, and God bless the United States of America.

www.403Compare.com Holds What May Be Last Advisory Council Meeting......Are They On Track?

I attended the advisory council meeting for the website created out of the AB 2506 legislation on Thursday. The meeting was probably the last meeting before the website goes live on July 1st, 2004. The meeting was not heavily attended, but the attendees were all very serious about they wanted to accomplish.

Eric Norton, the project manager did a great job of bringing together several disperate agendas and finding compromise. There was however a lively discusson on what "Guaranteed annual rate of return" actually means.....what we found out is that fixed annuity is rarely fixed and has more variables than you might expect! We did finally agree on a definition (it was the one that we actually started out with), but it took about 45 minutes.

All in all, I am quite impressed with the progress and what the end result will look like. Each time I see what Eric and his team are doing I get more excited about what is going on. The best news of the day was that the fee for vendors has now dropped to around $8,000 (assuming all the vendors who sent in "letters of intent" actually register).

There were quite a few advocates in the meeting trying to make sure that the end user (the educator) was always in the forefornt when building the database. Despite the work of a few vendors to undermine the usability of the site, I believe that the educator will be able to navigate the site, learn a lot, and in the end benefit tremendously.

July 1st is coming, that will be the day that sovereinghty is handed over to the Iraqi people and educators that own 403(b)'s in California! While I believe there is still a lot of work to do in the 403(b) arena, I think we are making a ton of progress - who would have thought four years ago that we would be where we are today.

Till next time......

ScottyD

Envoy Plan Services Bought By Keenan & Associates

Envoy Plan Services will officially be owned by Keenan & Associates beginning April 1st (this is not an April Fools Joke). Envoy has entered into an agreement to be purchased by Keenan and has already moved it's operations to the Keenan office in San Clemente. The move should not affect operations and should be a good fit for Keenan. Robert Hornaday wills stay with company and become a Sr. Vice President at Keenan.

Recent developments have put the kibosh on the method Envoy was charging for its services. Envoy now earns it's revenue via fees charged to the districts it serves, a welcome development (more on this in the next Teachers Advocate). I will keep you updated as to how things will change and how they will affect you.

Till next time.....

ScottyD

Loophole closes, Mandatory notice to begin in 2005

HR 743 was signed by the President on March 2nd (2004) and closes the last day loophole that educators used to avoid the Government Pension Offset (for details see my website). It also required that employers whose employees don't pay into Social Security (read School Districts) must provide written notice to all new employees and have them sign a statement acknowledging that they understand the GPO & WEP and its affects, this must be in place by January 1st, 2005.

While the NEA and AFT are fighting for outright repeal of the provisions it is clear by the passage of this legislation that nobody is really listening. I suspect a lot of congressmen and women are giving lipservice to these provisions, but in reality they know they can't support them because the cost is too high and social security is already in trouble. Don't expect a repeal anytime soon, don't plan on recieving social security - if you does get repealed, then guess what - You will have some extra money in retirement, just don't count on it!

ScottyD

The Coming Fall of the Pension Plan

The trend in the private sector has been away from provided employees a pension plan, or Defined Benefit plan. A Defined Benefit plan is one in which an employer agrees to pay the employee a set amount of money at retirement for the rest of that employees life (in essence, the benefit amount is defined). There is usually a formula to figure out what the actual benefit will be. These plans are very expensive and all the risk is taken by the employer, not the employee. A DB plan also favors workers who are long time employees and retire later in life (after age 60). The plan that these companies are moving over to is called a Defined Contribution plan (DC) and in most cases is funded through a 401(k). In a 401(k) the employee assumes the investment duty and is responsible for funding his/her own retirement. The risk is thereby shifted from the employer to the employee. Over the past few years I have been predicting that the trend in the private sector will begin moving to the public sector (government). Over the past year we have heard governors, mayors, and legislatures all float trial balloons to gauge peoples reaction. The reaction has usually been extremely negative from workers, but more positive from taxpayers (who ultimately pay for a portion of the benefit). While no government plans that I am aware have made the switch (except for Florida, but it wasn't a complete switch, just another option), it is only a matter of time. Daniel Weintraub, a writer for the Sacramento Bee proposed just such a plan this weekend in his column. Many people believe Social Security should be switched from a DB to a DC plan funded with private accounts. When governments start seeing the money they could save by eliminating the higher cost DB plans they will begin salivating - it will take a long time, perhaps a decade or two, but eventually they will wear down the unions and convince the taxpayers that the a DC plan is the way to go. Keep in mind that I am not advocating for, or against either plan, just keeping you aware of the trends and how I see them playing out. For those of you in a DB plan, don't worry, usually a switch is made only for new hires. I have been to meetings with Unions on this issue and they are vehemently against the idea of DC plans, they want to keep the DB plans - so expect them to continue to fight for that benefit. As for me, I would rather have a DC plan with a generous match than a DB plan - but remember, I know what I am doing - I am trained in this area - most people aren't. Most people cannot invest on their own successfully, so perhaps the answer is something like what Florida has done - give the workers a choice of either the DB or the DC. Only time will tell, but remember where you heard it from first!!

Till Next Time....

ScottyD

The Thrill of Victory, The Agony of Defeat - Envoy Learns its Fate

The Attorney Generals office of the State of California has taken a big step in protecting educators best interests, and I bet most educators have no idea. Early last year, a company by the name of Envoy Plan Services created a firestorm of controversy when they came out of nowhere and started adminstering several California school district 403(b) & 457(b) retirement plans. The controversy surrounded how they charged for their services. Envoy charged vendors for their services - this effectively cut out low, mid, and many high cost vendors from district providers lists and created an opportunity for Envoy to funnel money into their own products. Myself, CalSTRS, 403bwise, and many mutual fund, insurance companies, and broker/dealers joined together in a rather wierd informal alliance to ensure that teachers would not be subjected to the long term affects of Envoy (see my Teachers Advocate newsletter for all the details).

Yesterday, the Attorney Generals office effectively put a stop to Envoy Plan Services method of charging for their services by putting out an opinion stating that charging vendors is not an option in California, it is prohibited. For the full text of the opinion you can go to 403bwise.com. This is a victory for school teachers in California.

The question becomes "what will school districts do?" They should do several things. First, they should review their contract with Envoy and consider firing them if Envoy will not Cease & Desist their current arrangement for compensation. Second, they should decide if they want to pay for Envoy's services themselves (unlikely), if they don't they have several options. Thirdly, they need to work on behalf of the vendors who have paid Envoy's fee for the time periods invovled and require that Envoy or the E & O carrier for Envoy refund all fees that the vendors paid. The requirement of those fees was illegal and thus the vendors should be reimbursed and Envoy should pay for it. If school districts do not do these things they will face additional scrutiny by the media, unions, educators, planners, and vendors - something they probably don't need right now.

If Envoy decided to change its ways and offered a structure that works for everyone, perhaps I wouldn't be against them as the TPA, but at this point I have problems with the way they have handled things as well as the ethics of the company.

This is a victory for educators, and a defeat for Envoy - I have no doubt however that we haven't seen the last of Envoy....stay tuned!!

ScottyD

403(b) Market Could Double In The Blink Of An Eye

A bill has been introduced in the House of Reps that would extend the 403(b) to state & local government employees. This would almost immediately double the number of possible 403(b) participants (and the number of people who could potentially buy my book!!). As you might expect I support this bill and hope it passes - if it does it could create an opportunity for major changes throughout the 403(b) industry and an all out war among the debating theories of how 403(b) plans should be distributed. I don't expect this bill to get much attention any time soon as it didn't come from the people who normally are behind this type of stuff, however if enough people show their support we just might see some action on this. I am doubtful it will be passed under the current budget constraints and it really isn't needed - after all, how many government employees can afford to contribute to two retirement plans (403(b) & 457(b)) in the same year? It's a bit overkill, but I support it anyway - even if just for selfish reasons!

Read my website and 403bwise.com for continued coverage of the extended 403(b) and LSA's & RSA's.

Till next time......ScottyD

What Did I Tell You About Variable Annuities

http://www.nytimes.com/2004/01/30/business/30insure.html?pagewanted=1

Hmmmmm........Looks like mutual funds aren't the only scandalous game in town. As many people have suspected for a long time, the VA industry is guilty of not acting in the best interests of its clients - of course I doubt anyone is really surprised. The investigations are just starting, but I expect this to be bigger than the mutual fund industry scandals and spread much further than just market timing. The VA industry is an industry that is driven by greed and high commissions, look for some major lobbying from NAVA and ACLI to sway the regulators, lawmakers, and policyholders that the VA companies are innocent bystanders - don't believe a word.

ScottyD

Variable Annuities Are Next

Mark my words - Variable Annuities are next in line to be caught up in mass scandal. If you think that mutual fund scandals were bad, I suspect what we learn about Variable Annuities will be much worse. I don't like or dislike Variable Annuities - they are simply a tool - though most of the VA products on the market are pure junk. VA's are not subject to breakpoints and they are used instead of mutual funds because of it - of course it also doesn't hurt that VA's come with features that allow advisors to use the term "guarantee" - be very weary of an advisor selling you a variable annuity.

ScottyD

New Teachers Advocate is Available

For those of you who read my e-newsletter - The Teacher's Advocate - it is now available on my website (www.403bretire.com). Have fun!

ScottyD

More State Attorney General Stuff & The Junk e-mail Keeps Coming


As for the latest on the State's Attorney Generals office decision about the Envoy situation....I am now leaning toward believing the AG's office will rule against Envoy. I am not usually one to believe rumors, but the rumor mill is strong that the AG's office will come out with an opinion against the fee Envoy charges vendors. I suspect that Envoy believes they will be able to stay in business even if the fee is ruled illegal, I don't know how they plan on doing it but I bet they have something up their sleeve. It might be possible that they will give away their TPA services in exchange for the right to market to the educators their high cost, junky products - I would actually be fine with that as long as the fees are not charged to the vendors. I would rather have them gone - but my real beef is with the fee and how it will affect teachers long term.


ScottyD

Envoy & The State Attorney General

I spent a few minutes speaking with the individual working on the opinion regarding Envoy today. The gentleman was very concerned about the topic from all sides of the debate (which is good). I explained my rationale for being against the fee and believe that he listened to it and will take it into account. By no means am I positive that the AG's office will rule against Envoy in this situation - there is a possibility that Envoy will win out. Either way the issue of legality should be cleared up. I will have some additional comments soon.

Until next time....

ScottyD

Paying For Shelf Space & The Toothless SEC

For those of you who don't know, I came from the brokerage industry. I served time at three major brokerage oufits, Merrill, Morgan Stanley, & Smith Barney. Each of these firms favored certain fund companies - no surprise that the funds they favored were "loaded" funds. I knew for a fact that these "favored" funds had arrangements with the company and were paying the company a fee for having a "favored" status, everybody knew it. The correct term is "paying for shelf space." It is the practice of paying a broker/Dealer (industry speak for a brokerage firm) to put your fund company on a favored list - it is a classic "pay to play scheme". The arrangements are never explicitly disclosed, but every broker knows they exist in one form or another - if they don't then they are either ignorant or plain stupid. The SEC just released a study saying that it found abuses at 13 of 15 unnamed brokerage firms in a probe of "revenue-sharing." Here's the funny part, foxnews.com reports "As scandals simmered across the $7-trillion mutual fund business, the SEC said it found that "revenue sharing" -- or mutual funds paying brokerages to tout the funds' shares -- is "common practice," based on a probe launched in April 2003." The funny thing is the probe was only launched about 9 months ago, despite the fact that the SEC knew this was going on for probably at least a decade, if not more. Why did the SEC all of a sudden launch this probe? Elliot Spitzer. The NY State Attorney General Elliot Spitzer has ruthlessly gone after fund companies and broker/dealer for conflicts of interest - had the AG not stepped in the SEC would never had started a probe and none of the enforcement activities would be happening. The SEC has not did its job for years and now is trying to play catch up with Elliot Spitzer in order to save face.

I am not defending the practice of "paying for shelf space," simply saying that the practice was well known by the industry and the SEC and the SEC chose to do nothing about it, now they suddently care? There efforts too clean up the industry are a little late, by not enforcing existing rules (or spirit of the rules) they effectively have told the industry that what they are doing is ok, we will look the other way. They are sending a mixed message to Wall Street and mutual fund companies (and inevitabley Variable Annuities) - that message: We will look the other way while you clearly violate shareholders interests, as long as we aren't embarrased by a state attorney general, if we are, then we will enforce and come down on you as if you are evil.

Well, the companies are basically greedy and evil, but the SEC might as well have been a partner in the wrongdoings because they never acted as a regulator and constantly turned there head when they knew bad things were going on. Heck, I knew bad things were going on after only a few months at a brokerage firm - I was only 23 years old....

As stated before, I think it is rather slimy to pay a company to promote your product. It is a huge conflict of interest - but it is an industry norm that has been tolerated by the SEC, basically a tacit endorsement. Now the fund companies are under investigation for paying these fees and there reputations are at stake. I don't promote any of the funds that are implicated, or that will be implicated because the funds I use rarely show up in brokerage firm accounts - the reason: they won't pay for shelf space. However, some of the fund companies being implicated are good, honest fund firms - American funds come to mind. It will be interesting to see how the SEC handles this issue going forward. The have been asleep at the wheel so long, the question is, have they awoken in time to steer the car away from the ditch?

If the SEC truly were an enforcement agency then Elliot Spitzer and his band of publicity hungry state AG's would not be involved in the numerous mutual fund, broker-dealer, & eventually variable annuity scandals that have been unearthed and will be unearthed. Shame on the SEC, they've been toothless for so long - does anyone really believe they suddenly have fangs?

Until next time...

ScottyD

What Your Broker Isn't Telling You About Dividends

The last tax act that passed congress made many dividends taxable at only a 15% rate (sometimes less), this is significant because they are usually taxed as ordinary income (when held outside retirement plans - dividends inside retirement plans are tax-deferred and tax as ordinary income when distributed). This is a significant development in the world of stocks and has some people changing their portfolios. What most people don't know is that their dividends may actually be taxable as ordinary income, not at the 15% rate - the reason? Their brokerage firm.

In the new tax act their is a provision that makes dividends taxable as ordinary income if received from the lending of your securities. Without getting into the specifics, brokerage firms make big money lending your stocks to other institutions (such as hedge funds), however when they do this the institution that borrows the stock receives the dividend and you receive an "in-lieu" payment of equal amount, the problem is that this "in lieu" payment is taxable as ordinary income because it isn't really a dividend. There is a simple solution to this problem, don't open a margin account - if your taxable assets are held in a straight "Cash" account without Margin than your brokerage firm cannot lend your securities out.

Don't count on your brokerage firm to tell you this though. As I stated earlier, they make big money lending your securities out to others and face a conflict of interest by telling you to switch to a cash account. They lose out on potential gains by telling you to switch, yet it is usually in your best interest. This is yet one more example of how brokerage firms take advantage of their clients and do not put their interests first. If you think this is limited to just the major brokerage firms that I usually rag on (Merrill, Morgan, Smith Barney - etc) you are wrong. Fidelity is in on it as well - the disclosure they send to their clients reads: “You are not entitled to any compensation in connection with securities lent from your account or for additional taxes you may be re-quired to pay as a result of any tax treatment differential between substitute payments and actual interest,” - of course you first have to find this disclosure...Goodod luck.

If Fidelity and the other institutions were truly putting your interests first they would do more - they would write letters in plain english and urge you to switch your account to a cash account and even include the forms. Better yet they would automatically switch you if you didn't sign an opt-out form. This is just one more reason you need someone looking out for you - you can't count on the regulators and you can't count on your brokerage firm.

If you want more info on this subject just e-mail me and I will send you a link to a good article.

Until Next Time............

ScottyD

Envoy Situation Is Submitted To State Attorney General

The California State Attorney Generals office is set to offer its opinion on the Enovy situation. CalSTRS originally referred the Envoy problem to the state AG and then Envoy submitted a request for a formal opinion through an El Centro Congresswoman (Bonnie Garcia - Bonnie, be careful who you deal with...). The request was poorly worded and designed to decieve (that is my opinion - you can read the actual request in the latest teachers advocate - should be out soon). The request gave little context and no history of why the opinion was being sought. The opinion request was eventually revised with a much simpler wording as follows: May a school district assess a fee for providing deferred compensation plans to cover the district's administrative costs?

I have heard through the grapvine that the AG's office will have its opinion written and released within the month. I submitted a five page commentary in regards to the opinion that provided for a proper history and context. It is my belief that the opinion will not be in favor of Envoy. We will have to wait and see. The question remains what will happen if the AG's office says the fee is illegal? I actually don't know - but I do know that the media outlets will probably love to report on school districts who are doing things that are illegal - especially when the teachers bear the brunt of it. If the school districts don't drop Envoy (or at least begin making plans to drop Envoy) then I will bring the full pressure of the media down on Envoy and the districts until the correct decision is made. Unfortunately I can't just make a couple calls and "poof" the media responds - but I do have several people in the media that I think would love this story and good stories catch like wildfire, especially when money is invovled.

If for some odd reason the AG opinion supports Envoy then I have another trick up my sleave - I have found another portion of law that may render Envoy's fee illegal - of course I can't give that away yet. I may reveal this in my next Teachers Advocate, but I don't want to give the other side (Envoy) any more advanced notice than they deserve!

For those of you who think I am picking on Envoy - you are right. I think the company is rotten to the core and harmful to the long term financial health of school dsitrict employees. I would not be waging battle except that Envoy clearly violates what is in the best interest of my cilents and employees of the school districts. If they didn't I wouldn't have a problem.

Until next time..................

ScottyD

I'm Back!

Sorry for the long absence from this blog - I have been busy with life and business and have neglected the blog! My next Teachers Advocate will be out very soon and will have updates from the last two months of what has been happening in the world of teachers and retirement plans. you can view it at www.403bretire.com.

AB 2506

I just returned from a trip to Sacramento where we had another Advisory Committee meeting on AB 2506. For those of you who don't know what AB 2506 is - it is a bill that is being implemented by CalSTRS that will create a registration process (for 403(b) vendors) and a databank that will allow comparison and disclosure of 403(b) plans sold to educators. I believe this is an important project and the the rest of the nation is wathching to see how this turns out. What follows is my update:

The project is being led by Eric Norton, a project manager hired by CalSTRS and the project is overseen by Ed Derman (Deputy CEO) & Jack Ehnes (CEO of CalSTRS). I think Eric and his team are doing an incredible job and I am quite impressed at the progress being made and excited about the debut of the website, . The website will make its debut on July 1st, 2004. I have scene preliminary screen shots of the project and can assure you that it is going to look great. I believe that the educators who are eligible for 403(b) products will be very happy with this new tool. The project is still far from complete, the next 6 months are very critical and their are a lot of details still to be worked out, but overall everything seems to be on track. The meeting today officially unveiled the website name and dealt mainly with the search functionality of the website - there was a lot of disagreement among the attendees as to what should and shouldn't be allowed in a search function. I think the discussion was very constructive and that the Project team will be able to further refine their plans for this important function. I would like to hear from the readers on this one - please e-mail me at scott@meridianwealth.com and let me know what is important to you when attempting to find a 403(b) product. In other words, what criteria would you like to see available to be able to be searched on.

The most important aspect of the new site will be the educational content - the project teamed unveiled prelimiary topics today and I think that by the time everything is finished it will be rich in valuable content. This site promises to be very educational, in short it will be a great tool. Despite some vendor negativity I thought the meeting went well and the project is on track. There will always be people who want to see this project get derailed or watered down and their presence is felt in the room, but rest assured that myself and many other people (including the good people at CalSTRS) are 100% behind this project and have the educator in mind - a first in the 403(b) world!!!! (Only slightly joking!!).

Ok - I am tired and need some rest, I'll write on some other topics soon.

ScottyD

457 Plans Watch Out - Fiduciary Responsibility & Fund Scandals

Government 457(b) plans have a fiduciary responsibility associated with them and it is time that plan sponsors start realizing this. Many mutual fund companies are coming under increased scrutiny as the practices of these companies are being revealed by a probe from none other than Elliot Spitzer, the New York State Attorney General. State pension systems are pulling their money out of these companies in droves and it is time that 457(b) providers start looking at their liability in this situation. The question plan sponsors need to be asking is whether or not they want to continue to allow their plans to offer funds from the companies in question. The quick answer is "probably not." Whatever the answer is, the question better have been asked and the responses better be documented. A plan sponsor is going to have a hard time keeping funds from companies like Alger, Strong, Janus, & Putnam in the lineup. The problem is that most plan sponsors refuse to acknowledge any liability and will fail to take action, this will lead to lawsuits claiming breach of fiduciary responsibility and ultimately to more scandals. This is your warning Plan Sponsors - take charge now or expect to be charged (with breach of fiduciary responsibility).

More on this topic as it develops.....

ScottyD

The Retaliation Begins...The Backlash From My Advocacy Efforts Against Envoy Plan Services

Time to add another company to the 403(b) trash heap - this time it is FTJFundchoice, a relative newcomer to the 403(b) market. FTJ learned quickly about the 403(b) market and quickly sunk to the level of every other 403(b) company that is usually available on district provider lists. I made public certain documents that FTJ would have rather me keep quite about and now they are retaliating against me rescinding my selling agreement with them. The documents never should have been kept secret, but they were in order to protect the greed of some people involved. What this means is basically I can't look at client accounts that are held at FTJ. You may ask why I would want to have accounts at a company that I feel is unethical? Well, I don't have a choice. You see FTJ is connected to the hip with Envoy Plan Services in several Orange County Districts and I am forced to move money to these people. I actually think FTJ has a pretty good product, the problem is poor ethics at the top. The company is so focused at building assets that they are willing to sign agreements with companies like Envoy Plan Services that completely betray the educator and even the districts that allow them to operate. I will be posting the agreements online at www.403bretire.com in a few days for your viewing pleasure.

Ever since I started my campaign against Envoy I began getting tons of spam and viruses through e-mail, sometimes hundreds a day. My e-mail has been used for opt-in mailing lists and who knows what else. Can I say for sure that the people at Envoy and Retirement Solutions Group are behind this activity? No, but I find it curious that whenever I defeat them in something that the activity multiplies. I want to make it clear that I am not whining, I can take critiscm and childish antics just fine, I am documenting this so that people can see first hand how these companies treat people.

My internet was down all day today and I got a speeding ticket on my way to San Diego - I sure would like to blame somebody, but instead I think I will take the higher road and take a little personal responsibility. My internet was down becuase of a router I installed (though come to find out it was faulty) and I got a speeding ticket because I was speeding...... (though I was going with the flow of traffic!!).

I will continue the fight against the industry despite the fact that my allies are dropping like flies (more on this later). One day the 403(b) industry will be looked at with envy, not with spite.

I hope all is well everyone who reads this - I always enjoy the commentary that I get back, keep it coming!

ScottyD

Envoy Swings and Misses Again in San Diego

Envoy Plan Services was added to the San Diego City Schools Board Meeting Agenda late Monday afternoon, no doubt in attempt to squelch any opposition. I am happy to report that once again Envoy was shut down. The CSEA (Classified School Employees Association) led the charge along with a six page letter from myself. The CSEA was also joined by the SDEA, MetLife, and a representative from LPL. This group of people put forth a unified message that appeared to convince the Board to vote against the issue, a vote never happened as the issue was instead tabled. You can read all about the situation here on the blogger and on my website at www.403bretire.com. San Diego has made an extremely wise decision and it is my hope that they not bring up the Envoy issue again. I will post my rebuttal letter on the website shortly. This is a victory for the 6,000 participants in San Diego as well as the employees who are not yet contributing to a 403(b) plan. Please join me in thanking those people who spoke at the meeting and defeated Envoy.

ScottyD

Envoy Attempts To Slide Into San Diego at The Last Minute......

I was up till midnight last night reading the agenda for the Board meeting tomorrow of the San Diego City Schools, I was looking specifically to see if Envoy Plan Services was on the agenda for approval - they were not, at least that was what I thought. It turns out they have now been added at the last minute. This is what I expected, they want to get this through without opposition and the best way to do it is to not let anyone know it will be voted on.

I just found out about it and have just finished reading a statement by Gamy Rayburn and Scott Patterson, the Director of Accounting Operations and Chief Financial Officer, respectively. The document was not written (in my opinion) by either of them, it was in fact written by Robert Hornaday of Envoy Plan Services. The document is meant to be misleading and contains many inaccuracies. This report will be presented to the board as the truth (regardless of what the truth really is). The document admits that it never seeked out a competitive bid and cites Capistrano School District as one if its "happy" districts - not true.

I will keep you updated - for those in San Diego - goto the board meeting and let your voice be heard.

School Districts - It's Your Integrity at Stake

Over the past few years I have ruffled quite a few feathers in quite a few k-12 school districts, mainly in adminstration. My quest for better supplemental retirement plans for educators has sometimes led me down the path of criticizing people in leadership positions in k-12 & community college districts. As you might imagine, this hasn't endeared me with these districts. Suddenly, a 5'8" 155 pound man becomes a "threat," and the "enemy." This line of thinking by these districts is very distressing to me because it means in some way that I have failed. I have failed to educate them enough to help them clearly understand the issues involved so that they can make a wise decision. In reality, I don't think I am the failure, the truth of the matter is that these districts NEVER allowed me the opportunity to share my thoughts or expertise. I will never target a district without first approaching management and asking them to hear me out. It is only after a district has made it clear that they don't want to hear from me that I begin the task of taking the issue to the people of their district and ultimately begin ruffling feathers.

In the past few months I have targeted quite strongly the Capistrano Unified School District. Up until 2003 I had adored this district. I loved working with educators in the district and loved working with the few people I knew on staff. However, a few very poor decisions were made by one of the leaders and I questioned them about it. I offered my expertise and guidance free of charge. I explained to them that I was a completely unbiased source as I don't accept money from anyone but my clients for the services I provide. Furthermore, my clients interest always come first. I even went and stood for four hours at the board meeting waiting for my two minutes to speak to the board and explain to them the problems they were about to face. Not a single member of the board contacted me, nor did the adminstrator who had made the final decision to hire a company by the name of Envoy Plan Services The district now believes I have put them in my crosshairs and that I want to somehow destroy them - the truth is that I only want them to do what is right for their employees. You see, it is my opinion that the district's very Integrity is at stake in this situation. Integrity is something is gained with the little decisions and if the little decisions are made without the employees interest in mind, what will happen with the big decisions?

The Capistrano Unified School District has an incredible opportunity to show what it is made of and to show the public and their employees that they have integrity even in (what they percieve) as the small decisions. It is time to simply admit they made a mistake in hiring Envoy Plan Services, correct that mistake by firing them and then do what is in the employees best interest by hiring another entity (my vote at this point is OCTFCU). There are a number of reasons why this move is best and I will get them at a later writing. The point of this message is that the decisions the districts make every effect their integrity. It is O.K. to make a mistake or a bad decision, Lord knows I make my share of mistakes and bad decisions, afterall we are only human. I am not out to make enemies or to put a "target" on anyone's back, only to see to it that my clients and the employees of this district have their voices heard and their interests protected. I know that Capistrano Unified will right this wrong as I have faith in the person who made the decision initially. Carleen Wing-Chandler made the recommendation to the board to hire Envoy and I believe she made that decisions in her heart believing it was the right one. In fact, given the facts she had Envoy must have seemed like her only choice. I believe that the victims in the case are both the employees of the distirct and the district itself - with Envoy being the responsible party. I believe Carleen was lied to by Envoy Plan Services, or at the very least not given the whole truth. Only a partial picture was painted. It is my belief that when the full picture is presented that the district will make the right decision - I have faith in them that they will do what is right. If you are from the district or are on the board and reading this, I once again extend my services free of charge to educate you on the real issues involved so that you can make a decision based upon all the facts. I don't want to sell you anything or recieve any recognition, I only want to do what is right for your employees. I don't make any money spending time on issues such as these and to be honest, they drain me and hurt the growth my business, but I have a deep belief that if I do what is right for the teachers that it will come back to me in some fashion at some point. Please contact me at 949-916-6238.

Scott Dauenhauer, CFP