Results expected soon in attorney general examination

Dick Iannuzzi - NYSUT President "There is no intermingling of NYSUT and Member Benefits funds. Any fees NYSUT’s Member Benefits Trust receives are used to fund the nearly 40 programs and services offered by the Trust. No money from the Trust or vendors is used to fund daily union operations." This quote is from www.edwize.org

The linked to article also quotes Iannuzzi as saying "Member Benefits uses approximately half the fees from ING to directly enhance the benefits received by 403(b) participants, including providing term life insurance and a survivor financial counseling program to inservice participants; and a legal services plan and financial counseling program. The remainder of the fees are used to help cover the costs of administering the 403(b) offering and the more than 40 Member Benefits programs and services, Trust managers said. There is no mingling of Member Benefits funds and NYSUT funds, union leaders noted."

NYSUT admits to using the assets of a trust (the 403(b) plan) to fund other Member Benefits programs and services, this is egregious. In Iannuzzi's defense on the NYSUT website it does disclose the following:

"The ING Opportunity Plus Program is a NYSUT Member Benefits-endorsed program. Member Benefits receives an expense reimbursement/endorsement arrangement of $6.50 per NYSUT member for the year 2006 with a member cap of 515,000 for this program. All such reimbursements are used solely to defray the costs of administering Member Benefits programs and, where appropriate, to enhance them. Member Benefits acts as your advocate; please contact Member Benefits at 800-626-8101, if you experience a problem with any endorsed program."

I do not know if the prospectus specifically states this or if materials given to potential and current participants disclose what is going on.

I do know that using the assets of one trust to pay for benefits for another trust (with different beneficiaries) could easily be seen as a breach of fiduciary responsibility. Imagine if a school district started a 457(b) plan and required the investment provider to overcharge the participants so that it could use the funds to pay health benefit costs for the employees of the district - I am pretty sure NYSUT would be outreached at such a breach - yet they are doing the same thing.

As a fiduciary of the 403(b) program it is shocking that they would use plan assets to subsidize other programs. I believe this to be a breach of fiduciary responsibility and an abuse of trust - even if fully disclosed.

ScottyD

School System Sues Over Teachers' Retirement Planning

Not again.......

Scott Dauenhauer, CFP, MSFP

Spitzer vs. NYSUT

Elliot Spitzer is finally investigating the New York State United Teachers and their relationship with an endorsed product provider ING. I raised concerns about this relationship several years ago and send an e-mail to Sptizers office encouraging him to look at if a Fiduciary breach of responsibility is occuring. Nothing ever happened. Finally, thanks to a series of articles that have appeared in Forbes magazine, the LA Times, and other publications Spitzer is looking into this cozy relationship. What follows are links to a few of the articles - most require either a free subscription, some you must pay for the article (yea right, like we're going to pay for it)....

New York Times: Spitzer Studying ING's Tie to Teachers' Union

New York Post: Where's Elliot?

Reuters: New York AG probing teachers' union ties with ING

LA Times: New York Is Probing 401(k) Plans

New York Post: ELIOT TAKES A 'PASS'

I'll continue to follow this story and pass along all pertinent articles.

Scott Dauenhauer, CFP, MSFP

NEA Rebuttal

What follows is the NEA’s rebuttal to the LA Times article that came out a few weeks ago. I am still of the opinion that this program is not in the best interest of the members and that the NEA should discontinue it. I’ll follow up with my comments in a few days.

Scott Dauenhauer, CFP, MSFP

Some facts about NEA's Valuebuilder plan

On April 25, 2006 the Los Angeles Times published an article titled "Unions' Advice is Failing Teachers." The article suggests that teacher unions, including the National Education Association, sponsor 403(b) annuity products for their members to generate revenue for the sponsoring union. The article's conclusions are flawed and rooted in a misunderstanding of the K-12 403(b) marketplace and a misapplication of traditional 401(k) principles.

NEA Member Benefits is a wholly owned subsidiary of the National Education Association. Its mission is to provide the 2.8 million members of National Education Association, as a benefit of membership, the highest quality products and services at the lowest possible price. Although it is a for-profit company, it operates as close to a break-even margin as it can and any surpluses it may have are poured back into the services and products that NEA Member Benefits provides. It has made agreements with many of NEA's state affiliates to offer products and services to NEA members working in those states. Those states receive some compensation to facilitate the delivery of products and services.

No dues dollars are used to support NEA Member Benefits.

The following factual information is helpful in understanding NEA Member Benefits' Valuebuilder Program, along with background information to clarify and correct the misleading information in the article.

The facts about fees and expenses

NEA receives no money as a result of the sponsorship. NEA Member Benefits receives a relatively small payment from Security Benefit Group, the underwriter of the NEA Valuebuilder Program, to help market the program and ensure that the investments, relative to the marketplace, represent a good value for members. If NEA Member Benefits received no money from Security Benefit Group, there would be no material impact on the pricing of the product. The only impact would be lower quality, less visibility for the program, and fewer opportunities for members to participate in a great program.

While everyone prefers lower fees, research clearly indicates that NEA members want investment advice. Agents and brokers have been the best vehicle to provide that advice at a reasonable and disclosed price. For the segment of members who may want to do it on their own and enjoy the benefits of lower fees, we will be developing (assuming we can find a company willing to develop the product for us) a high-quality, low-cost product. NEA Member Benefits hopes to have this available by year's end.

403(b) and 401(k) plans are different

It is important to note that school district based 403(b) plans are not distributed in the same manner as employer-based 401(k) plans. In fact, there are significant differences between an employer with a centralized workforce, supported by a centralized HR department that provides a narrowly focused and often employer-matched 401(k) plan, and a school district with no employer plan or involvement, undifferentiated product offerings. One of the major differences is these decentralized plans often have substantial barriers to acquire the mechanism for making payroll deduction which enables tax-deferred contributions to an employee's investment of choice.

In a 401(k) environment, there are few barriers to participation so distribution costs in the form of brokers, financial planners and salespeople are not incurred. In a school district environment where work sites are spread across a city, county or municipality, there are huge barriers to participation. If it weren't for the information, service and support that brokers, financial planners and sales people provide, a large percentage of our members would not be participating in any investment plan at all, thereby losing the critical tax-deferred benefits and supplemental retirement savings opportunities that 403(b) annuities and mutual funds provide.

All things being equal - lower is better; but all things are NOT equal

All things being equal, lower fees are better, but everyone knows that things are usually not equal. In the late 1980s, NEA Member Benefits, in partnership with Mutual of America, created a very low-fee annuity program for members. The program was based on member activism, telephone support and no sales agents in the field to consult with members and obtain a mechanism for members to make contributions directly from their paychecks. After years of nurturing the program, it failed to appeal to members. In a retrospective evaluation of the program, members were asked in focus group sessions and surveys why they did not participate. Members indicated clearly that they preferred representatives, agents, brokers, and/or financial planners to help them understand investing and their investment choices. In addition, NEA members preferred to have representatives navigate the school district's administrative maze, to acquire the administrative mechanisms to make payroll deductions and participate in the program.

Programs to meet the unique needs of NEA members

Based on responses shared in multiple focus group sessions, individual interviews, and surveys, NEA Member Benefits reached the conclusion that it had an obligation to develop a program that would meet this specific need of the membership. Subsequently, the NEA Valuebuilder Program, a 403(b) program that provides members with face-to-face investment advice with quality, trained professional investment experts was developed and offered to members. The NEA Valuebuilder Program has a cost associated with it that members have explicitly expressed a willingness to pay. It is also worth noting that since its inception in 1991, the NEA Valuebuilder Program has become one of the best-received programs that NEA Member Benefits has developed for NEA members.

You can't compare apples to oranges

When compared to similar programs distributed by financial planners and brokers, the NEA Valuebuilder Program is very competitive. But you can't compare the NEAValuebuilder Program to programs that do not provide a similar level of service; this would clearly be comparing apples to oranges. Many people who have time and consider themselves to be savvy on investment matters want to make their own investment decisions, but research indicates that a large percentage of NEA members prefer to have assistance in making important investment decisions.

NEA Member Benefits understands that a segment of members are comfortable making these types of investment decisions without face-to-face consultations. NEA Member Benefits is developing a high-quality, low-cost, phone and Internet-driven product to meet the needs of these members. Unfortunately, there are not many companies interested in providing this type of program. It is not because of fees "the union" would demand for sponsorship; it is because those companies understand the barriers and the difficulty in providing high-quality, low-cost products, in the decentralized school district environment. Companies like TIAA-CREF and Vanguard have indicated that they can't reach critical mass in a program that has to acquire payroll slots and communicate a complex investment message, without an on-site expert.

NEA Member Benefits is very proud of the NEA Valuebuilder Program. If you have any questions, please email them to Gary Phoebus, president, NEA Member Benefits Corporation gary.phoebus@neamb.com or John Wendland at jwendland@neamb.com. For more information you may also visit http://www.neamb.com/.

Special Problems Areas for Pensions

Special Problems Areas for Pensions

Not sure of the agenda of this organization - but they are correct in there assessment.

ScottyD

Teachers union criticized for pushing retirement plan -- Newsday.com

Teachers union criticized for pushing retirement plan -- Newsday.com

This isn't news, but perhaps it will have some positive effect. I've sent e-mails to Spitzers office, the SEC, and the NASD about the ING plan offered by NYSUT over the past several years and have never gotten a response (perhaps because Spitzer needs NYSUT to get elected Governor). I am doubtful anything will happen, but am glad to see this finally getting publicity. I believe a national revolution is forming and that the 403(b) will look very different 10 years from now.

ScottyD

Unions' Advice Is Failing Teachers - Los Angeles Times

Unions' Advice Is Failing Teachers - Los Angeles Times

Kathy Kristof's article on how unions are failing our teachers when it comes to the 403(b) and 457(b). I believe our unions (of which my wife is a dues paying member) can make a huge positive difference in the 403(b) world if they really wanted to, the question remains whether they want to. The only way they will change is if the membership lets them know that they want help. Send this article to your local, state, and national union leadership.

ScottyD

403(b)wise : Features : One Educator's Take on the NEA and the 403(b)

403(b)wise : Features : One Educator's Take on the NEA and the 403(b)

I started the assault on the NEA Valuebuilder product several years ago with an article entitled "Does the NEA Practice What It Preaches," since then several other people have come to the same conclusion. Kathy Kristof (article to follow) of the LA Times wrote about it recently and now a member and former product owner of the Valuebuilder has written an article. The article is posted on 403bwise.com.

ScottyD

New retirement savings plan is portable for school workers

The Bristol Press - New retirement savings plan is portable for school workers

Ok, the Connecticut Association of School Business Officials has created a 457 plan - great. They say it is low in cost, however they have partnered with ING, a company that is not known for low cost plans. Furthermore, they fail to mention that the funding mechanism for the 457 plan is a Group Annuity Contract. Why would they adopt a variable annuity for their funding vehicle? If they were truly looking to offer a great product at a great price they would not have settled for a Group Annuity Contract. There was no disclosure of expenses and in fact I did not see any mention of fees in the motion passed by the CASBO board in November.

I am doubtful that is plan is what it is says it is - though I am willing to review it if CASBO would like to put out a press release disclosing all the costs and how to get a copy of the prospectus and state publicly that they don't recieve any money from ING.

The article cites the Ohio 457 plan, they are right, it is a good plan, and it has $6 billion in assets and low costs. It utlizes mutual funds, not an annuity contract (though the recordkeeper is an insurance company).

I'm not optimistic at this point as I have seen other endorsements by ASBO states of 457 plans that turned out to be turkeys.

ScottyD

Court Blocks W.Va. Pension Merger

News Articles [PLANSPONSOR.com] - Court Blocks W.Va. Pension Merger

The closing of West Virgina's DC plan and the folding of it back into the DB plan (pension) is hitting some snags. This is something to watch if only because it will be used to show that switching to a DC plan or giving a DC plan as an alternative doesn't work in the public sector. Whether true or not, this will be a landmark event.

ScottyD

Exit Strategy - Dan Otter Profil

Exit Strategy

You'll need to create a login to edweek to view this, but the login is free and the article is worth it. This is another profile of Dan Otter, the creator of www.403bwise.com. It is a great article.

Scott

AIGVALIC Goes Single Vendor In Richmond, VA

Several years ago a bill was introduced in the California legislature to allow California Public Schools the ability to choose a single vendor for their 403(b) plans (they can actually do this already if the platform is mutual fund based). There were several companies against the Single Vendor option (which lowers costs and increases services, and should allow economies of scale to benefit the employer and employees) and VALIC was one of them. The bill was basically watered down and turned into a disclosure database which became www.403bcompare.com, a landmark in and of itself.

It appears that VALIC has had a change of heart and now fully endorses the Single Vendor concept. The attached Press Release announces that AIGVALIC will be taking over the 403(b) and 457(b) programs in Richmond, VA Public Schools. I'll be following this development to see how AIGVALIC responds in California.

Scott Dauenhauer, CFP, MSFP

10 Year Treasury Breaks 5%

Bloomberg.com: Top Worldwide

The ten year treasury finally moved above 5% yesterday for the first time since 2002. Many have wondered how long the long term Treasuries could keep from rising along with short term rates. At the beginning of 2005 the 10 year stood at 4.23% and began 2006 at only 4.37%, yesterday it ended at 5.05%. The ten year treasury is commonly used to set mortgage rates and Real Estate is typically inversely correlated with interest rates - in other words - higher rates lead to lower real estate prices (all things being equal). The 10 year has risen by 68 basis points (.68%) in just three and a half months, that is a 15.5% increase, quite a jump. The yield curve is no longer inverted, though it is quite flat from 6 months to ten years. Interest rates are impossible to predict, though some believe that this rise in long term rates was inevitable. It will be interesting to see how this affects real estate.

The link I provided is to an article from Bloomberg which also has links to several video files that talk about this latest move.

WV Teachers Vote to Return to DB Plan

Publish2

I think this will stop the current actions of many states who are trying to freeze DB plans and move to DC plans. I still believe the trend of moving toward DC plans is one that cannot be stopped, but I think it will take a lot longer in the state pension world.

Scott

Merrill Lives Up To Brokerage Firms Rep

NASD - Press Room - News Release - 3/15/06

Another nail in the coffin on why you cannot trust brokerage firms - they will always find a way to separate you from your money and work in their own best interest. Merrill was fined a measly $5 million for improperly selling and servicing clients who had less than $100,000 in assets. These "undesirables" clients where switched to a Call Center program in order to be "serviced better." I was at Merrill when this initially started and knew that this would be a joke - I turned out to be right. Merrill serviced these people like Bonnie and Clyde serviced banks. Those who could least afford the bad advice where given bad advice and sold products that were in Merrill's interest. Of course the most surprising thing is that someone is surprised.

ScottyD

Fiduciary Rules Applicable to "(b)" Plans (January 2005)

Fiduciary Rules Applicable to "(b)" Plans (January 2005)

School districts - it is time to start learning about this stuff. You have a fiduciary responsibility in your 403(b) plan whether you like it or not, the attached article gives a good overview of some of your responsibilities.

Scott Dauenhauer, CFP, MSFP

Investor's home sale tops $1 million

ContraCostaTimes.com 02/22/2006 Investor's home sale tops $1 million

Just another update in the ongoing Plan Compliance Group/Bill Reimers Scandal.

Scott

District suffers in investment collapse

ContraCostaTimes.com 01/20/2006 District suffers in investment collapse

This will be an interesting case as I am pretty sure the employees and their union will end up in a court battle with the district. The issue will be what responsibilities the school district has to the employees regarding their payroll deductions to retirement plans.

What is unclear is what actually transpired. It appears Plan Compliance Group was on the "approved vendor list" (hint: employees need to request a copy of this list to see how it is titled....approved indicates some level of responsibility) of the district and if this is true it means they signed a hold harmless agreement with the district, this agreement holds the district harmless should fraud happen and makes the company responsible. However, the district also has the responsibility to ensure that the money is actually going to an account that is allowed by the IRS. The question is what agreements did the district have with PCG and when was the last time those agreements were updated. The employees need to find their statements and figure out whether their money was ever really invested in a 403(b). The district liability in this is not clear, but the questions will be 1) Is the district responsible for verifying if a plan is actually a 403(b) approved plan, 2) If so, what steps, if any were taken by the district to verify this, 3) was Plan Compliance Group the actual investment provider or were they simply a common remitter, i.e. a firm that forwards money on to another vendor - if so, the district may actually have some liability if it can be proved that PCG was an agent (via the hold harmless agmt) of the district. This will be a very interesting case to watch, though ultimately the new 403(b) regulations require the district to take responsibility and in the future the district will likely be on the hook for occurences such as this. This is why districts are going to have to find a good system for handling their 403(b) plans.

Scott Dauenhauer, CFP, MSFP

West Contra Costa USD employees invested with Reimers

ContraCostaTimes.com 01/19/2006 West Contra Costa USD employees invested with Reimers

FYI. The new regulations for 403(b) hopefully will prevent at least some of this stuff.....if districts actually pay a little attention.

Scott

Danville investment manager in East Bay hospital

ContraCostaTimes.com 01/17/2006 Danville investment manager in East Bay hospital

Just an update on PCG and the owner Bill Reimers. I was happy to hear that Bill is recovering from his suicide attempt. While I am extremely displeased and upset about what Bill did I also am glad that he survived and hope that he makes a full recovery. The road will be tough for him as he will be forced to account for all that he has done, but this road is better than the alternative.

My heart goes out to him and his family and I keep them in my prayers. However, the people who lost their life savings via this mess are the real victims, let's not forget them in our prayers either.

Scott Dauenhauer, CFP, MSFP

Once at the top, businessman now faces probe

Yet another story about Plan Compliance Group and Bill Reimers. It seems Bill was running a ponzie scheme with individual investors in order to finance his high lifestyle. None of the people involved ever bothered to check into Reimers, whether he was registered or had any licenses. A simple check would have saved their lifes savings. Apparently one woman did do some checking and decided she didn't want Reimers managing her money, it looks like she was the straw the broke the camel's back. It looks like it was just a matter of time before everything crashed in on him. It's sad, but should serve as a lesson to investors....As Ronald Reagan used to say about the Soviets - "Trust, but Verify."

The school districts could have done a better job as well, they could have verified everything that Reimers told them as opposed to just trusting him.

Scott Dauenhauer, CFP, MSFP

High-flier's sudden fall leaves lives in ruin / Good life apparently was propped up by Ponzi scheme

High-flier's sudden fall leaves lives in ruin / Good life apparently was propped up by Ponzi scheme

A story about the damage Reimers and PCG did on the personal investor side. Trust is not enough, you must verify. You must verify your money is where you send it and not in the hands of an advisor directly. You must verify registrations, nobody did this and everybody lost.

Scott

Plan Compliance Group Update

Plan Compliance Group Update: "The president of Plan Compliance Group, the California company responsible for the disappearance last year of more than $2.6 million intended for retirement investments on behalf of island teachers and university professors, attempted suicide last month as the company crumbled under the weight of spreading accusations of fraud."

Turns out money was also stolen from individual investors, not just school districts.

This continues to be a sad story for all involved.

Scott

PCG Update

StarBulletin.com News /2006/01/11/

Update on PCG Bankruptcy and its effects.

Scott

Company accused of mishandling funds files for bankruptcy

KPUA.net - KPUA Hawaii News - Company accused of mishandling funds files for bankruptcy

It's official, Plan Compliance Group is now defunct. It will be interesting to hear the whole story, though I don't believe it will come out for quite awhile. I think it is sad for both school district employees, employers, TPA's, and Plan Compliance Group. I don't actually think PCG was a bad apple, they did a good job; it takes more than good intentions and a good job to run a business.

As always, I'll keep a watch on this an report on it from all sides.

Scott

Follow Up to Long Live the 20% Surrender Charge & Equity Indexed Annuities Debate

I've recieved quite a few comments from people on my recent article "Long Live the 20% Surrender Charge." Most of the comments were complimentary, but evidently I ruffled a few feathers in the insurance agent community (which is of course the point). I received e-mails from a few reps who called themselves Independent but then claimed to be senior reps with one of the companies mentioned. I don't see how you can be a "senior" rep with a company and still be independent, but that's another story.

I was accused of not presenting the whole story or just not being fair. One agent told me the product had been discontinued, another told me that he had placed 200 clients in that product (a truly scary thought and not something I'd readily admit too). None of these agents actually disputed that these products exist or existed, which is of course the point.

I recieved one e-mail that told me AVIVA now offers a product with only a 12% surrender charge.....only. If this doesn't tell you what is wrong with the 403(b) market, I don't know what will. I can't imagine a 401(k) plan with a 12% surrender penalty and a lousy interest rate, it may happen, but it isn't bragged about as in the 403(b) world.

Companies that are offering products with 10 year surrender periods and excessive surrender penalties shouldn't be allowed to offer products and their agents should be banned from school districts.

Equity Indexed Annuity

Recently I came across an industry publication that is supposed to be for "insurance agent use only" and it listed fixed annuity products along with their corresponding surrender periods, beginning surrender charges, and commission rates. What interested me the most was the commission differential between a traditional fixed rate annuity and the equity indexed annuities that seem to be so hot right now. I'll use Great American as an example since they sell 403(b) products, though keep in mind that I don't know if the products listed are available in the 403(b). What I want to demonstrate are the incentives agents have to sell one type of fixed annuity versus another.

Company Product Sur Period Sur Charge Commission
Great American American Freedom 10-ST 10 Years 9% 8%
Great American American Legend EIA 10 Years 10% 9%

Now, this is actually a pretty good differntial, there isn't that much incentive to sell an Equity Indexed Annuity over the straight fixed product, but there is still an incentive, one must ask why? Some companies have differentials of 7% or more which means an agent would get paid up to 7% more to sell an equity indexed annuity over a traditional fixed annuity, this is just wrong. I'm not picking on Great American, I'm picking on the insurance companies, agents, and marketing companies that continue to lie about the equity indexed annuity and pay higher commissions to promote them. The concept of an Equity Indexed Annuity could actually work (though not like presented by most agents) if it was done on an honest, simple, and commission reduced basis. The industry won't listen, they make way to much money on these products.

I'd love to continue to hear your thoughts and opinions on Equity Indexed Annuities and excessively high surrender charges on fixed products.

Scott Dauenhauer, CFP, MSFP

The Perfect Storm - School Districts Beware

School Retirement Plan Editorial

It’s Time To Get Serious About 403(b)/457(b) Retirement Plans

The perfect storm is developing in the 403(b) world, only this storm has the potential to wreck serious harm on the 403(b) industry, not the employees the industry portends to serve.  The outcome of this perfect storm could very well spell the beginning of the end for the current inefficient distribution method of the 403(b) retirement plan.  It is time the school districts and county office of educations around the country began taking these back burner retirement plans seriously.  The education community has the opportunity to take back a retirement plan that was started as an employee benefit, but has largely become a subsidy for the financial services industry.

What are the events that are precipitating this Perfect Storm?

A Movement Begins

The first event isn’t really an event, it is a movement that began in 2000 when a teacher by the name of Dan Otter started a website called www.403bwise.com that allowed a community of like minded educators to congregate in one place and speak out against 403(b) abuses in the industry and simultaneously provide unbiased education about retirement plans available to school employees.  Dan eventually teamed up with myself to write “The 403(b) Wise Guide,” a manual on how to effectively utilize the 403(b) retirement plan.  The book has sold over 10,000 copies and led to a second book solely authored by Dan called “Teach and Retire Rich.”  These two books have had the effect of educating the educators and have started a “Great Awakening” among them about how best to save for retirement.

The IRS Issues New Regulations

The second event is the Proposed IRS regulations for the 403(b) which are scheduled to become final January 1st, 2007.  These regulations are far reaching and require the employer to take control of the 403(b), whether the employer wants to or not.  The new regulations require the employer to monitor all transfers, distributions, loans, and to create a plan document that governs how the plan will be run.  While the employer is currently obligated to do many of these things already most don’t, but they won’t be able to get away with not complying anymore.  

The new regulations are serious and will create a compliance nightmare if school districts continue to offer a long list of providers.  The 403(b) industry is scared of these regulations and is fighting them.  The spokes group for the 403(b) financial services industry is the National Tax Sheltered Accounts Association and they have attempted to hire a lobbyist to fight these regulations, though they couldn’t come up with the money from their members, mainly insurance agents.  However, insurance companies themselves are taking the battle to congress and they are a powerful lobby.  My hope is that they don’t get their way.  The new regulations will be tough to comply with under the current way of operating, however they will be simple if a new way is adopted.

Intermediaries Fail

The third and most disturbing event is the series of third party administrator (TPA’s) failures over the past 18 months.  These TPA’s were responsible for accepting money from school districts and forwarding it to the 403(b) vendors the educators want to invest in.  The TPA’s were also responsible for keeping the plan in compliance.  Horizon Benefits Administration, NEBSonline, and Plan Compliance Group have not only failed over the past 18 months but are all facing criminal investigations, lawsuits, and worst of all they (allegedly) stole money from school district employees.  The latest, Plan Compliance Group has taken school districts across the country for over $3 million.  School districts across the nation are sending money to TPA’s with very few checks and balances in place to prevent this theft and they are paying for this mistake out of their own pocket.  

Not only are districts sending money to TPA’s who may not be financially viable they are sending money to financial services companies that don’t actually have their own products (I dub them “403(b) Intermediaries”).  There are many “payroll slots” in school districts where money is sent to a financial services firm and that firm deposits the money to their own corporate accounts before sending the money onto another 403(b) vendor.  These companies either don’t have a 403(b) product or their own or they offer their product alongside of others.  Though this is common practice in the industry it is dangerous for three reasons.  

First, the IRS clearly states in publication 571 that “Generally only your employer may make contributions to your 403(b) account” through a salary reduction agreement and “this agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit” (emphasis added).  Thus the IRS requires school districts to make contributions directly to your 403(b) account; they cannot be made through an intermediary that is not a direct agent of the district.  What this means is that money withheld from an employee’s paycheck should not be going to a company that simply re-forwards the money to another entity (presumably a 403(b) vendor).  This appears to be a violation of IRS rules and regulations.

Second, even if it isn’t a violation of IRS rules and regulations to send money to an entity that is not the product vendor it should be a practice that is frowned upon as the district has absolutely no control of the entity it is forwarding the money too.  If the entity a district forwards money too goes bankrupt or just steals the money before sending it to the actual provider the employee has lost money.  Presumably the school district should have exercised better fiscal control and will in the end reimburse the employee for the losses incurred by the intermediary.  School employees and school districts are financially exposed to these “403(b) intermediaries” and should not forward money to them.  In fact, a district should research vendors before allowing them on an approved vendor list to ensure that the vendor actually offers a product and that school employee money will go directly to that product (as required by the IRS).  Districts are not currently doing this and are left exposed.  Districts should be actively policing and auditing their vendors.

The third reason these “403(b) intermediaries” are dangerous is because they act as a middleman in the process and drive up the cost of products and make compliance nearly impossible for a school district.  How is a school district supposed to monitor loans, hardships, and other distributions when it doesn’t even know who has their employee’s money?  

If you take the above three events and combine them with the fact that 403(b) products on the whole benefit the financial services industry more than the employees they are suppose to serve you have a situation of The Perfect Storm.

This Perfect Storm will combine to force the pendulum to swing from an industry in favor of financial services companies (and agents) to an industry that favors the end user, the participant.  There are many ways this can happen, but I believe the best way is for school districts to combine with other school districts (combine buying power) and to move toward a fiduciary based Single Vendor System.

A Single Vendor System would solve all the above mentioned problems and if done right could save hundreds of millions of dollars annually while improving the 403(b).  This system I envision is one that has been rejected outright by the leaders of the NTSAA (the trade organization that represents the 403(b) industry) because they believe it will hurt the agents who are their members.  School districts, their unions, and their employees must come together for once on this issue and stand up to the financial services industry that controls the 403(b) and find a better way.  

There is a better way; the winds of change are beginning to blow.  

Scott Dauenhauer, CFP, MSFP

iLind.net - Plan Compliance Group Follow Up

iLind.net

A Hawaii Blogger is following the events of Plan Compliance Group and has some additional thoughts.

Scott

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.