Original NEA Valuebuilder Expose - Published 12/2001

In light of the NEA Valuebuilder lawsuit, I figured I'd post my original expose on this product that I wrote back in December 2001.

Does The NEA Practice What It Preaches?

The NEA endorses a product that is costing its members millions in unnecessary fees.
“The only annuity nationally endorsed by the NEA.”
Most educators trust their union to act in their best interests; in fact part of the National Educator Association’s mission statement is to “…further the interests of educational employees.” In other words, when the NEA puts its stamp of approval on a product, they are effectively saying that their decision will work to further the member’s interest. Re-reading the above statement would lead most people to believe two things:

1. Annuities are good investment choices, and

2. Members should buy them only from the NEA. After all they wouldn’t endorse a product that didn’t further members interests, right?

Wrong. Whether out of ignorance or greed, the NEA is helping to bilk its members out of millions of dollars each year.

You see the NEA endorses a Variable Annuity that is sold to its members in their 403(b). Why is that so harmful? Variable Annuities are basically mutual funds wrapped in insurance; the insurance feature, which you pay a fee for, allows a variable annuity to grow tax-deferred. However, a 403(b) (commonly referred to as a TSA, though incorrectly) by nature is already tax-deferred, so in essence you are paying extra for a feature you should get for free. In addition, variable annuities typically have higher commissions and management fees (than mutual funds), which work to reduce your return over time. So why would the NEA endorse such a product? Good question.

Before we can answer that question, I’d like to direct your attention to a pamphlet recently made available to members on the NEA’s website. It is entitled “23 Financial Mistakes You Can’t Afford To Make”
Mistakes #15 and #16 read as follows:

Mistake #15 – Investing in products that carry high sales commissions and management expenses.
Mistake #16 – Using tax-advantaged investments for retirement savings accounts.

This brochure and “mistakes,” number 15 & 16 clearly point out that the NEA believes it to be a mistake if its members invest in high cost investment products and should avoid using variable annuities (tax-advantaged investments) in their 403(b) (a retirement savings account). Yet, in the same section of their website they promote and nationally endorse the “NEA Valuebuilder Variable Annuity TSA,” a product which is a variable annuity sold inside a 403(b). Why the double standard?

Perhaps the NEA, because of their huge buying power was able to negotiate a variable annuity product with lower costs. Let’s examine the “Valuebuilder Variable Annuity TSA” to find out. There are five costs associated with this product as follows:

Mortality and Expense* 0.90% (.75 if over $50,000)
Administration Charge 0.15%
Avg. Mutual Fund Expense 1.34%
Riders (additional benefits)** 1.00% (optional)
Policy Charge $30 (waived if over $50,000)
TOTALS: High Cost 3.39% plus $30
Low Cost 2.24%
*The insurance component, also where commissions are paid from.
**Riders are additional benefits, usually insurance based and are not required to be purchased, but are heavily pushed.

Even the member who qualifies for all the discounts (meaning $50,000 balance), and refuses to buy the “additional benefits” will still end up paying 2.24% in fees each year. The member who is unlucky enough to have a balance below $50,000 and have chosen the “additional benefits” will pay 3.39% plus $30 annually, a figure that is astronomical!!

Average Policy Holder
What might the average holder of a policy actually pay? As of September 21, 2000, there were 57,000 policyholders totaling $860 million in assets. That works out to be about $15,000 per policyholder. Let’s examine what the average policyholder might pay:

Mortality and Expense .90%
Administration costs .15%
Mutual fund 1.34%
Rider 1.00% (Optional)
Policy charge .20% ($30 annual fee)
Total: 3.59% annually

The average policyholder is probably paying over 3.5%, excluding trading costs, which can add an additional 1% annually. This assumes of course that they add the riders, which are pushed very heavily. Even if they forgo the riders, they pay 2.59% annually on average. When asked why the product was so expensive, John Wendland, a spokesperson for NEA Member Benefits responded, “Our product comparison indicates that the fees associated with the NEA Valuebuilder annuity are competitive with similar 403(b) offerings.” I don’t know who the NEA is comparing its products to but the average fee for a variable annuity is 2.14% (1.4% for a mutual fund), still extremely high, but low in comparison to 3.59%. When asked about this difference I was told, “…the 1.5% fee difference is an example that does not relate specifically to the NEA Valuebuilder Annuity.” I will give him the benefit of the doubt and assume he misspoke; anyone who tells you costs don’t matter is not working in your best interest.

Costs do matter. They will have a tremendous impact on your return. Lets compare an investor who chooses a low cost index mutual fund vs. the NEA Valuebuilder Variable Annuity TSA. What do you think the potential difference in return would be over a 30 year time period? Would you be surprised to learn that your account balance would be over 40% lower than the index fund investor, for the “average” member who ended up paying the higher costs. Their investment would be more than 50% lower. Can someone please explain to me how that furthers a member’s interest? It is clear that the NEA received no “bulk” discount when searching for a provider, even though they had nearly a billion dollars in assets. The NEA may believe the 1.5% doesn’t relate, but the numbers don’t lie.

Why the high costs? Well, you have a lot of people to pay. You have to pay the plan administrator (Security-Benefit) for insurance and other charges, you must pay an insurance agent (the annuity is not offered without one), you must pay the mutual fund managers and I am sure you are paying something to the NEA as well. However, NEA stresses that the product must be sold by an insurance agent, this ensures you will meet your goals (a load of bull). What it really ensures is that somebody gets paid a commission every time you put money into your policy.

You are being asked to sacrifice 40-50% of your potential returns in order to compensate a product salesperson, not a financial planner, a salesperson. The NEA stands behind these product salespeople as “a true value-added” service. If “value-added” means losing half your potential return to fees, well, I guess you get what you pay for.

It is clear that the NEA Valuebuilder Variable Annuity TSA is an inferior product designed to take advantage of educators who are not financially savvy. But why even offer a variable annuity to someone as an investment vehicle for his or her 403(b)? After all, the NEA has made it clear that they feel it is a mistake to use “tax-advantaged investment (like variable annuities) for retirement savings accounts.” The response I received is the “NEA believes that some of its members, particularly those who may be risk averse, would value the insurance benefits provided by a variable annuity within a 403(b) account.” Wendland goes on to explain that variable annuities provide “a death benefit which allows investors to invest in equity markets without fear of losing principal in the event of death prior to retirement.” In a nutshell, the NEA believes that its members should be subject to high fees because of “important” insurance benefits and that if you are risk averse, the variable annuity provides you a safe environment in which to invest. This is the same pitch you will hear from every insurance agent hawking variable annuities. They always promote the “guarantee.” Let’s take a look at the guarantee and the suggestion that variable annuities are for risk averse investors.

Worthless Guarantee

The variable annuity guarantees that you will never have less than you put into the account. Of course to collect on that guarantee you must die, which to me is rather inconvenient. I asked the NEA to provide me with numbers that show on average how many people die with account balances significantly lower than their contributions—they refused. They refused because that number is most likely somewhere south of 1%, meaning the chance of you dying with an account balance below your contributions, hence triggering a death benefit is almost zero. In addition, if the average policyholder has an account of $15,000 and the balance were to fall by $3,750 (a 25% market drop) would that cause a significant hardship to the members family if the policyholder were to die? No, and if it did you would purchase a separate life insurance policy. By the way, most members could purchase a $100,000, 30-year term policy (40 year old) for only around $300 a year. Just a tad more than you would be paying for less than $4,000 worth of life insurance through the variable annuity, plus the Term life insurance is tax-free, whereas the variable annuity death benefit is fully taxable. The insurance feature so highly regarded by the NEA doesn’t sound so good now. Remember, to collect any benefits two things must happen; you must lose money and you must die, otherwise you are up the creek without a paddle. Anybody who uses or promotes a variable annuity death benefit as financial protection for someone’s heirs is irresponsible and guilty of financial malpractice, at least in my book.

Variable Annuities for Risk Averse Investors

The NEA’s other reason for offering variable annuities is to please its “risk averse” members. However, variable annuities are no less risky than an ordinary mutual fund, and many times more risky. The Securities and Exchange Commission in an alert on variable annuities said, “variable annuities also involve investment risks, just as mutual funds do.”
Risk averse means that a member may not want his/her account to fluctuate; they simply do not like the gyrations of the stock market. Investing in a variable annuity does not protect anyone from losses in a stock market while they are living, only if they die. The argument that a variable annuity is a “safer” investment and more appropriate for “risk averse” individuals is riddled with holes at best and against the law at worst. If a person is unsuitable for mutual funds because they can’t handle market fluctuation, then they are also unsuitable for a variable annuity. If you buy a variable annuity and it goes down in value, you have lost money. The only way to get it back is to die, which in my book is pretty risky. Not many risk averse investors are willing to die for their variable annuity.

Income for Life Feature

The last reason given for offering a variable annuity in a 403(b) was to provide “an array of annuity options, some of which guarantee income for the life of the participant, regardless of how long they live.” Again, this benefit is of little or no value, anybody who has a 403(b) can choose to “annuitize” his or her money (trade it in for a lifetime income stream). In fact, it would be very unwise to limit yourself to the monthly payout schedule of one company (such as the valuebuilder). If you choose to annuitize you should shop around to see what company has the best monthly payout, most times you will find a comparable company with a payout schedule that is much better (referred to as a single premium immediate annuity). Every argument for the benefits listed by the NEA on why you should purchase a variable annuity in a 403(b) are groundless. Yet you pay for it. Boy do you pay for it!

As if high fees and worthless benefits weren’t bad enough this product has what is called a surrender charge and surrender penalty. Each purchase you make is stuck in the contract for 7 years. If you want your money out earlier you will pay up to a 7% surrender charge. Worse yet, this penalty applies to each individual payment, meaning if you made monthly contributions for 10 years (or any time period) some of your money would still be subject to a surrender penalty. Why? Each contribution must stay in the contract for 7 years, so the contributions in the 10th year have another 7 years to go. It’s an endless vicious circle called the “rolling surrender charge.” How does this “further the member’s interests?” Good question, I’m still trying to figure that out myself.

Investment Options

Perhaps they make up for a poor product by offering superior investment choices. Wrong again. The high fees bring down the performance of any option available, and the options available aren’t very good. They offer 34 fund choices from 9 families all of which have higher than normal fees. These high fees work to significantly reduce the performance. Fees have such a harmful effect that even the most conservative investment available in the program has a negative return (return measured from its inception through Sept. 30, 2001). The Dreyfus Money Market fund has a -.10% return since inception, when fees are taken into account, imagine losing money in a money market account. This is the first time I have ever seen a money market account with a negative return. If you take out all the fees charged this account you would have earned 4.81% from inception. Bottom line, fees matter regardless of investment choices. The funny thing is that a risk averse investor would have done much better in a simple money market mutual fund outside an annuity. So much for the NEA’s suggestion that this variable annuity is for risk averse investors.

What about Index Fund Choices

The NEA Valuebuilder TSA claims to have criteria to evaluate which funds to include. The three criteria are:
1. Investment option performance
2. Range of options
3. Financial industry leader

If these were my criteria, it would not point to the funds offered by the NEA program. Considering most mutual funds fail to beat their index, you would think that index funds would be included among the options. Mysteriously, they are absent. There are only a few companies that fit the above criteria, Vanguard being one of them. Why aren’t they an option? I asked John Wendland of the NEA why index funds weren’t offered and was told, “…we are looking into adding index funds to the asset categories.” However, when pressed further about when and if a timetable existed I received no response. I suspect index funds don’t pay high enough fees to be included in the program.

What about the 403(b)7 Offering? (Straight Mutual Funds)

The NEA does offer a separate product for those not interested in variable annuities, however I am suspect as to how hard this option is actually pushed. Repeated calls to the NEA Valuebuilder hotline gave me little information on the program, nobody seemed to understand it, they kept confusing it with the variable annuity program. In addition, Security Benefit (the company administering the program) would not tell me what percentage of the total assets was held in straight mutual funds. In the NEA’s own communications, it indicates that most, if not all assets are in the variable annuity program. I was finally able to get a prospectus for each fund available in the custodial account and I was not impressed. The fees were lower overall, but still much higher than they should be. Neither the NEA or Security Benefit would disclose to me how much the commissions were on either choice or if commissions were higher on one product than the other. I was told it was “confidential.” I’ll bet you the reps no how much the commission is. Why is it that an insurance agent with no connection to the NEA gets to know the commission level, but a member of the NEA who is actually paying the bills, doesn’t? Any company that won’t disclose the commissions on its policy should not be dealt with. Why hide this information?

Why have two choices?

Why does the NEA have to offer two choices anyway? Why can’t they make it simple and offer one program, a low-cost 403(b)7 mutual fund program. I can’t give you the answer, but surely if they were truly trying to further their member’s interest, they would not be offering what they are currently. After doing some research on the Internet, I came across a letter from Mark Littrel, a college professor in Los Angeles. He was writing to US News and World Reports about the problems in the 403(b) arena and the fact that the NEA program was fat with fees. He brought up an interesting point when he said; “I have long wondered if nationwide (former plan administrator, now Security Benefit) made some kickbacks to NEA bosses or made some fat contributions to political entities officially blessed by the NEA in return for the NEA endorsement.” I decided to ask the NEA about this, I asked them, “how does the NEA benefit monetarily- meaning soft dollars or hard dollars from its relationship with Security Benefit (program administrator)?” The response was as follows:

“Funding received by NEA member benefits comes only from product suppliers and is intended strictly to cover only the marketing costs and overhead of NEA member benefits. We do not seek to profit from the program’s members. The specific funding is proprietary.”

While I appreciate the answer, it doesn’t tell us anything. After all, there is potentially over $30 million in fees generated each year; that’s a lot of money! If a portion of it goes to the NEA why shouldn’t its members know how much that is, after all it’s their money.


Why conform when you can reform?

When asked about the high fees the NEA responded that their fee structure conforms to the industry and is competitive. My question is why should an organization that is 2.6 million members strong simply conform? Why don’t they take a stand and try to make positive changes in the 403(b) arena? If anybody has the influence it would be the NEA. In my last correspondence to them, I wrote the following:

“In response to the "fees" issue, just because the fees appear to be in-line with the industry it doesn't mean that they are right, the 403(b) industry is the backwater of the financial services industry and I believe a member organization such as the NEA has the power to make a real, positive change. You guys have the opportunity to save your members literally billions of dollars over the coming decades, I think that conforming to the industry is not in the best interest of NEA members, especially since they have the clout of 2.6 million members - you and your organization could do so much to change the status quo, if you are willing to do that, I am willing to give of my time to help. Please join us in improving 403(b) benefits for all Teachers, it's in their best interest.”

I never received a response back to my invitation; apparently the NEA simply doesn’t care about the opportunity to save potentially billions of dollars for its members over the coming decades, or about working to reform the 403(b) and offering a product that would truly work in its members best interest. An organization representing 2.6 million members would rather conform than reform, disappointing but true.

In conclusion, I know the NEA does many wonderful things for its members and that the leaders are hard workers who truly care about each member. However, somehow these leaders have made a mistake or perhaps an oversight. Somehow they have put their interests, whether knowingly or unknowingly ahead of its members. I urge everyone who has been sold this product to review what you have been sold and to do some research as to how that purchase will affect your long-term accumulation of wealth. Then urge your NEA leaders to stop conforming and start reforming. After all, an employee benefit such as the 403(b) should not have to be filled with high fees, high commissions, long surrender periods and charges, expensive worthless additions (riders), poor investment choices, and negative money market returns. I believe Teachers should be treated better, they should be allowed low cost investment choices. According to the NEA it’s a mistake to “invest in products that carry high sales commissions and management expenses.” Perhaps the NEA should start practicing what they preach.

Written by: Scott Dauenhauer, CFP
President of Meridian Wealth Management, A Fee-Only Registered Investment Advisory Firm dedicated to protecting Teachers Best Interests.
www.Meridianwealth.com

I'll have some comments later about this lawsuit.


Scott Dauenhauer, CFP, MSFP, AIF

Summary and Overview of 403(b) Regs

Ashland Summary

Ashland Overview

CCH Comments on New 403(b) Regs

Tax Newsletter - 2007

Final 403(b) Regulations Released - Eff 12/31/2008

Its finally happened - the final regs have been released by the IRS for the 403(b). I haven't had a chance to read them (bet you it won't be nearly as fun to read about as the iPhone) yet. I'll review and let you know my thoughts. I'll also post stories about them as they are written.

The effective date is 12/31/2008, get ready schools, here they come.

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

NEA Valuebuilder Lawsuit

Here is a link to the lawsuit against the NEA Valuebuilder product.

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

2 teachers sue union over retirement plan - Los Angeles Times

2 teachers sue union over retirement plan - Los Angeles Times

Kathy Kristof has followed the goings on of the 403(b) world for quite some time and chronicled the problems. This is a quick article on the lawsuits filed against the NEA and the product they sell to educators called the NEA Valuebuilder.

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

Lawsuit Says Teachers Are Overcharged on Annuities - New York Times

Lawsuit Says Teachers Are Overcharged on Annuities - New York Times

For years I've railed against the NEA and their horrible product, the NEA Valuebuilder (some have termed it the ValueKiller). I wrote an article many years ago titled, "Does the NEA Practice What It Preaches?" skewering the NEA Member Benefits program for selling a product that is excessive in fees and kicks back many millions of dollars to the NEA Member Benefits program each year.

Now the Valuebuilder product is getting its day in the sun, a lawsuit by Keller Rohrback was filed last week in Washington State saying that the product and its promotion violates ERISA. It's an interesting arguement and I hope it has legs.

I think the National NEA should have stepped in many years ago and killed this product, instead they continue to misrepresent the product to educators. The NEA has always had the opportunity to educate its members about 403(b) plans and work to make them better, instead they chose to join the financial services industry in the raping of educators retirement accounts.

My wife is a teacher and her local and state union work hard to ensure that her district offers good health benefits, they don't go out and sponsor a health plan and then sell it, the lobby for better plans - I believe that is the role the union should take when it comes to 403(b) and 457(b) plans. It's been my experience that many of the local unions in California have become to take on the role of advocate in this arena, kudo's to them, perhaps they can lead the national NEA back to where it needs to be.

I'll follow this lawsuit closely and report on what happens. In the meantime, if you are an educator, voice your opinion to your union and let them know that you want them to work for you, not try to make money off of you.

Scott Dauenhauer, CFP, MSFP, AIF

Overhaul overdue for nonprofit plans - baltimoresun.com

Overhaul overdue for nonprofit plans - baltimoresun.com

A good article on how some school districts are beginning to deal with the new 403(b) regs (that should be finalized soon).

No new information, but a good article that school employees and district officials should read.

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

Why Schools Lack Low Cost Investment Options

Written by an individual who is an educator, attorney, and a financial planner....

The paper is rather bland at the beginning as it gives an overview and history of the 403(b)(it is supposed to be an academic paper!), however it does make some good points toward the end and is a great educational piece.

The call for school districts to start suing unions is a bit over the top - instead of suing each other, the two should be working in concert to promote good savings options and education, however that doesn't always happen.

The writer makes a good arguement, one that I've been making for awhile that school district benefit when employees save money into their 403(b) and they benefit even more if employees save money in reasonably priced 403(b) accounts. Employees who have saved money other than in their pension will feel more secure and are more likely to leave teaching earlier - which creates openings for newer teachers at lower salaries - which helps with the school budget long term. School districts would be wise to begin looking at the 403(b) as an important benefit for both the employee AND the school district.

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

The Fleecing of 403(b) Participants Parts 1 - 4

Scott Simon, writer for Morningstar Advisor (and a financial advisor himself) has written a series of articles on how teachers are getting fleeced in their 403(b) retirement plans. What follows are links to the Four part series.

Scott does a good job of laying out the issues and though I don't totally agree with his solutions, the information is worthy of a read through. Educators, school districts, and unions need to know this stuff.

Fleecing 403(b) Participants (Part 1)

Fleecing 403(b) Participants (Part 2)

Fleecing 403(b) Participants (Part 3)

Fleecing 403(b) Participants (Part 4)

Scott Dauenhauer, CFP, MSFP, AIF

CalSTRS and TIAA-CREF Team to Expand Retirement Savings Plan for California Educators - Forbes.com

CalSTRS and TIAA-CREF Team to Expand Retirement Savings Plan for California Educators - Forbes.com

The California State Teachers' Retirement System (CalSTRS) and TIAA-CREF, the national financial services organization and the leading provider of retirement services in the academic, medical, research and cultural fields, today announced they have joined forces to expand CalSTRS' supplemental retirement savings program, which is open to about 800,000 Californians. Through this relationship, CalSTRS, the second-largest public pension fund in the United States and TIAA-CREF will provide low-expense retirement savings vehicles for public school employees in more than 1,400 school districts and community college districts across California.

"We are very pleased to inaugurate this unique partnership with CalSTRS - an organization with which we share a common mission, set of values and commitment to serving those in the academic field," said Herb Allison, Chief Executive Officer, TIAA-CREF. "This relationship speaks to TIAA-CREF's commitment to giving clients high value and high quality retirement savings vehicles that can help individuals build financial security to and through retirement."

TIAA-CREF will perform all record keeping and trust functions and act as custodian of program records and assets for CalSTRS' existing 403(b) program. Further, the organizations are working together to increase the number and types of investment products by adding a 457(b) plan and Roth 403(b) plan this year and Traditional and Roth Individual Retirement Account (IRA) offerings in the coming year. Each of these plans offer school employees access to low-expense and high quality tax-advantaged savings vehicles.

"The combined strength of two leaders in the educational market will provide California's educators with enhanced savings options from a provider in which they can have confidence," said Jack Ehnes, Chief Executive Officer, CalSTRS. "TIAA-CREF, with their non-profit heritage, was the best choice. Their depth of experience in managing retirement plans, comprehensive and time-tested understanding of the needs of our members and transparent approach are the perfect fit for us."

CalSTRS members, like many individuals across the United States, will need to supplement their retirement income from defined benefit retirement plans with other forms of replacement income to help meet their needs and desired lifestyles in retirement. California's teachers do not receive Social Security for their time in the classroom and a career teacher can expect their CalSTRS pension to replace only about 62 percent of their salary.

TIAA-CREF will assume custodial duties for approximately $170 million in assets from current program participants when the new program becomes effective in fall 2007. TIAA-CREF mutual funds, other TIAA-CREF investment strategies, including the TIAA Real Estate Account, which invests directly into a diversified array of commercial and residential properties, as well as third party mutual funds, will be offered in the program.

This is not the first time CalSTRS and TIAA-CREF have worked together. In 2002, in an effort to cut through the clutter created by the nearly one hundred 403(b) providers from which California teachers can choose to invest, CalSTRS and TIAA-CREF teamed up to create a new online information bank called 403bcompare.com (www.403bcompare.com). The Web site, established by California law and administered by CalSTRS, is designed to help California teachers make informed investment decisions. It allows California teachers to more easily evaluate 403(b) investment options from different companies across consistent criteria such as fees and service levels and provides definitions to commonly used terms. The Web site was developed in close consultation with teachers in California and was the outgrowth of extensive focus groups and consultations with California teachers.

About CalSTRS

With a $171.1 billion investment portfolio, the California State Teachers' Retirement System is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California's 795,000 public school educators and their families and 1,400 school districts. For more information on CalSTRS, visit www.calstrs.com.

About TIAA-CREF

TIAA-CREF is a national financial services organization with more than $414 billion in combined assets under management (3/31/07) and the leading provider of retirement services in the academic, research, medical and cultural fields. Learn more about TIAA-CREF.

TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members NASD, distribute securities products. TIAA (Teachers Insurance and Annuity Association) New York, NY issues annuities.

Great American Insurance Agent Attempts Scam on Retiring Teacher

Wonder how far an insurance agent will go to make a commission? How about proposing a ridiculous plan to a teacher to induce her to retire (prematurely) and offering to do her taxes for life for free.

The link above will take you to series of posts on the 403bwise discussion board where a son steps in and asks for help in combating an idiot insurance agent hawking equity indexed annuities sold by The Great American Life Insurance company - a company that is not being "Great" to Americans (in my opinion). The agent stood to make an enormous amount of money while sticking a teacher into a series of products that were not in her best interest.

The teacher put in for her letter of resignation before her son was able to review the proposal from the agent, now she has no job and has to retire - early than she should have.

The 403(b) world has a problem and it is being ignored.

ScottyD

New 403(b) rules give employers more control

New 403(b) rules give employers more control - 25 May 2007

The new 403(b) regs are coming and this article provides a short, short summary emphasizing that employers will need to take control of their plans.

I've spent a lot of time going over what work will need to be done in order to really comply with these regulations and when I say the work is a daunting task, I am not being overly dramatic. The changes that are about to befall the 403(b) industry are going to be massive.

Scott Dauenhauer, CFP, MSFP, AIF
Consultant on Government Retirement Plans
949-916-6238
www.meridianwealth.com

Prepare for Changes in 403(b) Plans - WSJ.com

Prepare for Changes in 403(b) Plans - WSJ.com

Andrea Coombes interviewed me last week for this article and I'm quoted throughout the article! This is an article about how the upcoming 403(b) regulations will affect participants who are currently in these plans.

It's a relatively short article and a good primer for what to expect. I would expect many more of these articles to pop up over the next six months.

A big thank you to Andrea Coombes for quoting me!!

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

Fees take huge toll on 403(b) plans (Page 2 of 4)

Fees take huge toll on 403(b) plans (Page 2 of 4)

Great article on how fees affect your retirement, includes a chart created by me!

Scott Dauenhauer, CFP, MSFP, AIF

How Close Is the 403(b) To Becoming History? 401(x)...

Governing Management Letter/Girard Miller/May 2007

Girard Miller paints an great picture about the problems in the 403(b) and 457(b) market and lets us in on a little known fight that is going on in Washington behind the scenes - the fight for 401(x) - basically the new term for President Bush's proposal several years ago call ERSA (Employer Retirement Savings Accounts).

401(x) would consolidate 403(b), 457(b) and 401(k)'s into a single plan (they are now all pretty similar as it is). As you would expect, the insurance industry is fighting tooth and nail against this. Is the future of the 403(b) a transformance into a 401(x)? Nobody knows, but is seems inevitable and it would be best for the participants.

This is a short article that I encourage you to read, I for one support the 401(x).

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

CalSTRS Awards Recordkeeping RFP TO TIAA-CREF

Award of Contracts

From CalSTRS Website:

Begin

Notice of Intent to Award

Third Party Administrator for Record Keeping of Assets
Request for Proposal Number 2P200610

The California State Teachers' Retirement System (CalSTRS) intends to award a contract to TIAA-CREF as the successful Proposers in the Request for Proposal process entitled Third Party Administrator for Recordkeeping of Assets, pending the Teachers' Retirement Board approval.

CalSTRS has elected to terminate the Third Party Administrator for Compliance component of this RFP. There will be no contract award resulting from the Compliance component of the RFP process.

End

Commentary and Disclosure:

Details are not yet public, but CalSTRS has decided to move away from CitiStreet as its recordkeeper and award TIAA-CREF the new contract. The contract will goto the board for approval in June, the fund lineup and pricing should be announced in July. More information about the new program will be forthcoming in the next few months.

The RFP for Compliance was not awarded, instead it was reissued as a separate RFP and can be found at www.calstrs.com/rfp.

In the interest of full disclosure, I (Scott Dauenhauer, CFP, MSFP, AIF President of Meridian Wealth Management) acted as a consultant for the Recordkeeping RFP and continue to act as a consultant on the new Compliance RFP bid.

Scott Dauenhauer, CFP, MSFP, AIF
President
Meridian Wealth Management
949-916-6238
www.meridianwealth.com

School Districts and Fiduciary Responsibility

If you are a school district board member, Superintendent, or administrator you need to read this article.

Scott Dauenhauer, CFP,MSFP, AIF

Plan Compliance Group Update

starbulletin.com | News | /2007/04/28/

Update on Plan Compliance Group

Man guilty in UH, DOE pension scam
Question: What ever happened to Plan Compliance Group, the California company accused of losing nearly $2.3 million from retirement accounts of Hawaii Department of Education employees and $420,000 from the accounts of University of Hawaii workers?

Answer: Education officials are still trying to have the company, which filed for bankruptcy in December 2005, pay back the money. The DOE and UH have reimbursed some 10,000 affected employees.

The university used risk-management money to replace the funds missing from the retirement accounts of its workers, said spokeswoman Carolyn Tanaka. The university is now managing the accounts, she said. The DOE also used state funds to make up for the money lost, said spokesman Greg Knudsen.

The owner of Walnut Creek, Calif.-based PCG, Francis William "Bill" Reimers, pleaded guilty last month to six counts of mail fraud and one count of money laundering in federal court, according to the U.S. Department of Justice. In a deal with federal prosecutors, Reimers admitted to carrying out a fraud scheme that caused more than $7 million in losses to more than 250 investors.

Reimers, 62, faces up to 20 years in prison for each of the seven counts, plus substantial fines and restitution. His sentencing has been scheduled for Aug. 3.

Reimers, who also owned Advisory Services Group, a financial investment services company, admitted to using money from investors to pay his mortgage and to buy luxury cars, vacations and hunting trips. Meanwhile, he would give individual investors false account statements and divert the money to run PCG and Univest Capital Management, which managed benefits for federal employees.

In 2005 the DOE sued PCG for fraud, negligence and breach of contract over the disappearance of the money. UH has also filed a lawsuit to retrieve the funds, said Darolyn Lendio, the university's vice president for legal affairs and general counsel.

When it filed for Chapter 7 bankruptcy, PCG estimated its assets at less than $500,000.

This update was written by Alexandre Da Silva


Scott Dauenhauer, CFP, MSFP, AIF

The Re-Education of CalSTRS

II Magazine Americas

An extensive history of how CalSTRS got to where it is today. This article also profiles the CEO and CIO, a good read for any teacher in California.

ScottyD

Another 403(b) TPA Files Bankruptcy

QUADS Financial Group, Inc

Add Quadsweb to the list of third party administration firms that service 403(b) plans that have filed bankruptcy. Quadsweb was not a traditional TPA in the 403(b) sense and they didn't, as far as I know steal any money. They have been taken over by a conservator and are reorganizing under Chapter 11.

We can't put this failure in the same category as Plan Compliance Group, NEBSonline, and Flagship/Horizon as this entity was taken over before money could be stolen (not saying there was any attempt to steal money). However, its failure is further proof that districts need to take great care in who they do business with.

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

IRS pending regulations seen as consolidating 403(b) market - InvestmentNews

IRS pending regulations seen as consolidating 403(b) market - InvestmentNews

FYI.

They never quote anyone who actually has real knowledge and a different point of view at Invesment News...oh well, their loss.

ScottyD

Beginning of The End For NEA Valuebuilder?

Class Action Newsline

It looks like the NEA Member Benefits is about to reap what it sowed, it will be sued. Though only an investigation, Keller Rohrback would not go public if they didn't have the evidence needed to go after this horrible product.

What follows is the press release:

Keller Rohrback L.L.P. Announces Excessive Fee Investigation Regarding NEA Valuebuilder Program

SEATTLE, April 7, 2007 (PRIME NEWSWIRE) -- Keller Rohrback L.L.P. (www.erisafraud.com) today announced that it is investigating the National Education Association ("NEA") Valuebuilder 403(b) variable annuity plan. The plan, which is sold by an insurance company called Security Benefit, is the only retirement program endorsed by the NEA. In exchange for the endorsement, Security Benefit provides compensation to the NEA. Keller Rohrback is evaluating whether the NEA endorsed the program because of the payments, as opposed to a prudent evaluation of whether the plan is in the best interests of NEA members.

A 403(b) plan is a tax-deferred retirement plan available to employees of educational institutions and certain non-profit organizations. A common 403(b) plan investment option is a variable annuity. A variable annuity is an annuity plan that enables participants to direct their salary deferral into certain specific mutual funds. As many commentators have noted, 403(b) annuity plans often charge excessive fees that substantially diminish participants' retirement savings. In addition, 403(b) providers often choose mutual funds for their plans based on revenue sharing deals with the mutual fund companies, as opposed to a prudent evaluation of the merits of the fund option. Recent articles have drawn attention to the fees charged by the NEA Valuebuilder plan.

If you are a participant in the NEA Valuebuilder 403(b) variable annuity plan, and would like to speak with us regarding our investigation, please contact any member of our team: paralegal Jennifer Tuato'o or attorneys Cari Campen Laufenberg, Derek Loeser, or Lynn Sarko, toll free at 800-776-6044, or via e-mail at investor@kellerrohrback.com.

Keller Rohrback is one of America's leading law firms handling ERISA retirement plan litigation. We are committed to helping employees and retirees protect their retirement savings. Keller Rohrback serves as lead and co-lead counsel in numerous ERISA class action cases, including cases against Enron, WorldCom, Inc., HealthSouth, and Marsh & McLennan Companies, as well as ERISA cash balance pension plan cases, including JP Morgan Chase & Co. Keller Rohrback has successfully provided class action representation for over a decade. Its trial lawyers have obtained judgments and settlements on behalf of clients in excess of seven billion dollars.

CONTACT:  Keller Rohrback L.L.P.
         Jennifer Tuato'o, Paralegal
         (800) 776-6044
         investor@kellerrohrback.com
         www.erisafraud.com 

Imperfect Union - Forbes.com

Imperfect Union - Forbes.com

Neil Weinberg details the class action brought against the New York State United Teachers and ING accusing wrongdoing in their 403(b) plan.

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

Trust Sued Over Backing Retiree Plan - New York Times

Trust Sued Over Backing Retiree Plan - New York Times

NYSUT, the New York Union that settled with Elliot Spitzer is now being sued as part of a class action under a very interesting theory.

This is a good development in that these entities need to know that abusing their members is not going to go unpunished. Its only a matter of time before the NEA Valuebuilder product is targeted, the NEA Member Benefits organization in my opinion is one of the worst providers of 403(b) products in the nation.

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

Reimers Pleads Guilty - FBI Says $7 Million Gone

LawFuel - The Law News Network

Francis "Bill" Reimers pleaded guilty on March 23rd to six counts of mail fraud and one count of money laundering. Bill stole from school districts and individuals. A guilty plea, while nice, is of little solice to those who lost so much while Bill and his family lived high on the hog.

I never met Bill, but did talk to him on several occasions. I hope God will forgive him, there are many out there who have been wronged that I think probably won't. They are now stuck living a retirement that they thought would be secure.

I have a feeling this isn't over, more will come out as time goes on.

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

Quotas tied to benefits irk advisers

Quotas tied to benefits irk advisers - InvestmentNews

Ever wonder if the agent selling you that 403(b) had other things on his or her mind? Perhaps the policy being sold to you wasn't in your interest, or perhaps the policy was sold to you for other, more nefarious reasons. Many companies offer wonderful vacations to reps who sell certain, usually proprietary products, however, a story by Investment News is shedding light on another interesting perk that is affected by product sales......Health Insurance.

It turns out that at least three major players in the 403(b) market use health insurance benefits as a way to get their reps to sell the companies own proprietary products. If reps or agents don't sell enough of the firms products they won't get health insurance for themselves, their spouse, or their children...can you say conflict of interest?

I don't believe you should ever purchase proprietary products, and this is just one more confirmation of that belief. The question remains, are you being sold a product because it is best for you or because your advisor needs it in order to ensure (actually insure...no pun inteneded) the health of his family? Advisors shouldn't be faced with this dilemma, but then again, they choose who they work for, in this case, it isn't you.

Most advisors are not fiduciaries (required to put your best interest firs) and most firms cannot allow them to be fiduciaries because of conflicts such as utilizing health insurance benefits to force agents to sell more proprietary products. What a shame.

The 403(b) industry needs reform.

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

Tax-sheltered annuity regs expected by mid-2007 - CCH® Pension and Benefits News Story - 3/14/07

Tax-sheltered annuity regs expected by mid-2007 - CCH® Pension and Benefits News Story - 3/14/07

The new regs are coming, school districts need to start preparing.

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

Feds charge Danville investment executive Reimers

ContraCostaTimes.com | 03/12/2007 | Feds charge Danville investment executive Reimers

Here is an update on the Bill Reimers/Plan Compliance Group scandal.

Plan Compliance Group is the third party administrator for school districts that stole over $3 million of school district money and spent it on a lavish lifestyle. He also stole money from a federal insurance program and from several individuals who trusted him.

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

Investment Expenses Higher Than They Seem

Dallas Morning News | News for Dallas, Texas | Scott Burns: Columns 2007

Good column on why it is important to watch fees in your retirement plans, they are essentially like another tax on your money. High fees rarely lead to higher returns. Scott Burns has a fee calculator on his website.

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

Investors' losses keep mounting

Investors' losses keep mounting:

This is a bit of an old story, but I thought you'd like an update.

ScottyD

www.meridianwealth.com

New public employees should work to 65

Article - Opinion - California Focus: New public employees should work to 65

Here is an article written by Keith Richman that is advocating all new public employees work till 65. This might be a good idea for most public employees, but I do not believe it is a good idea for public school teachers.

For one thing, I am doubtful that there will be much cost savings in getting educators to work an extra 2 - 10 years till age 65. Assume that a 60 year old educator who wants to retire today has a total compensation package of $90,000, and a new teacher has a total compensation package of say $45,000. The present value of the difference in compensation is about $200,000.......I say let that educator retire.

I work with a lot of educators and on average, by the time they reach 55 they are getting tired. They haven't lost their passion for kids, its just that 30 years of being in the classroom can really wear someone down. Don't get me wrong, just because a teacher has reached the age of 55 doesn't mean they are no longer effective, in fact many of them have more energy than I feel I do at times. It's just that there are some educators who reach these stages and feel that continuing to teach will begin to wear on them physically and mentally, they need a break. They need to retire.

Allowing an educator who has spent his or her life serving the children to retire on a timeline that is reasonable (the current system is reasonable) not only encourages more and better teachers to enter the profession, but it encourages those teachers who feel like they just can't do it anymore to retire with grace. Imagine if we forced a teacher who simply didn't want to teach to continue to teach, just so they wouldn't be impoverished in retirement.....is this best for our educators and our students?

Perhaps I see where Mr. Richman is going with this. A teacher who is forced to teach till age 65 might be more worn down and statistically may not live as long.......thus reducing the pension liability.

I'm all for fiscal responsibility, in fact my stomach churns when I see the deficits being piled up everywhere I look, but when it comes to our teachers in California, we need to take a hard look at so-called "simple solutions", they may not turn out to be so simple.

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

The American Spectator

The American Spectator

Provocative article about the now closed Social Security loophole that allowed educators to get spousal benefits by working only one day in a job covered by social security. The cost to the government is in the billions.

This article is referring to the Government Pension Offset (GPO) which affects social security benefits of spouses who work in the public arena and are covered by a public pension, but don't pay into social security. What the article leaves out is how unfair the GPO is to educators. Let me give you an example:

Suppose Sally went to work in the private sector and paid into social security, Sally's husband stayed at home with the kids and raised them, not ever working in a paying job or in a job paying into social security (notice how I didn't say "not working!"). John, who stayed at home, is not eligible for social security benefits on his own, instead the he is eligible based upon Sally's contributions. Sally's contributions INCLUDE a spousal benefit. John will recieve 50% of the amount that Sally receives and upon Sally's death, John's benefits from social security will be the same as what Sally was recieving.

The key in this story is that John is eligible based on his spouse, Sally, even though he never worked. Sally's contributions earned her a spousal benefit for her husband. Now, let's suppose that instead of staying home all those years with the kids, John went to work after the kids were old enough to goto school. John in fact went to work as a teacher. He paid into his state teachers pension fund, but in his state he was not required to pay into social security. When John retires he will NOT be eligible for a social security spousal benefit based on Sally's contributions (technically he might be eligible for something, there is a formula, but that is beyond our discussion).

The only difference between the two situations is that John worked in a public pension system and didn't contribute to Social Security. In both situations John didn't contribute to social security, but in one he recieved a benefit, in the other he didn't. This makes no sense. Either Sally earned a spousal benefit or she didn't - which is it?

The teachers in The American Spectator are made out to be criminals - they are not, they are simply trying to collect on something that should rightfully be theirs. They went through a perfectly legal process to gain these benefits and they shouldn't be punished or have these benefits taken away - they are not criminals like Dennis Koslowski.......to whom they were compared.

My only concern is that its a bit unfair that those 20,000 teachers got to do it, and the hundreds of thousands of others didn't. I agree that it is a major drain on social security, but that is a funding problem. Social Security if fundamentally flawed in its operation and needs to be reformed, but the same can be said for the Governement Pension Offset.

To all you Texas Criminal Teachers (TCT's) out there.......You have at least one supporter! I do ask one thing of you, perhaps think about spending a little bit of that extra money you receive on helping the rest of the teachers get reform for the GPO.

ScottyD

Teachers Sue Metlife

nwi.com

A story about teachers who were allegedly lied to, misled, and are now fighting back. There are more and more stories coming out about teachers who have had enough with being misled by the entities they trust.

Is the NEA next? It seems to me that the NEA is much worse.

I'll follow this lawsuit and keep you up to speed. If I remember correctly there is another union in California that endorses Metlife......

ScottyD

WHAT TEACHERS MAKE

The dinner guests were sitting around the table discussing life.

One man, a CEO, decided to explain the problem with education. He argued, "What's a kid going to learn from someone who decided his best option in life was to become a teacher?"

He reminded the other dinner guests what they say about teachers:
"Those who can, do. Those who can't, teach."

To stress his point he said to another guest; "You're a teacher, Bonnie. Be honest. What do you make?"

Bonnie, who had a reputation for honesty and frankness replied, "You want to know what I make? (She paused for a second, then began...)

"Well, I make kids work harder than they ever thought they could. I make a C feel like the Congressional Medal of Honor. I make kids sit through 40 minutes of class time when their parents can't make them sit for 5 without an I Pod, Game Cube or movie rental...
You want to know what I make?" (She paused again and looked at each and every person at the table.)

I make kids wonder.
I make them question.

I make them criticize.
I make them apologize and mean it.
I make them have respect and take responsibility for their actions. I teach them to write and then I make them write. I make them read, read, read. I make them show all their work in math.
I make my students from other countries learn everything they need to know in English while preserving their unique cultural identity. I make my classroom a place where all my students feel safe. I make my students stand to say the Pledge of Allegiance to the Flag, because we live in the United States of America. Finally, I make them understand that if they use the gifts they were given, work hard, and follow their hearts, they can succeed in life.

(Bonnie paused one last time and then continued.) "Then, when people try to judge me by what I make, I can hold my head up high and pay no attention because they are ignorant... You want to know what I make?

I MAKE A DIFFERENCE. What do you make?"

THIS IS WORTH SENDING TO EVERY TEACHER YOU KNOW.
THERE IS MUCH TRUTH IN THIS STATEMENT:
"Teachers make every other profession "
--
Karen E. Clarke

NEA Valuebuilder AKA ValueKiller Articles

With the recent announcement of the NASD partnering with the NAIC and the NEA Member Benefits (distributor of the high cost NEA Valuebuilder Variable Annuity) I thought it appropriate to link to a few articles that mention this horrible product.

LA Times Article - Unions Advice is Failing Teachers

San Diego Union Tribune Article - Saving For Retirement Harder wtih New 403(b) Law

403bWise Article

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

NASD Partners with NEA Valuebuilder?

NASD - Press Room - News Release - 11/8/06

This has to be a joke. This link will take you to a press release that announces a grant that will involve the NEA Member Benefits with investment education. What follows is my e-mail to the NASD:


"I wanted to convey to you my shock with regards to the NASD partnering with NEA Member Benefits. The NASD should be investigating the NEAMB, not partnering with them. The NEA has been selling the NEA Valuebuilder product - an excessively priced Variable Annuity and Mutual Fund program to its members for years. This program is worse than the one Spitzer busted in New York (ING and NYSUT). The NEAMB is an RIA and they are not fulfilling their fiduciary responsibility to the plan. There is excessive revenue sharing, poor oversight, and kickbacks to unions and agents involved. You should not be endorsing NEAMB, by doing so you are endorsing an entity that exists to transfer retirement assets from its members to the NEAMB (probably to subsidize other programs). You should be sending subpoena's, not endorsements."

This is absolutely ridiculous. NEA Member Benefits has been ripping off teachers for about a decade now and they are getting rewarded for it by regulators, what world are we living in.

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

Plan Sponsor: Revenue Sharing

Magazine Articles [PLANSPONSOR.com]

If you read this article you would think that a revolution is happening, it isn't. Providers are not rushing to disclose revenue sharing agreements, they are only doing so when forced and they are being dragged kicking and screaming along the way.

Instead of figuring out the best way to disclose revenue sharing agreements (Let's be honest, Kickbacks), why don't we simply do away with them?

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

News Articles [PLANSPONSOR.com] - FL Pension Plan Accuses ING of Revenue Sharing Fraud

News Articles [PLANSPONSOR.com] - FL Pension Plan Accuses ING of Revenue Sharing Fraud

This is why I don't believe revenue sharing should be used in DC plans.

Scott Dauenhauer, CFP, MSFP, AIF

Government Retiree Health Benefits Cost Could Top $100 Billion

Ventura County Star: County News

This is a good article on governement retiree health care costs. It basically is telling us that the taxpayers are going to have to cough up about another $100 billion over the next 20 - 30 years to pay benefits promised, but not reserved for by governement entities in California. Ouch. That is a lot of money - as the old saying goes, a billion here, a billion there, pretty soon it adds up to a lot of money!

It's not just the public sector that has these problems, the private sector does too. It is all these unfunded liabilities that may end up bring two enemies together on a single issue - Government run healthcare. The private sector would like nothing else than to pawn off its liabilities to the government, this way they could become more competitive (so the saying goes) with companies whose home nation pays these costs. The public sector will have a hard time finding the money to fund these obligations and raising taxes is not something that keeps a politician in office for long. Thus unions and quite possibly corporate interests may come together to lobby for a government run healthcare system in order to get out of benefits they promised, but never saved up for.....in the end we (the taxpayer) still foot the bill.

I believe our health care system could use quite a bit of reform, but I don't believe government is the answer.

I also don't believe former state republican senator Keith Richmann's answer is the right. He advocates moving the retirement age from 60 to 65 or 70 for all public employees. While I do generally support a rise in retirement age, I don't believe Richmanns ideas make sense. Why keep an employee who wants to retire on the books? They'll be less productive, they'll get paid more (remember, government rewards longevity) than a new employee would (by probably a 2 - 2.5 to 1 margin), and at least in school districts could do harm to our children (a teacher who is sick of teachings won't do as good a job). These negatives outweigh the positives of a forced extension. However, I am in agreement that something needs to be done.

Scott Dauenhauer, CFP, MSFP

ICI Comment Letter to IRS on Efforts to Simplify 403(b) Rules, February 2005#TopOfPage

ICI Comment Letter to IRS on Efforts to Simplify 403(b) Rules, February 2005#TopOfPage

ICI Comment Letter.........

Scott Dauenhauer, CFP, MSFP, AIF

SIA Lobbying Letter to Treasury

403(b) proposed regulations - Google Search

It seems nobody in the industry likes the new regs. Perhaps it is because they know that under the new regs the "wild, wild, west" mentality will begin to be tamed.

Scott Dauenhauer, CFP, MSFP, AIF

ASBO Lobbys the IRS

403(b) proposed regulations - Google Search

Some additional interesting information from another oranization lobbying to change some of the proposed regulations.

Scott Dauenhauer, CFP, MSFP, AIF

Annuity Industry Begs IRS - Will They Succeed?

D & H

The annuity industry is not happy about the proposed 403(b) regulations and they are making themselves heard. In June of this year their lobbyist send a letter to treasury requesting a new delayed effective date and special grandfathering rules that appear to benefit the industry.

It looks like they got their first wish, the effective date has been pushed to January 1st, 2008. However there has not been any talk about a grandfathering clause.

Stay tuned.

Scott Dauenhauer, CFP, MSFP, AIF

CA braced for teacher retirement boom

Global Pensions

California Teachers are going to be retiring in mass over the next five to ten years.

ScottyD

CalPERS panel urges rate boost

Politics - CalPERS panel urges rate boost - sacbee.com

When I first started in the business of working with educators I can across the CalPERS Long Term Care program and generally liked it. I even recommended it because the premiums were so low.

However, as I learned more about long term care insurance and learned more about the CalPERS plan I began to recommend that clients buy a policy from a private insurer. My reasoning was that CalPERS was not charging enough and that they would have to raise premiums at some point, in addition, they are not an insurance company and are required to abide by the same rules that govern insurance companies. I didn't like the lack of safeguards nor the fact that premiums would have to increase.

I thought CalPERS was basically attempting to buy the business with low premiums. I want to make clear that I am not accusing CalPERS of market manipulation. I actually believe their intentions were sincere and they thought their policies were priced appropriately.

The fact remains that I am not an actuary, yet I knew several years ago that the premiums would have to rise, sure enough in 2003 CalPERS raised the premiums by an average of 17%.

Even after the premium raise I remained skeptical, and still do. Now CalPERS is proposing to raise the premiums by nearly 34%. This means that for every $100 in premiums, policyholders will be paying $57 more than they were paying in 2002, a 57% increase. Had policyholders known this they may have opted for a private insurance policy that was more expensive at the time, but provided better benefits and a better future in terms of rate increases.

I want to make something very clear - I do not sell Long Term Care Insurance and I don't recieve any money from the insurance industry or insurance agents. I don't have a vendetta against CalPERS because I lost insurance sales, I am just concerned for the public employees who purchased this policy in good faith.

It is my opinion that CalPERS is in over its head and needs to reform the Long Term Care Insurance Plan. My advice is that they do not institue the 34% increase yet, instead they embark upon a plan where they outsource their long term care program to a private insurer and continue to sell it as a private labeled plan. The private insurer chosen can then put together an accurate assesment of the real costs and a discussion of rate increases can continue. I believe rates must be increased, but I don't feel comfortable with the management of this plan by CalPERS.

Just my two cents...

Scott Dauenhauer, CFP, MSFP, AIF

Changing 403(b) Plans for Changing Times

A good friend and colleague of mine, Barbara Healy helped pen this piece about the what to expect and how to proceed in the new world of 403(b). Everybody who is a decision maker of a 403(b) plan should read this.

Scott Dauenhauer, CFP, MSFP

Reproduced with permission from the Benefits & Compensation Digest, Volume 43, No. 12, December 2006, pages 1, 19-23 published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, WI. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. All rights reserved.

What's a Plan? Gray v. Prudential

403(b)-457 Plans Blog: What's a Plan? Gray v. Prudential

The typical teacher will not find this linke of interest, but those in the 403(b) marketplace and district plan administrators will.

ScottyD

School District Goes Extra Mile to Disclose Fees

School District Goes Extra Mile to Disclose Fees | workforce.com

Contrast this article with the last one (from Florida). At least LAUSD is disclosing revenue sharing. The next step is to completely eliminate it.

ScottyD

FL Sheriff Sues Nationwide Over Fees

News Articles [PLANSPONSOR.com] - FL Sheriff Sues Nationwide Over Fees

Revenue sharing is a standard practice in the industry, that doesn't make it right. It is my belief that all fees should be disclosed AND who recieves those fees. In addition those fees should be benchmarked and evaluated annually.

The reason revenue sharing is so prevalent is because most vendors DON'T want the participants to actually see the fees being paid to the vendor, if they did they would freak out.

My belief is the fees should be explicit, employees should see them and they should be educated as to what the fees are.

ScottyD

Teachers, did you forget to do your homework on 403(b) plans? | The San Diego Union-Tribune

Teachers, did you forget to do your homework on 403(b) plans? | The San Diego Union-Tribune

Lynn O'Shaughnessy keeps poor 403(b) options in the spotlight with this timely article on why teachers need to do their homework on 403(b) plans if they want to maximize their retirement plans.

Great Job Lynn.

Scott Dauenhauer, CFP, MSFP

On Stuff: William Bernstein

On Stuff

My favorite author, Dr. William Bernstein gives us the low down on Commodities and their place (or mis-placement) in a portfolio.

Scott Dauenhauer, CFP, MSFP

Firm to disclose savings plan fees - Los Angeles Times

Firm to disclose savings plan fees - Los Angeles Times

Login Required

A union has finally stood up and protected its teachers. The United Teachers of Los Angeles, led by an outspoken teacher has forced AIGVALIC's hand in disclosing fees that they did not want disclosed.

While this plan is not perfect, it is good to know that a union and its members are standing up for what is right, perhaps this watershed moment will lead to even more in this long fight for participant rights and transparency.

Scott Dauenhauer, CFP, MSFP

ING to Give Teachers Refunds

Kathy Kristoff updates us on the problems with the New York State Union 403(b) problems, it looks like their provider, ING will pony up $30 mill to settle claims it misled participants and didn't disclose backroom deals. Of course, ING will not be admitting any wrongdoing. NYSUT settled for about $3 million early this year. Another story on the topic can be found here.

Its amazing that the NEA Valuebuilder product has never been investigated, it is much worse (or at a minimum the same!).

ScottyD

Workers Get a Double Jolt on Pension Benefits

Another good primer on the Windfall Elimination Provision and the Government Pension Offset. If you are a teacher you MUST know about this in order to effectively plan for retirement.

Scott Dauenhauer, CFP, MSFP

New Jersey Teacher Wins Fight on Retirement Fees

John Wasik is 100% right on in this column, if you are in education (regardless of your position) you need to read this article.

ScottyD

AB 2462 Signed By Schwarzeneggar Today

The Governator signed Assembly Bill 2462 today. This bill will allow CalSTRS to offer Third Party Administrative services to school districts as well as adding safeguards to TPA's doing business in California. CalSTRS is expected to be offering their TPA services by mid 2007.

Scott Dauenhauer, CFP, MSFP

Official IRS Announcement of 403b Reg Delays

Delay in Effective Date for Regulations Under Section 403(b)
The Internal Revenue Service announced today that the general effective date for the regulations regarding section 403(b) arrangements that were proposed in 2004 (including the related controlled group regulations under section 414(c)) will be extended.

In order to provide employers, employees, insurance carriers, and mutual funds involved in section 403(b) arrangements a reasonable advance period before the regulations go into effect, the final regulations generally will not be effective earlier than January 1, 2008.

Scott Dauenhauer, CFP, MSFP

I reported this several months ago...

CTA Retirement Piece

A pretty darn good piece on 403bcompare.com and what CTA members should be doing now to save for retirement.

A chart created by me was also included.

Scott Dauenhauer, CFP, MSFP

403(b) Regs Will Be Delayed

I have it on good authority (Source at the IRS) that the 403(b) proposed regs that were supposed to be released and finalized tomorrow (June 30th) will be delayed till the fall. In addition, the effective date of the regs will be delayed by at least a year as well. When the proposed regulations become finalized they won't be effective until January 1st, 2008 (they were due to become effective January 1st, 2007).

It appears the hold up is an issue between the IRS and Department of Labor that might subject non-government non-profit voluntary only plans to ERISA. The IRS apparently doesn't want this to happen and is working with DOL to ensure this doesn't happen. Governmental plans will still not be subject to ERISA.

In addition, it seems that there will not be any significant changes (from the proposed regs) in the final regulations as they relate to governmental 403(b) plans.

I'll keep you posted as to further developments, but it looks like the proposed regs won't become final until either before or shortly after the elections.

Scott Dauenhauer, CFP, MSFP
Co-Author of The 403(b)Wise Guide

Can Pricey Target-Date Funds Be Competitive?

Great article by Morningstar that rips into high cost Target Date funds. If you don't know what a target date mutual fund is you are not alone, they are relatively new.

A "Target Date" mutual fund is supposed to be a one-stop fund that a person can utilize for retirement. You pick a retirement date (or one that is close to the funds Year) and the fund does the rest, including the asset allocation and becoming more conservative as you get closer to your retirement date.

For example, if you plan to retire in 2035 (my planned phase out date) you might choose the Vanguard Target Retirement 2035 fund (VTTHX, expense ratio .21%). This fund currently has an asset allocation that is 87.5% Stocks and 12.5% Bonds and will slowly adjust as the years pass by so that by the time I am retired (or phasing into retirement) the allocation will have adjusted to 42% stocks and 58% bonds.

I am a fan of the Target Date concept, but not of the implementation. Currently most target date funds are too expensive (the point of the Morningstar article). The ones that are priced well (Vanguard) aren't diversified enough. At this point I haven't found a target date fund that I like. Other problems with Target Date funds are that you can't customize a persons portfolio to fit them or to adjust to different economic environments.

I believe that as this concept evolves the expenses will come down and they will be better diversified. I also believe that these funds are best used in retirement plans like 403(b), 457(b), or 401(k) . They are also best used for smaller account levels, as your asset grow so should your asset allocation strategy.

Scott Dauenhauer, CFP, MSFP

New York Teachers Union Settles Retirement Probe

The 403(b) world is changing and for the better. Unions are finally getting the message that endorsing high cost product in order to boost revenues for their Member Benefits units is a bad idea. ING just got slapped with a fine and it seems to me that the NEA is about to find itself in similar travails. Both have announced that they will bid out their programs and offer low cost products and just this week the United Teachers of Los Angeles worked to ensure that the new 457 plan that will be offered to employees is in the employees best interest.

The CTA and CFT recently endorsed legislation (AB 2462) that would allow the California State Teachers Retirement System to offer a compliance program to school districts along with a low cost 403(b) and 457(b). I think unions might finally be getting the message - supplemental retirement plans matter and they can have a big hand in making these products the best that they can be.

Many people have worked hard to get to this point, but the work is not over. We need to build on this momentum and keep pushing for better options, more disclosure, and education.

Scott Dauenhauer, CFP, MSFP

NYSUT agrees to retirement plan reforms to end probe

NYSUT - New York State United Teachers got away with a mere $100,000 penalty for intentionally taking "steps to conceal it." "It" being the fees and conflicts of interest that are so vary prominent in their ING Opportunity Plus program. ING pays NYSUT Member Benefits over $3 million annually to get the NYSUT endorsement.

The settlement also has some additional stipulations, as follows:

• conduct open bidding for future retirement plan endorsements,
• provide full disclosure of all payments from insurance companies,
• provide free and impartial investment advice to members and allow them to roll over current savings to a new endorsed plan at no cost.
• It will also hire an independent consultant to oversee reforms and report to the attorney general's office.

This is actually a decent settlement, but I am doubtful anything will actually change. Sptizer commented "A simple rule that my office has enforced time and time again is that fiduciaries must place the interests of their clients first." ING is clearly running the show and making the investment decisions, not anybody at NYSUT and ING is conflicted. NYSUT should hire an outside investment advisor to help them make investment decisions in the plan and bar ING from making those suggestions.

I will tell you this - if this was a public firm (like a fund company) the fines would be in the millions, people would be indicted, and ING would be in the hotseat, but Spitzer needs the NYSUT endorsement as he is running for Governor......talk about going soft on your buddies.

We'll keep on top of this and continue to hold NYSUT to a higher standard - though we are doubtful they will live up to it.

Press Release from NYSUT regarding announcement

ScottyD

NH Accuses ING of Fraud

ING apparently failed to disclose revenue sharing agreements and the state is ticked. They should be, however they should have known not to deal with a company like ING in the first place unless they could dictate the structure of the deal. I find it hard to believe that New Hampshire couldn't find out about these revenue sharing deals - I could have done it in about 15 minutes of work. Simply look at what funds are being utilized - this tells you everything. It appears the fiduciaries where asleep at the wheel allowing ING to dictate what funds to use - as if ING was going to work in New Hampshires best interest....that is laughable.

Scott Dauenhauer, CFP, MSFP

AIG VALIC Successfully Completes Major Re-Structuring of Its Fund Options; Fund Substitutions Result in Reduced Fund Expenses

Yes, it is true, fund expenses have dropped. But through a nifty maneuver they have apparently increased their revenues by 26%. I'll explain how they did this in a later post.

ScottyD

Illegals granted Social Security

Interesting. Someone from another country can come to the United States illegally and recieve Social Security benefits, but the Educators who teach our children (and the children of those here illegally) will be denied Social Security benefits they legally earned. I feel as if I am in the twilight zone.

Scott Dauenhauer, CFP, MSFP

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