If you don't know or haven't read Matt Hutcheson's work.....you should.
Matthew Hutcheson Testimony
Scott Dauenhauer CFP, MSFP, AIF
Wednesday, September 30, 2009
Friday, September 11, 2009
TDS Appears Desperate In Latest Memo
"TDS has not, is not, and will not charge the employees or school districts for our services"
Evidently TDS hasn't read California law, you can read my in-depth analysis:
Here.
In this latest memo TDS attempts to settle down district CBO's who appear to be jumping ship.
TDS maintains their service is free and they will charge vendors..
"TDS will now charge vendors a nominal monthly fee per participant. Many plan administrators do this already and the "vendor pay" model is an acceptable industry standard"
Again, perhaps TDS needs to consult with the law on this, all the documents a district needs to determine whether vendors can be charged in California are located Here..
In a previous post I demonstrated that TDS is only promising to do common remitting in the service agreement with providers - there is no information sharing, which is necessary for compliance.
Also, the TDS nominal fee is an addition to the commission they earn on the products they sell. Plus the nominal fee of $3 per participant is 50% more expensive than full service TPA's available now in California.
While vendor pay may be acceptable in other states, who may have fewer vendors, it is not currently allowed by law in California, of course I've also described in previous post how a loophole has developed where vendors "pay on behalf" of the participants.
TDS believes that charging vendors will not result in a reduction of vendors:
"Despite rumors to the contrary, this change in our model will not result in vast vendor defections from your plan"
On the contrary, its a simple law of economics, the higher the cost to play, the fewer players. Vendors will drop off, whether or not this is a bad thing depends on who drops off. But it is ridiculous to state that there will not be a reduction in vendors if the vendors have to start paying. It is also ridiculous to state that employees will NOT be charged, they will. The employees will pay the $3 fee either as a direct pass through or worse, through much higher product fees or much worse product crediting rates - its a simple law of economics. You can't raise the cost to a product and expect them to simply absorb it, the cost will eventually make it to the employee (which is why perhaps it would be best for the employee to pay the cost directly out of payroll, simple and clean).
TDS goes on to state:
"Please rest assured that TDS will not make any changes to your plan without your approval and understanding."
This, despite the fact that they sent out vendor service agreements that don't provide any documentation that the employers have given TDS permission to act on their behalf to charge this fee. Employers, TDS would be your alter-ego according to the Attorney General and you would in fact be charging the vendor the fee.
Secondly, my understanding is that TDS HAS made changes to employer plans (457(b)) without the approval or understanding of the employers. Of course, I could be wrong, but when all the TDS representatives were released, the broker of record on all those 457 plans must have been changed. The questions the employer must ask are the following:
When TDS let go of the TDS representatives, who became the new Broker of Record and WHO authorized the changes? Thousands of plan participants that were working with a representative suddenly have a new Rep, yet this new rep was not determined by the employer.
Who is this new rep?
Who is now receiving the compensation?
Was the employer for each of these 457 plans notified of the change?
Did a prohibited transaction occur?
No accusations here, the employer is at risk of fiduciary breaches with their 457 plans and when changes are made, they should be aware of them and be involved in the those changes BEFORE they happen. All I'm saying is that the employers should ask the questions.
Am I biased here, absolutely. All I'm doing is providing the information, you can make your own decisions and you can ask your own questions.
Scott Dauenhauer CFP, MSFP, AIF
TDS Memo 8262009
TDS Wants $3 A Participant For A Payroll Slot
Below is a letter sent to TIAA-CREF from Tax Deferred Services on August 12th which includes a copy of a "Vendor Services Agreement." Keep in mind that on several occasions, CalSTRS called TDS and spoke with them asking for a copy of the Vendor Services Agreement and were told that one did not exist. The entire time, they had already sent one to the record-keeper of Pension2 (full disclosure: I work as a consultant for CalSTRS). There are some frightening things in this Vendor Services Agreement and some frightening things that were left out.
The strangest provision is number four, which states:
First, "in consideration" implies that the $3 fee is a fee that is charged for a payroll slot. The vendor must pay consideration in order for their products to made "available to Plan Participants." This is a no-no in California, see my previous post.
Secondly, TDS wants this "consideration" for "providing the Services defined above," those services "above" include only the following:
1. Accepting premiums (contributions) from the employer on behalf of the employee
2. Remitting said premiums (contributions) from the employer to the Vendor
3. Review those premiums (contributions) for compliance (in other words, making sure they don't over-contribute)
To sum up the "services" offered for $3 per month, the vendor is paying ONLY for common remitting of funds. That seems a bit out of whack to me considering the current going rate for FULL SERVICE COMPLIANCE in California is about $2 per participant.
No where in the letter does TDS state they will provide full service compliance to the district and in no place do they ask the vendor to "share information" which is necessary and required in order to do actual compliance. Is this letter and agreement an admission by TDS that they don't actually do compliance (real compliance)? It would appear so.
In addition, the letter doesn't say with what employers this agreement applies, nor does it show any documentation that any of the employers have in fact authorized TDS to collect this fee on their behalf.
Who is in charge over there anyway?
This is scary stuff, in an age where school districts need competent TPA's to ensure compliance they are getting something that is far less.
As an employer, would you authorize an entity who not only charges $3 per head for common remitting only (the letter apparently proves this) but then also solicits your employees for 403(b) and 457(b) product sales that produce commission for TDS and the reps they employ? I can tell you this, in an ERISA world - this would not fly.
Scott Dauenhauer CFP, MSFP, AIF
TDS Vendor Agreement
The strangest provision is number four, which states:
"In consideration for making Vendor's financial products available to Plan Participants and providing the Services defined above, Vendor agrees to pay the Plan Administrator $3 per month for each Plan Participant who contributes to one or more of Vendor's financial products through a payroll deduction processed by the Plan Administrator."
First, "in consideration" implies that the $3 fee is a fee that is charged for a payroll slot. The vendor must pay consideration in order for their products to made "available to Plan Participants." This is a no-no in California, see my previous post.
Secondly, TDS wants this "consideration" for "providing the Services defined above," those services "above" include only the following:
1. Accepting premiums (contributions) from the employer on behalf of the employee
2. Remitting said premiums (contributions) from the employer to the Vendor
3. Review those premiums (contributions) for compliance (in other words, making sure they don't over-contribute)
To sum up the "services" offered for $3 per month, the vendor is paying ONLY for common remitting of funds. That seems a bit out of whack to me considering the current going rate for FULL SERVICE COMPLIANCE in California is about $2 per participant.
No where in the letter does TDS state they will provide full service compliance to the district and in no place do they ask the vendor to "share information" which is necessary and required in order to do actual compliance. Is this letter and agreement an admission by TDS that they don't actually do compliance (real compliance)? It would appear so.
In addition, the letter doesn't say with what employers this agreement applies, nor does it show any documentation that any of the employers have in fact authorized TDS to collect this fee on their behalf.
Who is in charge over there anyway?
This is scary stuff, in an age where school districts need competent TPA's to ensure compliance they are getting something that is far less.
As an employer, would you authorize an entity who not only charges $3 per head for common remitting only (the letter apparently proves this) but then also solicits your employees for 403(b) and 457(b) product sales that produce commission for TDS and the reps they employ? I can tell you this, in an ERISA world - this would not fly.
Scott Dauenhauer CFP, MSFP, AIF
TDS Vendor Agreement
2008 AG Opinion Does NOT Say Vendors Can Pay For Compliance
A few companies running TPA's in the state are now telling school districts that while their services are now free to the district, they must now charge the vendors for their services. In other states this is legal, in California I don't believe it is - I'll post the documents, you decide. Let's forget for a minute that vendors that must pay the fee will ALWAYS pass that fee through to the participant, which might be okay if it was a straight pass through, however most of the time it is hidden with higher fees and or lower crediting rates.
There is a long legal history in California of school districts paying for compliance type services, it started back in 1974 with an AG Opinion (all are below). This opinion (see section 5. Service charges) refers to what was originally Ed Code Section 13009 and is now Ed Code Section 44041, it stated:
The key term here is "without charge," the AG found that this term "reflects a distinct legislative determination that school districts must themselves bear the administrative costs of providing tax-sheltered annuities to their employees"
All of this came to a head again in 2002-03 when another TPA decided that they would begin charging vendors for their compliance services, this led to a big fight that eventually was once again resolved by an AG Opinion, issued by Bill Lockyer and Gregory Gonot on February 18th, 2004, No. 03-1005 (below). The question posed was:
The conclusion was the same as the 1974 opinion:
Thus it was once again established the vendors could not be charged. This would not be the end though.
When the IRS issued new proposed 403(b) regulations in 2004 it was clear that the school districts and public employers where going to have to spend more money on compliance as the compliance duties would be much heftier than in the past where they mostly collected money and remitted it. This led to Assembly Bill No. 2462 that was passed in 2006 that did several things:
Created new disclosure laws for all Third Party Administrators (most of which are not following them)
Allowed CalSTRS to create a Third Party Administrator
Changed Ed Code 44041 to allow employers to pass the cost of compliance onto the employee
A few things are important to understand in this legislation (which is also below)
Ed Code Section 24953 (g) reads as follows:
So what does 44041 say?
Ed Code 44041(b) was changed to read:
"For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity
program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employee of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."
The key phrase changed was from "without charge" to "with or without charge." This changed allowed employers to charge employees for compliance (assuming they could work it out with Labor). However, the law says even more, in to places it states the following:
Then,
Many TPA's are jumping on this language to claim that something regarding charging vendors (whom are not listed) is now allowed by law. They are claiming that the terms "organization or entity" refer to vendors or deferred compensation providers. While it is not entirely clear why these extra words were added, it is important to read the entire sentence. Again, the sentence reads "....may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."
So, the employee can pay via their paycheck or via their 403(b) account, however it does not say that the vendor can pay, the sentence ends with "entity authorizing the deduction." Who is the only entity that can authorize a payroll deduction? The employee. A vendor cannot authorize a payroll deduction, in fact the employer cannot even authorize a salary deduction unless it is first authorized by the employee (which is why there is no Auto Enrollment in California). Regardless of the language saying "organization or entity" there is no other entity that may authorize a deduction other than the employee. That is it, this bill didn't expand the law to allow employers to charge vendors. If it did, it would have specifically mentioned them, it doesn't.
But wait, there is more, yet another AG Opinion, this one (which I refer to as the FBC Opinion) was issued by AG Ed Brown and Deputy AG Taylor Carey on August 25th, 2008, No. 06-408 (below). This opinion asks about preferred providers and whether school employees can receive commission (they cannot) from 403(b) vendors. But it also states the following:
"With respect to 403(b) plans in particular, the Education Code provides that a school district, as an employer, may offer 403(b) plans to, and collect the costs of regulatory compliance and administrative services from, it participating employees"
In section 2. Compensation for Promotion, it states:
"Before Assembly Bill 2462 was passed, school districts were not allowed to charge employees for the administrative costs and other expenses associated with processing 403(b) plans. In recognition of sharply increasing administrative burdens on school districts that offer 403(b) plans, AB 2462 gave school districts the authority to recover the costs associated with 403(b) transactions."
It goes on to cite Ed Code Section 44041(b).
In my professional opinion (I am not a lawyer) the law has not changed around whether a vendor can be charged for compliance services relating to a 403(b) plan. AB 2462 did not change this, nor did the most recent AG Opinion.
So the question must be asked...why are TPA's in California telling school districts that they can pass their fees onto the vendors and citing state law and AG Opinions that do not support doing any such thing?
Perhaps they think the districts won't check out what they are saying or perhaps the TPA's don't understand what they are reading.
If I'm wrong on this, great, but somebody needs to show me the progression and prove to me that I'm wrong.
At least two TPA's are currently charging vendors or plan on charging vendors in California, how are they getting away with it?
I believe they are doing it with a wink and a nod. They are saying to the vendors "You must pay us, but we are not charging YOU, we are charging the employees account (which is legal), but if you can't arrange for the debit from their account, you can pay the fee on behalf of the participant." The TPA then excludes vendors who cannot arrange or won't pay the costs.
There you have it, the full history and examination of how the 403(b) compliance is paid for in California, along with all the documentation.....review and decide for yourself.
Original 1974 AG Opinion
AG Opinion 06-408 (the FBC Opinion)
ab_2462_bill_20060830_enrolled
200403-1005 Lockyer AG Opinion
There is a long legal history in California of school districts paying for compliance type services, it started back in 1974 with an AG Opinion (all are below). This opinion (see section 5. Service charges) refers to what was originally Ed Code Section 13009 and is now Ed Code Section 44041, it stated:
"The governing board of each school district when drawing an order for the salary payment due to employees of the district shall, without charge, reduce the order by the amount....."
The key term here is "without charge," the AG found that this term "reflects a distinct legislative determination that school districts must themselves bear the administrative costs of providing tax-sheltered annuities to their employees"
All of this came to a head again in 2002-03 when another TPA decided that they would begin charging vendors for their compliance services, this led to a big fight that eventually was once again resolved by an AG Opinion, issued by Bill Lockyer and Gregory Gonot on February 18th, 2004, No. 03-1005 (below). The question posed was:
"In light of a school district's broad authority to conduct its programs and activities, may a school district assess a fee upon providers of deferred compensation plans to cover its costs of administering the plans for district employees?"
The conclusion was the same as the 1974 opinion:
"Even though a school district has broad authority to conduct its programs and activities, it may not assess a fee upon providers of deferred compensation plans to cover its costs of administering the plans for district employees"
Thus it was once again established the vendors could not be charged. This would not be the end though.
When the IRS issued new proposed 403(b) regulations in 2004 it was clear that the school districts and public employers where going to have to spend more money on compliance as the compliance duties would be much heftier than in the past where they mostly collected money and remitted it. This led to Assembly Bill No. 2462 that was passed in 2006 that did several things:
Created new disclosure laws for all Third Party Administrators (most of which are not following them)
Allowed CalSTRS to create a Third Party Administrator
Changed Ed Code 44041 to allow employers to pass the cost of compliance onto the employee
A few things are important to understand in this legislation (which is also below)
Ed Code Section 24953 (g) reads as follows:
"The cost of providing administrative or compliance services pursuant to this section shall be deemed to be a cost incurred by the employer and subject to subdivision (b) of Section 44041 or subdivision (b) of 87040"
So what does 44041 say?
Ed Code 44041(b) was changed to read:
"For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an annuity
program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employee of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."
The key phrase changed was from "without charge" to "with or without charge." This changed allowed employers to charge employees for compliance (assuming they could work it out with Labor). However, the law says even more, in to places it states the following:
"The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction."
Then,
"For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."
Many TPA's are jumping on this language to claim that something regarding charging vendors (whom are not listed) is now allowed by law. They are claiming that the terms "organization or entity" refer to vendors or deferred compensation providers. While it is not entirely clear why these extra words were added, it is important to read the entire sentence. Again, the sentence reads "....may collect these costs from the participating employee, the employee's participant account, or the organization or entity authorizing the deduction."
So, the employee can pay via their paycheck or via their 403(b) account, however it does not say that the vendor can pay, the sentence ends with "entity authorizing the deduction." Who is the only entity that can authorize a payroll deduction? The employee. A vendor cannot authorize a payroll deduction, in fact the employer cannot even authorize a salary deduction unless it is first authorized by the employee (which is why there is no Auto Enrollment in California). Regardless of the language saying "organization or entity" there is no other entity that may authorize a deduction other than the employee. That is it, this bill didn't expand the law to allow employers to charge vendors. If it did, it would have specifically mentioned them, it doesn't.
But wait, there is more, yet another AG Opinion, this one (which I refer to as the FBC Opinion) was issued by AG Ed Brown and Deputy AG Taylor Carey on August 25th, 2008, No. 06-408 (below). This opinion asks about preferred providers and whether school employees can receive commission (they cannot) from 403(b) vendors. But it also states the following:
"With respect to 403(b) plans in particular, the Education Code provides that a school district, as an employer, may offer 403(b) plans to, and collect the costs of regulatory compliance and administrative services from, it participating employees"
In section 2. Compensation for Promotion, it states:
"Before Assembly Bill 2462 was passed, school districts were not allowed to charge employees for the administrative costs and other expenses associated with processing 403(b) plans. In recognition of sharply increasing administrative burdens on school districts that offer 403(b) plans, AB 2462 gave school districts the authority to recover the costs associated with 403(b) transactions."
It goes on to cite Ed Code Section 44041(b).
In my professional opinion (I am not a lawyer) the law has not changed around whether a vendor can be charged for compliance services relating to a 403(b) plan. AB 2462 did not change this, nor did the most recent AG Opinion.
So the question must be asked...why are TPA's in California telling school districts that they can pass their fees onto the vendors and citing state law and AG Opinions that do not support doing any such thing?
Perhaps they think the districts won't check out what they are saying or perhaps the TPA's don't understand what they are reading.
If I'm wrong on this, great, but somebody needs to show me the progression and prove to me that I'm wrong.
At least two TPA's are currently charging vendors or plan on charging vendors in California, how are they getting away with it?
I believe they are doing it with a wink and a nod. They are saying to the vendors "You must pay us, but we are not charging YOU, we are charging the employees account (which is legal), but if you can't arrange for the debit from their account, you can pay the fee on behalf of the participant." The TPA then excludes vendors who cannot arrange or won't pay the costs.
There you have it, the full history and examination of how the 403(b) compliance is paid for in California, along with all the documentation.....review and decide for yourself.
Original 1974 AG Opinion
AG Opinion 06-408 (the FBC Opinion)
ab_2462_bill_20060830_enrolled
200403-1005 Lockyer AG Opinion
Tuesday, September 08, 2009
Thursday, September 03, 2009
ASEA & Nationwide - Fun, Food & Frolic
The Alabama State Employees Association is in a bit of trouble:
Scott Dauenhauer CFP, MSFP, AIF
In a report posted on the state personnel Web site on Aug. 21, the Alabama Securities Commission, the state’s securities regulator, described how the folks who run the employees association hit up their plan provider, Nationwide Retirement Solutions of Columbus, Ohio, for millions in, ahem, “endorsement fees.”
Some of those fees took the form of a Napa Valley vineyard tour, player slots for a celebrity golf tournament, first-class airfare, souvenirs, Chicago Cubs baseball tickets and, for the executive director, a handsome boost in salary. Other goodies made it onto the Alabama perk list, too, but you get the idea.
Scott Dauenhauer CFP, MSFP, AIF
Tuesday, September 01, 2009
TDS Poaching Reps?
Word is that Bob Lotter, the new TDS owner is making good on his promise to close districts to his representatives only and he's poaching the reps of his competitors. At least one competitor says that 10 reps went to Lotter after Lotter told the reps that he would be the one controlling access to the districts.
In a letter Lotter wrote last month he alludes to this control, which is not legal in California - good luck Bob.
Scott Dauenhauer CFP, MSFP, AIF
In a letter Lotter wrote last month he alludes to this control, which is not legal in California - good luck Bob.
Scott Dauenhauer CFP, MSFP, AIF
ZUK-ING...Uh, Maybe Not So Objective and Independent
Recently ZUK financial, a 403(b) product sales company sent a letter to districts that misrepresented the CalSTRS 403bComply program. ZUK attempted to paint themselves as objective and without conflicts, while stating that CalSTRS has conflicts of interest. ZUK greatly misrepresents the CalSTRS programs and fails to mention how CalSTRS manages conflicts (of which there are few). DISCLOSURE: I do consulting work for CalSTRS.
Of course ZUK wasn't so quick to point out their own conflicts (the fact that they represent many 403(b) vendors and sell products from TPA's/Remitters that they recommend to school districts). On their own website they state:
Hmmm, unbiased and objective might be traits of a company that did not accept commissions from companies that will be in the compliance programs they recommend (or the products of TPA's they recommend), of course that is not the ZUK offering. What are the chances that ZUK offers up the CalSTRS 403bComply program? Zero. Instead they will offer ING, Great American and their newest employee's company Envoy - entities they have some degree of control over so that they can come in and provide "education." Education from ZUK will not be "objective or unbiased," as the people providing it are sales representatives of 403(b) products.
Don't believe me, you need to look no further than ZUK's own website. It states clearly "ZUK financial group, a representative of ING." If they are representing ING, how can they be representing YOU? This isn't an attempt to demean or even pass judgement on ING (whose product I have not reviewed), simply to point out that ZUK is NOT unbiased and objective using reasonable definitions of the terms.
I don't have a problem with ZUK wanting to sell 403(b) products (other than the fact that my clients were sold a bunch of terrible annuities from Great American when they were with ZUK), but I do have a problem when they send out letters lying or misrepresenting other programs and then put themselves forward as the objective and unbiased solution when nothing could be further from the truth.
If you want further proof of where ZUK's loyalties are, simply pull up their website and copy the names of the representatives and then goto the California Insurance website and look them up, you'll see who they really represent - Insurance companies.
Scott Dauenhauer
Of course ZUK wasn't so quick to point out their own conflicts (the fact that they represent many 403(b) vendors and sell products from TPA's/Remitters that they recommend to school districts). On their own website they state:
"Zuk Solutions is not a one size fits all program, but a customized, comprehensive, unbiased and objective partner ensuring total transparency and the latest and best business practices."
Hmmm, unbiased and objective might be traits of a company that did not accept commissions from companies that will be in the compliance programs they recommend (or the products of TPA's they recommend), of course that is not the ZUK offering. What are the chances that ZUK offers up the CalSTRS 403bComply program? Zero. Instead they will offer ING, Great American and their newest employee's company Envoy - entities they have some degree of control over so that they can come in and provide "education." Education from ZUK will not be "objective or unbiased," as the people providing it are sales representatives of 403(b) products.
Don't believe me, you need to look no further than ZUK's own website. It states clearly "ZUK financial group, a representative of ING." If they are representing ING, how can they be representing YOU? This isn't an attempt to demean or even pass judgement on ING (whose product I have not reviewed), simply to point out that ZUK is NOT unbiased and objective using reasonable definitions of the terms.
I don't have a problem with ZUK wanting to sell 403(b) products (other than the fact that my clients were sold a bunch of terrible annuities from Great American when they were with ZUK), but I do have a problem when they send out letters lying or misrepresenting other programs and then put themselves forward as the objective and unbiased solution when nothing could be further from the truth.
If you want further proof of where ZUK's loyalties are, simply pull up their website and copy the names of the representatives and then goto the California Insurance website and look them up, you'll see who they really represent - Insurance companies.
Scott Dauenhauer
Friday, August 28, 2009
Tax Deferred Services Sues Former Affiliates
So I was checking to see if Tax Deferred Services had filed any lawsuits lately (Bob Lotter threatened to sue me several times on a phone call a few weeks ago and you might say I'm a bit paranoid, he's the new money man behind TDS).
Guess what I found, TDS made good on their promise to sue their former reps. You can track it by clicking the link below and entering the case number below. I've embedded the documents that have been posted so far, there is a hearing scheduled September 15th.
Some interesting things to note is that National Benefit Services is somehow involved in this whole mess, though its unclear to exactly what extent. It appears Great American Plan Administrators and NBS along with an unnamed Florida TPA were all trying to get the business from the reps who used to work with TDS.
The first doc is just the complaint and should load quicker, the second doc is all the filings thus far and is about 221 pages, so give it some time.
I'm not done reading the documents, but will certainly be updating you on what I find.
Case Lookup
Insert 34-2009-00055591 to bring up the case documents
TDS Compalint
Tax Deferred Services Lawsuit
Scott Dauenhauer CFP, MSFP, AIF
Guess what I found, TDS made good on their promise to sue their former reps. You can track it by clicking the link below and entering the case number below. I've embedded the documents that have been posted so far, there is a hearing scheduled September 15th.
Some interesting things to note is that National Benefit Services is somehow involved in this whole mess, though its unclear to exactly what extent. It appears Great American Plan Administrators and NBS along with an unnamed Florida TPA were all trying to get the business from the reps who used to work with TDS.
The first doc is just the complaint and should load quicker, the second doc is all the filings thus far and is about 221 pages, so give it some time.
I'm not done reading the documents, but will certainly be updating you on what I find.
Case Lookup
Insert 34-2009-00055591 to bring up the case documents
TDS Compalint
Tax Deferred Services Lawsuit
Scott Dauenhauer CFP, MSFP, AIF
Thursday, August 20, 2009
TDS Not Requiring New Vendor Agreements?
Tax Deferred Services has begun sending out letters and contracts to school districts stating that they are going to start charging for their "compliance" services. However, the preferred method of charging is for TDS to charge the vendor the $3 fee (see my previous post on this topic). As a consultant to the California Teachers Retirement System's 403(b) program (Pension2) I was concerned that they would need to sign a new "vendor agreement."
After a call by CalSTRS to TDS the response was that they would use the existing agreement and not require a new one. This is strange and further proof that TDS is more interested in creating a revenue stream than actually protecting the school districts and providing competent compliance services.
If you were going to charge vendors for your compliance services, wouldn't it be nice to have that in writing? Lets say that TDS receives about $40 million a month in contributions from their school districts (a number that I've been led to believe is about right). While for certain this number will and probably already is plummeting do to employers canceling their contracts with TDS, lets pretend it only falls by half to $20 million. We'll also assume that the average contribution amount is $1,000 (its actually far lower), thus about 20,000 potential participant contributions to charge on. At $3 per participant contribution you are looking at $60,000 per month (less in the summer months) in revenue.
Wouldn't you want that revenue secured by a contract?
Call me crazy, but I would want an agreement in place with the vendors that are supposed to be paying me. This is just one more reason that I don't believe this company can be taken serious when it comes to handling district money and 403(b) compliance.
Scott Dauenhauer AIF
After a call by CalSTRS to TDS the response was that they would use the existing agreement and not require a new one. This is strange and further proof that TDS is more interested in creating a revenue stream than actually protecting the school districts and providing competent compliance services.
If you were going to charge vendors for your compliance services, wouldn't it be nice to have that in writing? Lets say that TDS receives about $40 million a month in contributions from their school districts (a number that I've been led to believe is about right). While for certain this number will and probably already is plummeting do to employers canceling their contracts with TDS, lets pretend it only falls by half to $20 million. We'll also assume that the average contribution amount is $1,000 (its actually far lower), thus about 20,000 potential participant contributions to charge on. At $3 per participant contribution you are looking at $60,000 per month (less in the summer months) in revenue.
Wouldn't you want that revenue secured by a contract?
Call me crazy, but I would want an agreement in place with the vendors that are supposed to be paying me. This is just one more reason that I don't believe this company can be taken serious when it comes to handling district money and 403(b) compliance.
Scott Dauenhauer AIF
Friday, August 14, 2009
TDS to Charge Vendors $3 for "Compliance"
Below is a letter written to Business Managers who use Tax Deferred Services. In it TDS reveals that they are in the process of moving from giving away services for free to charging vendors $3 per contributing plan participant per month.
Here we have a company that has admitted to compliance service issues who now wants to charge 50% more than compliance firms who have had full systems in place at least since the beginning of the year. They are attempting to get the districts to go along with trusting them by saying that they are going to charge vendors and thus the districts still won't pay. Of course this will lead to fewer vendors and higher costs for the participants.
In addition, the way the letter is worded it seems to indicate that it is the vendor charging for the processing of contributions,
Let's be very clear, vendors do not charge for compliance or for processing participants contributions (okay, they do charge administrative fees as either part of the embedded expenses or via a spread). It is Tax Deferred Services charging for "processing....contributions," and then passing these charges onto the vendor, who then may pass the costs onto the participant. Keep in mind, in the long term, the fees will always be passed to the participant as the vendor MUST cover the new costs somehow. I don't have a problem with a compliance firm charging a fee (though I do not consider TDS a compliance firm) for their services, in fact I encourage it. However, that fee should be charged to the employer or employee. In fact, in California an employer is not allowed to charge vendors for compliance.
The pertinent sections of AB 2462 is as follows, Ed Code Section 44041.5 (b):
I've bolded the applicable sections, 44041.5 used to read "without charge..", it was changed to "with or without charge.." in order to give school districts flexibility in how they pay for their deferred compensation programs. They could pass it on to the employee (assuming the collective bargaining units agree) or pay for it themselves. It does not state that they can charge vendors. It does say that they "may collect that cost from the organization, entity, or employee requesting or authorizing the deduction." This is the line that presumably TDS and others are using to say "gotcha" we can charge vendors. However, there is nobody other than the employee who can "request....or authorize" a deduction (the vendor can't) and thus this fee can only be collected from the employee, not the vendor. So how are the "vendor charging TPA's" getting around this? Notice that the Ed Code states "may collect these costs from the participating employee, the employee's participant account, or...". this is the key. The TPA's tell the vendor (with a wink and a nod) that they must debit the client account for the compliance fee, but if they choose to, the vendor can pay that fee on behalf of the participant. Thus, vendor pays and the TPA gets their fee - the participant however is left holding the bag - being forced to change vendors or pay higher costs or accept lower interest credits so that their vendor can pay the fee. At the end of the day the participant gets hurt, it would be much better if the participant paid the fee directly.
To give you an idea of the vendor reduction taking place when the vendors are required to pay, the FBC in San Diego charges vendors and according to their website they have 37 vendors available (there is some duplication in that number) versus the CalSTRS 403bComply program, which the employer or employee pays - the number of vendors is at 57 and includes Vanguard (The FBC does not at this point). Full Disclosure: I am a consultant to CalSTRS for Comply and Pension2. The employer/employee pay option allows for more choices (54% more in this case) and lower cost options (Vanguard). The new TDS chairman told me that "choice" was the single most important aspect of a deferred compensation plan (which I won't address now) yet he wants to push a model where choices are greatly reduced and fees for participants will have to rise.
So there you have it, vendors are charged 50% more than the marketplace cost for unproven "compliance" and participant choice is greatly reduced. If that is the plan you want, I guess you should stick with the new Tax Deferred Services. Maybe the new motto should be "Less choice, higher costs, same lousy services!"
The document below is what was sent out.
Scott Dauenhauer CFP, MSFP, AIF
TDS Fee Changes
Here we have a company that has admitted to compliance service issues who now wants to charge 50% more than compliance firms who have had full systems in place at least since the beginning of the year. They are attempting to get the districts to go along with trusting them by saying that they are going to charge vendors and thus the districts still won't pay. Of course this will lead to fewer vendors and higher costs for the participants.
In addition, the way the letter is worded it seems to indicate that it is the vendor charging for the processing of contributions,
"Some vendors may pass the additional costs on to the participants. In these cases, we require the vendor to notify the participant in advance and allow them to redirect their contributions to a vendor who does not charge for processing their contributions (emphasis added)."
Let's be very clear, vendors do not charge for compliance or for processing participants contributions (okay, they do charge administrative fees as either part of the embedded expenses or via a spread). It is Tax Deferred Services charging for "processing....contributions," and then passing these charges onto the vendor, who then may pass the costs onto the participant. Keep in mind, in the long term, the fees will always be passed to the participant as the vendor MUST cover the new costs somehow. I don't have a problem with a compliance firm charging a fee (though I do not consider TDS a compliance firm) for their services, in fact I encourage it. However, that fee should be charged to the employer or employee. In fact, in California an employer is not allowed to charge vendors for compliance.
The pertinent sections of AB 2462 is as follows, Ed Code Section 44041.5 (b):
"For purposes of a deferred compensation plan authorized by Section 403(b) or 457 of the Internal Revenue Code or an
annuity program authorized by Section 403(b) of the Internal Revenue Code that is offered by the school district which
provides for investments in corporate stocks, bonds, securities, mutual funds, or annuities, except as prohibited by the California Constitution, the governing board of each school district when drawing an order for the salary payment due to an employees of the district shall, with or without charge, reduce the order by the amount which it has been requested in a revocable written authorization by the employee to deduct for participating in a deferred compensation plan or annuity program offered by the school district. The governing board shall determine the cost of performing the requested deduction and may collect that cost from the organization, entity, or employee requesting or authorizing the deduction. For purposes of this subdivision, the governing board of a school district is entitled to include in the amounts reducing the order the costs of any compliance or administrative services that are required to perform the requested deduction in compliance with federal or state law, and may collect these costs from the participating employee, the employee’s participant account, or the organization or entity authorizing the deduction."
I've bolded the applicable sections, 44041.5 used to read "without charge..", it was changed to "with or without charge.." in order to give school districts flexibility in how they pay for their deferred compensation programs. They could pass it on to the employee (assuming the collective bargaining units agree) or pay for it themselves. It does not state that they can charge vendors. It does say that they "may collect that cost from the organization, entity, or employee requesting or authorizing the deduction." This is the line that presumably TDS and others are using to say "gotcha" we can charge vendors. However, there is nobody other than the employee who can "request....or authorize" a deduction (the vendor can't) and thus this fee can only be collected from the employee, not the vendor. So how are the "vendor charging TPA's" getting around this? Notice that the Ed Code states "may collect these costs from the participating employee, the employee's participant account, or...". this is the key. The TPA's tell the vendor (with a wink and a nod) that they must debit the client account for the compliance fee, but if they choose to, the vendor can pay that fee on behalf of the participant. Thus, vendor pays and the TPA gets their fee - the participant however is left holding the bag - being forced to change vendors or pay higher costs or accept lower interest credits so that their vendor can pay the fee. At the end of the day the participant gets hurt, it would be much better if the participant paid the fee directly.
To give you an idea of the vendor reduction taking place when the vendors are required to pay, the FBC in San Diego charges vendors and according to their website they have 37 vendors available (there is some duplication in that number) versus the CalSTRS 403bComply program, which the employer or employee pays - the number of vendors is at 57 and includes Vanguard (The FBC does not at this point). Full Disclosure: I am a consultant to CalSTRS for Comply and Pension2. The employer/employee pay option allows for more choices (54% more in this case) and lower cost options (Vanguard). The new TDS chairman told me that "choice" was the single most important aspect of a deferred compensation plan (which I won't address now) yet he wants to push a model where choices are greatly reduced and fees for participants will have to rise.
So there you have it, vendors are charged 50% more than the marketplace cost for unproven "compliance" and participant choice is greatly reduced. If that is the plan you want, I guess you should stick with the new Tax Deferred Services. Maybe the new motto should be "Less choice, higher costs, same lousy services!"
The document below is what was sent out.
Scott Dauenhauer CFP, MSFP, AIF
TDS Fee Changes
Monday, August 10, 2009
Start using Mint.com to manage your money today!
"I highly recommend this website to anyone who wants to track their personal finances online. I've used it for about a year and love it."
Why you'll love Mint.com:
* Easy --set up in minutes
* All your accounts in one place
* Alerts for bills, fees, budgets, and low balances
* Personalized savings
* Complete security and privacy
* Easy --set up in minutes
* All your accounts in one place
* Alerts for bills, fees, budgets, and low balances
* Personalized savings
* Complete security and privacy
SDCOE's FBC Subpoena's Me In Advisor Lawsuit
The sue happy Fringe Benefit Consortium, a subsidiary of the San Diego County Office of Education has served me with a subpoena to appear for a deposition in their case against Barry Allred, Christopher Dougherty, Chris Furtado, Mary Seki, Lori Lin, and Michael Zeiger. I believe the defendants are countersuing the FBC.
Dan Puplava's attorney was CC'd on this subpoena, for those of you who read this blog you know that he threatened me for linking to the San Diego Union Tribune article that was not friendly toward his client (Dan Puplava).
There is no reason for my name to be pulled into this lawsuit.
FBC
Dan Puplava's attorney was CC'd on this subpoena, for those of you who read this blog you know that he threatened me for linking to the San Diego Union Tribune article that was not friendly toward his client (Dan Puplava).
There is no reason for my name to be pulled into this lawsuit.
FBC
Thursday, July 23, 2009
Lots of Changes in California TPA's
Though there have been no press releases, my sources have told me that much is ado in the world of California Compliance TPA's.
Keenan has sold Envoy Plan Services (and Retirement Solutions Group) to Zuk Financial Group, closing around September 1st.
Tax Deferred Services has apparently been sold to the Newport Beach company R.A. Lotter, though no press release has been found.
Gatekeeper seemed to almost go out of business after major compliance nightmares and not sending money in a timely fashion, but was scooped up by CPI Qualified Plan consultants.....who then sold out to CUNA (Credit Union Backoffice).
The FBC had some problems of their own when the San Diego Union Tribune published a piece that pointed to one of the employees being involved in what appears to be less than ethical behavior (you can read about that on this blog).
Lots of action, it isn't clear to me how the participant will benefit from any of these transactions, the likelihood is that they will be offered more commission based products with what appear to be an endorsement from the employer.
Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
Keenan has sold Envoy Plan Services (and Retirement Solutions Group) to Zuk Financial Group, closing around September 1st.
Tax Deferred Services has apparently been sold to the Newport Beach company R.A. Lotter, though no press release has been found.
Gatekeeper seemed to almost go out of business after major compliance nightmares and not sending money in a timely fashion, but was scooped up by CPI Qualified Plan consultants.....who then sold out to CUNA (Credit Union Backoffice).
The FBC had some problems of their own when the San Diego Union Tribune published a piece that pointed to one of the employees being involved in what appears to be less than ethical behavior (you can read about that on this blog).
Lots of action, it isn't clear to me how the participant will benefit from any of these transactions, the likelihood is that they will be offered more commission based products with what appear to be an endorsement from the employer.
Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
FBC/Nationwide Exchange Out Form for 403(b)
From the FBCRetire.com website:
Outgoing Exchange Form
To obtain this form, please contact your FBC / Nationwide Retirement Specialist.
Use this form to transfer or exchange your FBC / Nationwide 403(b) account to another approved vendor.
Fax the completed form to (800) 597-8206.
You see, the FBC is going to require that you speak with one of their "registered reps" before they allow you to move money out of their 403(b) plan - they make money from the plan and have a vested interest in keeping you in the plan. Even if you somehow obtain a form on your own (which is the purpose of this post) you will probably receive a call trying to "save" the assets from leaving. Ironically, the representatives that are touted as CFP's and advisors are not allowed to give investment advice. Of course, this doesn't stop them from doing so. Last year a client of mine was given the advice of putting 25% in the American Growth Fund, 25% in American Capital World Growth and Income, 25% in one of the American Balanced funds and 25% in the Vanguard Short Term Bond Index. The "advisor" told my client that things could get bad.....yet my clients allocation to stocks was increased by this move (keep in mind I like Vanguard and American). So, FBC reps DO give advice, they just aren't supposed to and it DOESN'T appear to be very good.
If you want to get your money out of the FBC/Nationwide plan and don't want to talk with one of their "advisors", you can utilize this attached form (unless of course they change it.....at which point I'll find it and post again).
Complain to your employer that this practice of withholding forms so that an FBC paid advisor can try to talk you out of moving your money is unethical in my opinion and should be stopped.
Scott Dauenhauer CFP, MSFP, AIF
FBC - Outgoing Exchange Form
Outgoing Exchange Form
To obtain this form, please contact your FBC / Nationwide Retirement Specialist.
Use this form to transfer or exchange your FBC / Nationwide 403(b) account to another approved vendor.
Fax the completed form to (800) 597-8206.
You see, the FBC is going to require that you speak with one of their "registered reps" before they allow you to move money out of their 403(b) plan - they make money from the plan and have a vested interest in keeping you in the plan. Even if you somehow obtain a form on your own (which is the purpose of this post) you will probably receive a call trying to "save" the assets from leaving. Ironically, the representatives that are touted as CFP's and advisors are not allowed to give investment advice. Of course, this doesn't stop them from doing so. Last year a client of mine was given the advice of putting 25% in the American Growth Fund, 25% in American Capital World Growth and Income, 25% in one of the American Balanced funds and 25% in the Vanguard Short Term Bond Index. The "advisor" told my client that things could get bad.....yet my clients allocation to stocks was increased by this move (keep in mind I like Vanguard and American). So, FBC reps DO give advice, they just aren't supposed to and it DOESN'T appear to be very good.
If you want to get your money out of the FBC/Nationwide plan and don't want to talk with one of their "advisors", you can utilize this attached form (unless of course they change it.....at which point I'll find it and post again).
Complain to your employer that this practice of withholding forms so that an FBC paid advisor can try to talk you out of moving your money is unethical in my opinion and should be stopped.
Scott Dauenhauer CFP, MSFP, AIF
FBC - Outgoing Exchange Form
Friday, July 10, 2009
Puplava Threatens Me With Legal Action
So I post a link to an article from the Union Tribune regarding potential nefarious activities by a county official, Dan Puplava (click on the above title to go to that post). Today I get a letter from his attorney threatening me if I don't remove the link and the picture (that of a what the attorney says is a Used Car Salesman). Funny, I'm pretty sure that I can link to articles from other publications as long as those publications don't mind me linking to them.
Just so everyone is aware, I have extended a generous offer to Mr. Puplava to tell his side of the story - I'll post it word for word. Of course there are many questions that I'd also like for him to answer that I'm sure he won't.
Anyway, thought you'd be interested to see how some are yet again attempting to censor me....this time for something I didn't even write.
Scott Dauenhauer CFP, MSFP, AIF
Just so everyone is aware, I have extended a generous offer to Mr. Puplava to tell his side of the story - I'll post it word for word. Of course there are many questions that I'd also like for him to answer that I'm sure he won't.
Anyway, thought you'd be interested to see how some are yet again attempting to censor me....this time for something I didn't even write.
Scott Dauenhauer CFP, MSFP, AIF
Thursday, June 18, 2009
Alabama cancels compensation plan with Nationwide
It seems what is at issue are payments Nationwide makes to the Union that some feel were not properly disclosed.
Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
Scott Dauenhauer CFP, MSFP, AIF
www.meridianwealth.com
Wednesday, May 13, 2009
Gatekeeper Acquired by CPI
Gatekeeper, a 403(b) Third Party Administrator that has come under scrutiny lately for slow payments to vendors has been acquired by CPIQualified Plan Consultants.
Plansponsor reported:
Fred Schneyer – 05/13/2009
CPI Qualified Plan Consultants, a Great Bend, Kansas-based third-party administrator (TPA) and recordkeeper, agreed to acquire Gatekeeper Administration & Consulting, a Flagstaff, Arizona-based TPA specializing in the education industry.
A CPI news release said the combined companies intend to provide CPI Common Remitter Services through a newly organized operations division under the management of Theresa Leiker, manager of Government and Tax Exempt Services at CPI. The deal is expected to be finalized no later than July 31.
As director of Retirement Consulting Services for Public Educators, Tamara Middleton, President/CEO of Gatekeeper, will be establishing a new CPI consulting division to focus on 403(b) and 457 plans within the public education sector, according to the news release.
The CPI 403(b) Gatekeeper Services will feature multiple service levels that will allow plan sponsors to decide how much or how little daily involvement they will have with the administrative aspects of their 403(b) retirement plans.
Scott Dauenhauer CFP, MSFP, AIF
Plansponsor reported:
Fred Schneyer – 05/13/2009
CPI Qualified Plan Consultants, a Great Bend, Kansas-based third-party administrator (TPA) and recordkeeper, agreed to acquire Gatekeeper Administration & Consulting, a Flagstaff, Arizona-based TPA specializing in the education industry.
A CPI news release said the combined companies intend to provide CPI Common Remitter Services through a newly organized operations division under the management of Theresa Leiker, manager of Government and Tax Exempt Services at CPI. The deal is expected to be finalized no later than July 31.
As director of Retirement Consulting Services for Public Educators, Tamara Middleton, President/CEO of Gatekeeper, will be establishing a new CPI consulting division to focus on 403(b) and 457 plans within the public education sector, according to the news release.
The CPI 403(b) Gatekeeper Services will feature multiple service levels that will allow plan sponsors to decide how much or how little daily involvement they will have with the administrative aspects of their 403(b) retirement plans.
Scott Dauenhauer CFP, MSFP, AIF
Thursday, April 23, 2009
Insurance Lead Program attempts to "Plant Thoughts"
Here are a few highlights:
Join Dean Cipriano, President of Insurance Selling Systems, as he reveals his cutting-edge subconscious selling techniques that some experts have said are too powerful, too persuasive, and should be banned.
We weren't sure that we should even have this free telephone seminar because of the controversy surrounding the topic. You see, there is an underground selling technique that is so powerful that, if used improperly, can be used to influence someone against their will. Traditional sales trainers don’t teach it because most of them are unaware that it exists.
But we decided to have the call because our goal is to help you gain every advantage possible…and the simple yet powerful breakthrough sales techniques you'll discover will not only give you a HUGE advantage, but will help you close sales faster, and dramatically increase your commissions.
On this 70-minute call, you will discover:
How to plant thoughts in your prospect's mind!
Instantly know what your prospect is thinking!
Compel prospects to agree with you and say "yes!"
Discover one simple phrase that melts away prospect resistance!
Develop rapport with anyone in 4 minutes or less! Even in your marketing message.
Five easy steps to skyrocketing your sales!
How to subconsciously influence your prospects!
How to get qualified leads to respond to your advertisements as if they were in a hypnotic trance.
Why you should never disqualify people before using this simple technique... (You are losing a lot of sales if you don't do this.)
How to become a sales superstar who earns huge commissions with literally no extra work or effort!
If any of this sounds interesting to you... you OWE it to yourself to attend this upcoming free teleseminar, where I'm going to reveal every mind boggling secret about my little known, but amazing lead methods and hypnotic sales techniques that will Explode Your Commissions like a fireworks display on the fourth of July!
During This Eye-Opening Teleseminar You're Going To Be Exposed To The Most Electrifying Lead Techniques And Astonishing Selling Methods Ever Created!
Do these guys sound like Fiduciaries?
What a farce.
Scott Dauenhauer CFP, MSFP, AIF
Subscribe to:
Posts (Atom)