Architect to VALIC

Former IRS official and 403(b) expert Bob Architect has joined VALIC.

In an unrelated story, VALIC is sued in California, click here.

Developing....Architect to VALIC

Press Release to follow.

Former IRS official famous for his leadership and knowledge in 403(b) has joined VALIC.

Scott Dauenhauer

Remember This Story - Puplava and FBC

I am reposting the link to this story mainly because the FBC has decided that two days of deposing me is not enough. They are pissed at my involvement in the story behind the scenes and have chosen to subpoena all sorts of stuff. They even made what could only be taken as a threat to sue me in the last deposition (they meaning Dan Shinoff, the FBC attorney). The FBC is suing the former advisors and those advisors are countersuing the FBC. I am not being sued, just deposed....yet! The price you pay for standing up for the little guy I guess. I wonder how much taxpayer money is being spent on this lawsuit?

Scott Dauenhauer CFP, MSFP, AIF

What Happened to TDS's Doug Holt?

I heard a rumor that Doug Holt of TDS is no longer with TDS, as of yesterday. I don't usually report rumors, only things that I can substantiate. I decided to check out his FINRA status on BrokerCheck and sure enough, he is no longer registered and it shows "Termination", though it doesn't state why. I should note that this termination is from Questar, his broker-dealer, so I can't say for sure that he is not with TDS. I'm awaiting an e-mail reply from TDS.

Update: Latest sources tell me Doug hasn't been terminated from TDS, only Questar (his Broker/Dealer). I wonder who the new broker will be on all those 457(b) accounts.

By the way, this is a tad strange as usually you can transfer to a new broker/dealer, there must have been some reason he didn't, we should find out soon.

10/30/2009 Update:

According to FINRA Holt was discharged by Questar on September 14, 2009 for the following reason:

"Registrant was terminated after internal review evidenced failure to provide prompt written notice and obtain written approval to participate in a private securities transaction and used unapproved marketing material."

I have given TDS a chance to respond to this, they have thus far refused.

Scott Dauenhauer

SchoolsFirst to Begin Charging Vendors for Compliance

SchoolsFirst has now joined the ranks of those charging vendors for compliance, citing the high costs of keeping districts in compliance. It makes one wonder how those who claim to do it for free are able to do so (the answer is they are losing money and hoping to make it up on product sales volume of their TPA partners).

For those districts utilizing SchoolsFirst, since the service is no longer free, perhaps it is time to look at the other available TPA's.

Scott Dauenhauer CFP, MSFP, AIF

Schools First Letter 10-14-09

TIAA Cracks Down On Switchers

Evidently enough people caught on to a secret trick that allowed one to reset their interest rate at TIAA (TIAA Traditional). Basically, you would sell into the money market (out of Traditional) on one day and then buy back in the next. This would effectively increase your rate to the new rate. So if you are earning 3% now and TIAA changes the rates to 3.5% you simply sell today into the money market and then repurchase back in a few days later and voila, you are now earning 3.5%. Well it turns out that this little trick caught on last year or TIAA knows that its going to have to raise rates in the future and doesn't want people resetting their rates (at least very often), so they are instituting the following new policy:

When you transfer out of TIAA Traditional and transfer back within 120 days, the amount, up to your original transfer, will be credited with the same interest rates that would have applied if the transfer out had not taken place. Such interest will be credited from the date the transfer in was made. Interest will not be paid for the period from the date of transfer out to the date of transfer in. Do you wish to continue with this transfer?

This will help, though lets say rates jump to 5% on the Traditional and I'm earning only 3%, you think I care if I lose out on 120 days of interest? I'll take that trade any day.

In reality this is a smart move, a daily liquid account like this is dangerous when you have volatile rates.

Scott Dauenhauer CFP, MSFP, AIF

Ed Siedle Speech: "Perspectives on the Future"

Click above to goto a great speech by Ed Siedle.

Since the 1980s the financial services industry has experienced explosive growth. Over the decades dealing with brokers, money managers and other financial advisers ceased to be limited to the wealthy few. As a result of shifting responsibility for retirement planning onto workers and financial product innovation, virtually all Americans (and foreign investors for that matter) that had accumulated any degree of wealth turned to financial services firms for expert, independent investment advice and investment products.

Scott Dauenhauer CFP, MSFP, AIF

Former TDS Representative Sues TDS Group and Robert Lotter

Below is the copy of the lawsuit that Emily Wang has filed against Robert Lotter's TDS Group (Tax Deferred Services). This lawsuit gives considerable insight into what happened during the transition to Lotter. I'm going to decipher some of it for you in commentary to come.

Scott Dauenhauer CFP, MSFP, AIF



TDS Group Sued By Former Rep

Calling a Spade a Spade - Brokers Giving Investment Advice

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091004/REG/310049996&ht=spade

Shared via AddThis

The "Free Education" Fallacy

Why most financial education programs in the Public School 403(b) and 457(b) world are really just covers for commission-based product sales.

A question that I continue to hear from Public School employers these days is “how do we best educate our participants?” Several companies that work in the 403(b) and 457(b) world have begun to develop and market “education programs” that purport to “raise financial literacy across the entire workforce.” I am all for financial literacy, in fact I think it is imperative that financial literacy is incorporated into our public school curriculum, however it is clear that financial education in relation to defined contribution participants (401(k), 403(b) and 457(b)) has failed.

There is plenty of evidence to support the failure of participant education:

Many participants are eligible for a match (free money) and fail to take advantage

The average participant account balance underperforms

The average participant couldn’t tell you the difference between a stock and a bond

More than 60% of participants don’t participate (about a third in 401(k)’s)


If you look at the dispersion of who is contributing to their 403(b) or 457(b) by age group those who are closer to retirement make up the overwhelming majority. These facts do not support the notion that participant education is working.

Participant education in Public School 403(b) and 457(b) retirement plans is very different than in 401(k) plans. In 401(k) plans there typically is a single plan and signing up is relatively easy, an advisor holds a plan meeting, provides some “education” and then helps people enroll or directs them to a website. This is not the case in 403(b) and 457(b) government retirement plans.

Most 403(b)/457(b) Public School retirement plans are “multi-vendor,” which means that the employer doesn’t have a single provider for their plans, they may have five or ten or in California, up to 76. Not only do these employers have multiple vendors, but many of these vendors also offer multiple products. In many districts in California its possible to have nearly 300 different products available to a participant. Each of these products may be sold by multiple agents, meaning that the number of choices between vendor, product and sales agent are almost too numerous to figure.

Imagine being an employee in one of these plans, you would be completely overwhelmed.

California has a website, www.403bcompare.com in which each of the 403(b) products are disclosed in terms of fees and returns, yet it is unreasonable to expect the average employee to actually analyze all the available options. Its tough enough for the average 401(k) participant to analyze the twenty-to-forty investment options available to them, imagine the school teacher who has to manage nearly eighty vendors, nearly three-hundred products and potentially thousands of investment options within those products and then finally choose from whom she wants to purchase that 403(b). No amount of “participant education” or “increased financial literacy” will enable the average participant to fully understand what is being offered to them.

It is the “multi-vendor” environment that feeds the perceived need for more “participant education.” The sheer number of options overwhelms people and pushes them either into paralysis or into the arms of a commission-based salesperson, who shows up on campus under the guise of “education.” If the education was truly unbiased and not related to commission-based products, there might be an increase in participants making the right choices, however there is no evidence there would be an increase in the number of participants overall.

The true reason behind the push for “participant education” in the 403(b)/457(b) School District retirement plan world is commissions.

While many firms represent that they only want to provide “unbiased” financial education, they are lying. Think about it for a second, can you think of any non-profit financial education companies that are not tied to product manufacturers in some form or fashion? You can’t, its because they don’t exist. When someone comes to your workplace to provide “education” on a 403(b) plan (in a multi-vendor environment) it is for one reason and one reason only, they want to sell you a product in order to earn a fee or commission. They are not interested in protecting your best interest, they have no duty of loyalty to you and they are not providing the “education” in order to increase your financial literacy. Financial education is a front for product sales. There is a reason that the Department of Labor is making changes to the highly conflicted regulations under ERISA that allowed for salespeople to give investment advice.

A few Third Party Administrators (TPA) for Compliance in California sell their “free” services and wrap them in the blanket of “free financial education.” Even worse, some charge for their compliance services and then offer to provide “free financial education.” This is dangerous for both the employer and the employee. Free financial education, if offered without commission-based product sales is fine, but that is not what is offered. The TPA essentially is acting as an agent for the employer - to the employee the TPA appears to be “endorsed” by their employer (either implicitly or explicitly) and this leads to the assumption (right or wrong) that the representatives of that TPA are selling products that have been approved by the employer.

Essentially the employees are trusting the employer made the right decision and they transfer that trust to the TPA representatives, this is exactly what the TPA Representatives want. Once the TPA and its reps have the confidence of the employees (based on the implicit employer endorsement) they need only to get in front of them to sell commission-based products. The means to get in front of them is “participant education.” The TPA is simply a front for the sale of high-cost, commission-based financial products that are rarely in the best interest of participants.

These education conflicts can be avoided by not hiring a TPA or provider of 457(b) plans that earns a commission or a hidden fee for selling financial products. They can also be avoided by not allowing sales agents on campus to “provide education.” There is no evidence this education works and it only facilitates an employee providing a commission to a sales person who has no duty of loyalty to that employee.

If you doubt me, simply ask the TPA sales organization to put in writing that all of their sales representatives will act as a Fiduciary (under ERISA) at all times when working with your employees, none of them will do this.

So what is the solution to the education problem? That’s a story for another time.

Full Disclosure: I am a consultant to the CalSTRS 403bComply and Pension2 service offerings. CalSTRS provides financial education and does NOT receive commissions or fees in exchange for the sale of financial products.

Is There Really “Appropriate Separation” Between ZUK and Great American Plan Administrators?

UPDATE: SEE BELOW AFTER YOU READ THIS SECTION, IMPORTANT NEW INFORMATION PROVING THE QUID PRO QUO.

In a recent letter to School Business Officials (SBO’s) regarding 403(b) Compliance, a ZUK representative claimed it “has appropriate separation between the TPA, product manufactures and education providers thus eliminating conflicts,” but is this statement true? My opinion is that it is not.

One of the “free” Third Party Administrators (TPA) that ZUK uses or at least recommends to some of the districts they service is GAPA, or Great American Plan Administrators. I decided to test this “separation.”

I guess one can measure “appropriate” however one desires, for my purposes “appropriate separation” will mean that the TPA does not benefit financially in the form of commissions from the sale of 403(b) and other financial products. This seems like a reasonable way of defining “appropriate.”

Let’s exam the relationship between ZUK, product manufactures, education providers and GAPA.

GAPA or Great American Plan Administrators is a subsidiary of the Great American Life Insurance Company (GALIC) and is also affiliated with Annuity Investors Life Insurance Company (AILIC).

Great American is a product manufacturer and markets '14' 403(b) products in California according to 403bCompare.com (vendor numbers 1167 and 1092). Each of these products pay a commission to selling agents and Great American earns revenue from the sale and ongoing servicing of these products. My research shows that Great American and Annuity Investors Life Insurance Company are both on all “Approved Vendor” lists that Great American Plan Administrators does the “compliance” for (in California). Does this sound like “appropriate separation” when the administrator who supposedly does the work for “free” benefits financially when certain products are pushed over others? Utilizing my definition of “appropriate,” this relationship doesn’t pass the test and I think we’ve discovered how Great American Plan Administrators can offer “free” compliance.

Of course, it doesn’t end there. We’ve established that there is NO separation between the TPA and the product manufacturer, let alone “appropriate separation,” but what about the appropriate separation between the TPA and the “education providers”.

Who are the “education providers” in this case? ZUK financial advisors. Are conflicts eliminated by allowing ZUK advisors to provide “education” and are the ZUK advisors really separate from Great American?

I’ll let you decide. I went to the public ZUK website and clicked on “The Advisors” link and looked up each advisor that works for ZUK on the state of California Insurance website to see who these advisors were registered to do business with, it is publicly available information.

Of the 19 advisors listed on the site, 16 were licensed and appointed with GALIC and 18 with ALIAC. Only one representative is not appointed with a company affiliated with Great American Plan Administrators. This doesn’t mean that every ZUK representative sells Great American annuities and life insurance or that any of them are required to sell Great American annuities and life insurance. However, it is interesting that ZUK recommends GAPA and states they are “eliminating conflicts” when in fact the conflicts that exist are quite large. Not only does GAPA offer products for sale, almost the entire ZUK advisor team is licensed to sell them. I can tell you from experience in working with clients that were former ZUK clients that nearly every client I took over from ZUK had at least one product sold to them from GALIC or ALIAC. So, is this how GAPA offers capital intensive “compliance” services for free? I think the mystery is solved as to why ZUK offers the GAPA TPA service and how it is offered for free.

Its one thing to advertise yourself as “unbiased and objective” its another thing to be unbiased and objective and I don’t think the evidence presents a case that ZUK “has appropriate separation between the TPA, product manufactures and education providers thus eliminating conflicts.”

Free is an enticing word, however the IRS wasn’t joking when they created the new 403(b) regulations and they expect employers to comply. Using a free service that does not generate revenue from compliance is an open door to problems in my opinion. Entities that perform free services to subsidize product sales will inevitably end up cutting corners (at least in my experience), something employers cannot afford. Employers need a partner whose primary business is 403(b) compliance, not 403(b) product sales.

Full Disclosure: I am a consultant to the California State Teachers Retirement System 403(b) Comply and Pension2 service offerings.

IMPORTANT NEW INFORMATION UNCOVERED PROVING THE QUID PRO QUO

A client of mine is now contributing to a new 3121 plan (commonly referred to as a Social Security Alternative Plan) and that plan is now with Great American. Why is this important? The employer that this plan is with hired the gentleman from ZUK whom I refer to above to take their 403(b), 457(b) and 3121 plan out to bid. Whether the employer knew or understood that this individual worked for ZUK and was a product peddler is unclear at the moment, but an RFP (request for proposal) was conducted and guess who won the bid - ZUK. ZUK brought in their own 457(b) that pays their reps a commission and brought in Great American Plan Administrators as the TPA (the "free" TPA). It was a foregone conclusion who would be hired, imagine ZUK being hired to "consult" and then choosing someone else. So who did ZUK choose to offer the 3121 plan? None other than Great American Financial Resources's insurance subsidiary Annuity Investors Life Insurance Company and guess who is the agent on the policy? The ZUK consultant....sound like appropriate separation to you? This is the Quid Pro Quo, the free administrator is awarded with annuity product sales made by ZUK. Only in the land of non-ERISA 403(b) could this occur.

Five Steps To Restoring Trust in the 401(k) (or 403(b)) System

If you don't know or haven't read Matt Hutcheson's work.....you should.

Matthew Hutcheson Testimony



Scott Dauenhauer CFP, MSFP, AIF

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:

"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 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

ING/NYSUT Kickback Lawsuit Dismissed

403bingsuit

ASEA & Nationwide - Fun, Food & Frolic

The Alabama State Employees Association is in a bit of trouble:

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

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

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:

"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

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