403(b) Regs Waste Enormous Amounts of Money

I'm trying to help a client rollover an account at an old employer in another state. It is a 403(b) and she stopped working for the district back in 1993. It has taken me nearly four months and two paperwork submissions for me to be told that the district can't verify my client ever worked for them - so the plan administrator will not process the rollover. Keep in mind my client has an account that is in the name of that district's plan - thus proof she was employed there. The administrator has had to waste time on this, I've spent several hours on it and now the school district will be forced to go through employment records all the way back to 1993 (which likely means ordering boxes from storage) all so a $5,000 account can be rolled over.

Are you happy IRS? Your regulations could have served to ease the burden on employers and make the 403(b) a better, easier plan -instead it has become an endless drain. Its time to reform the reform.

Scott Dauenhauer, CFP, MSFP, AIF

A Tale of Two Cities...er, Retirement Plans

A call for revolution in the Government Defined Contribution Retirement plan arena. Click on the link above.

Brian Graff at LAUSD Oversight Part 1 (of 4)

Brian Graff at LAUSD Oversight Part 2 (of 4)

Brian Graff at LAUSD Oversight Part 3 (of 4)

Brian Graff at LAUSD Oversight Part 4 (of 4)

TSA Consulting Group Buys Great American Plan Administrators

The good folks over at TSA Consulting Group have dug deep and entered into an agreement to buy Great American Plan Administrators, or GAPA. GAPA was an arm of the commission fixed and equity indexed annuity company Great American. Great American essentially used GAPA as a loss leader to maintain payroll slots or obtain payroll slots. This allowed them to continue to sell their retail fixed and equity indexed annuity products via commission based sales agents.

There is no disclosure as to what, if any agreement was reached as to keeping those payroll slots open when the administration transfers over to TSA Consulting Group. Though it is unlikely they would sell to a company that planned to shut them out.

TSA CG has a big job ahead of them. Traditionally, GAPA offered free administration services to districts, now those districts will have to pay (though I'm pretty sure the structure will be a vendor pay model). All in all, TSA CG is vastly superior to GAPA and this should expand TSA's reach into parts of the country they don't have a presence.

Scott Dauenhauer CFP, MSPF, AIF

LSW, Veritrust & Equita Under Investigation

A California insurance investigator, Mark Colbert is investigating Life Insurance of the Southwest, Veritrust Financial and Equita Financial.

From Mark's website:

In California, Arizona, Texas, Florida and Nevada, agents who've sold life insurance policies, annuities and/or 403(b) products for The Life Insurance Company of the Southwest (LSW), Equita Financial Group, and/or Veritrust Financial Services (VFS) are currently being investigated.

Insurance victims have claimed agents promised that life insurance policies (also referred to as Life Solutions will be "paid-up" in as few as five to seven years and work just like a ROTH IRA.

If you, or someone you know, owns a Life Solutions plan, you/they are encouraged to have an insurance or financial professional (other than someone at one of the companies named above) review it. I have already seen nearly a hundred of these cases in California and Texas and would be happy to speak with anyone who currently owns one of these policies.

You can contact Mark at www.markcolbert.com

Scott Dauenhauer

P & I: 403(b) participants hurt by unfair rules

I've been saying this for years, its nice to see others echo it.

The link above may not work, so some of the story is reprinted below, it begins:

While there has been significant convergence between 401(k) and 403(b) plans, 403(b) participants are still treated as second-class citizens when it comes to getting the best pricing on their savings for retirement.

401(k) plans are free to have the most appropriate and cost-effective investment structure — including mutual funds, annuities, commingled trusts and separate accounts. But not 403(b) plans.

Instead, because of anachronistic laws, 403(b) participants are limited to mutual funds and annuities — regardless of the size of the plan. This is unfair and counter to our social policy that seeks to encourage working individuals to contribute toward their retirement security.

Essentially arcane 403(b) rules limit participants ability to buy into cheaper investment options. In some plans I work with we can use Collective Investment Trusts to dramatically lower expenses or provide investment flexibility to participants - this cannot be done in 403(b)'s and leads to higher costs.

Of course, this is not the only issue with 403(b) plans, but its a start that Congress should get to work on now.

Scott Dauenhauer CFP, MSFP, AIF

Ronald Reagan: Collective Bargaining = Freedom

Does this sound like the Republican party of today? For all the talk of how Reagan is the role model for the Republican party one wonders if they actually know what Reagan stood for. I rarely get political in this blog, however, the title is The Teachers Advocate and what has happened in Wisconsin is not only a blow for freedom, but an attack on people who are not the ones who have caused this economic depression (that would be government and Wall Street).

Reagan once said that he didn't leave the Democratic party, it left him. I wonder if he would say the same about the Republican party of today.

Scott Dauenhauer CFP, MSFP, AIF

Two New TIAA White Papers

I have NOT had a chance to evaluate either of these papers. They are for your review only. When I do read, I will be sure to post my comments and thoughts.

Scott Dauenhauer CFP, MSFP, AIF

Reforming K-12 Educator Pensions: A Labor Perspective


Pensions and Public School Teacher Retirement

Jon Stewart: Crisis In Dairyland Part III of III - Those Darn Teachers!

The Daily Show - Crisis in Dairyland - For Richer and Poorer - Teachers and Wall Street
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Jon Stewart: Crisis In Dairyland Part II of III - Those Darn Teachers!

The Daily Show - Crisis in Dairyland - For Richer and Poorer
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Crisis In DairyLand: Jon Stewart's take on Wall Street vs. Teachers

Who is more important Wall Street or Teachers?

I might have a unique perspective because I worked on Wall Street and am married to a teacher (full disclosure, I do consulting work for Teacher Retirement Plans). I'm here to tell you, it isn't Wall Street - but you'd never know it by the current discourse. Jon Stewart skewers some people who still cling to the notion that the average teacher is a part-time worker. My wife is a teacher and I can tell you - there is nothing part-time about her work.




Scott Dauenhauer, CFP, MSFP, AIF

The "Benefit Counselors" Provision in 403(b) TPA Contract

Recently I came across a contract between a 403(b) Compliance TPA and a school district in California that had an interesting provision:

"The "XXX XXXXX" (name of TPA), through its licensed financial professionals ("Benefit Counselors"), will assist Plan Participants regarding their rights, benefits or elections under the 403(b) annuity arrangement upon reasonable request of the Employer. The "XXX XXXXX" may, as part of its Administrator duties, limit access to Plan Participants to those Benefits Counselors who meet its qualifications including professional licensing and adherence to a Professional Code of Conduct."

I cannot be sure that this contract is still in-force, so I'll limit my comments to what I believe is wrong with such provisions in general.

To provide a bit of background, this particular TPA charges a premium fee over most other TPA's in California (80% more compared to a few of the larger players) AND this TPA employs sales agents to sell 403(b) and 457(b) plans. The sales agent part is what is concerning as this TPA is now referring to them as "Benefit Counselors" and is attempting to exclude any other individual from working with the employees of this school district, essentially attempting to establish a monopoly. What is interesting to note is that the Employer via this arrangement has now made a Fiduciary delegation to this TPA to vet potential Benefit Counselors. I have been unable to find anything that talks about what qualifies these individuals to act as "Benefit Counselors" (BC's) and I do not see anything in this agreement that requires these BC's to act in the best interest of the participants, i.e. act as Fiduciaries. The fact that these people are licensed and adhere to a professional code of conduct is meaningless - are they held to a Fiduciary standard? The answer is that they will not be.

So you have an Employer who likely doesn't understand what they are doing making a Fiduciary delegation to a conflicted entity who ONLY allows Benefit Counselors that are loyal to the TPA and owe no fiduciary duty to the participant.

I'm not harping on the monopoly aspect of this, I could support that if the environment was one that contained a duty of loyalty and was based on Fiduciary principles - I am deeply concerned that plan participants may be exposed to sales agents masquerading as qualified "Benefit Counselors" who will NOT act in the best interest of plan participants.

Captive Benefit Counselors of a TPA with full delegated powers who owe no fiduciary duty is dangerous combination.

Scott Dauenhauer CFP, MSFP, AIF

Bloomberg: Indexed Annuities Cap Gains, Obscure Fees as Sellers Earn Trip to Disney

Another great article regarding the pitfalls of Equity Index Annuities.

Scott Dauenhauer

Money Mag: Index annuities are a safety trap

I am not a fan of Indexed Annuities. Equity Indexed Annuities (EIA) are the reason I started working with educators, so I guess they've done some good! Back in 1997 I came across my first teacher with an Equity Indexed Annuity, one sold by Americo - it was toxic. Sure, you could never lose money (unless you surrendered in the first ten years...), but the index formula was so stacked against the client and so easily manipulated by the insurance company that I believed the client would be lucky to earn 2% annually. I found that this was not only common, but rampant and the last decade has seen nothing but huge growth in these products.

When people ask me if Equity Indexed Annuities are good for retirement, I tell them yes, as long as you are talking about the retirement of the agent selling them. Commissions are huge, incentives are amazing (trips to every exotic locale you can imagine) and most of the agents have never read the contract or can even do the actual crediting method calculation.

Great job to Money Magazine for exposing these scams (something I've been doing now for 13 years).

Scott Dauenhauer CFP, MSFP, AIF

9th Circuit says regulatory safe harbor for employee pension benefit plans is limited

It looks like the NEA suit is dead:


"The “Valuebuilder Plan” could be construed as referring to the individual Valuebuilder annuities offered by Nationwide and Security Benefit. However, these annuities were not established or maintained by either the employees' school district employers or by the NEA. These annuity contracts could not, therefore, be “employee pension benefit plans” covered by ERISA. Insofar as the employees used the term “Valuebuilder Plan” to refer to these individual § 403(b) annuities, they failed to state an ERISA claim. The judgment of the district court had to be affirmed."

In America there are two defined contributions systems - one that is governed by ERISA and one that is not. Those who are in non-ERISA plans are apparently able to get away with just about anything. This needs to change.

Scott Dauenhauer

Can Retirement Plan Fiduciaries Accept Gifts/Perks?

There are some fiduciaries out there who don't have an issue accepting gifts from vendors they do business with or may do business with. The following two articles provide some perspective from a legal basis:

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B_j6Iy8Ev55_ZWVkNWNlMWUtYzJhNS00ZTVmLWJlM2UtY2I4MWQ0Y2NmYWNk&hl=en

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B_j6Iy8Ev55_NjhkODQ4OTItZWYxMC00ZTM2LWE5Y2ItNDBmN2ExMWVkNjY2&hl=en

You decide, I think the answer is clear.

Scott Dauenhauer CFP, MSFP, AIF

Marcia Wagner: Plan Sponsor's Duty To Avoid Conflicts of Interest

You'll need to click the above title to be taken to the article by attorney Marcia Wagner (who has a number of great articles). This article speaks mainly to ERISA plans, but all Plan Sponsors should take heed of its contents and follow them.

There are many in this 403(b)/457(b) industry (on the government) side who ignore the existence of ERISA because it doesn't technically apply to them. They don't feel a tinge of guilt when they break nearly every prohibited transaction rule and even find foolish reasons to defend their actions.

There are those in the public arena that take great care to run their plans on a fiduciary basis, unfortunately they are currently in the minority.

My advice if you are reading this article is to keep a copy if you are a plan sponsor or administrator, read it every quarter and distribute it to all that work with you. If you are a participant, print it out and send it to your plan sponsor or administrator - hold them accountable.

We need accountability in this 403(b) world, without it bad things happen to good people. There are some in this industry that profess to be Fiduciaries and then do the exact opposite in private, hoping not to be found out or believing that if they are found out that no one will care. YOU KNOW WHO YOU ARE.

Scott Dauenhauer, CFP, MSFP, AIF