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PUBLIC SCHOOL teachers’ biggest problem isn’t rowdy students. Instead, it’s their retirement plans that should be sent to the dean’s office.
After leaving my job as a foreign currency trader for an international bank, I became a middle school history teacher. My teaching career lasted more than 20 years. One of the worst things I encountered was the state of public school teachers’ non-ERISA 403(b) plans.
Having a front-row seat to the carnage was not pretty. My co-workers knew I had a financial background, so they often came to me with their statements. High-fee variable annuities and loaded mutual funds littered the crime scene.
After speaking with many teachers, more horror stories emerged. The financial salespeople who sold them this garbage also infected many of their other accounts. Whole life insurance policies and egregiously expensive, advisor-sold 529 plans were popular items on this unhealthy menu, along with non-traded real estate investment trusts in taxable accounts. I was aghast. Right then, I knew something had to be done.
Why are these 403(b) plans so horrible?
According to Spectrem Group, 76% of teachers’ assets are invested in some form of annuity product. In other qualified plans, this would be grounds for massive class-action lawsuits.
How can we put an end to this exploitation? Here are five things my wife Dina and I are doing:
In the end, we believe history bends toward justice. This will be no different. Please help us by sharing this blog with any teachers you know. Every little bit counts when so much is at stake.
Tony Isola works at Ritholtz Wealth Management, specializing in helping educators reach their financial goals using a fiduciary model. To learn more, visit his blog, A Teachable Moment, or follow him on Twitter @ATeachMoment.
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I am an educator with a 403b managed through the school district. I opened a private Roth IRA and convert the maximum amount allowed each year out of the 403b into my Roth. I have to pay the taxes but if I wanted, I could have also chosen a regular Roth IRA and rolled the money tax free. Look into it if you’re an educator!
Thank you for this. I forwarded it to my super dedicated teacher daughter-in-law. If you think teachers have it bad you should see the garbage that gets sold to the clergy.
I chair our denominational pension board. Our 403(b) plan is pretty good. We use Clergy Advantage.
David
What is your denomination? My experience is with Roman Catholic and Lutheran clergy and church workers.
Dave
The teachers’ unions are to blame for this. They get a piece of the action for the unscrupulous financial advisers
Placing the blame on unions when so many teachers do not belong to a union makes me scratch my head when I read your comment. What if they are in a state that has no unionized teachers? Who is to blame then? The author of the article places the blame on someone different regardless of union status:
School districts outsource their administrative duties to third party administrators (TPAs). These TPAs offer “free” services. In effect, this is a pay-to-play model that keeps low-cost providers off the “recommended lists.” Many companies hire former teachers to do their dirty work. This creates a false sense of trust. Teachers often choose “advisors” based on-Likability, instead of competency. These ex-teachers aren’t there to help their colleagues. High commissions are the real terms of engagement.
Tony,
Thanks for publishing this post. Your narrative provides useful perspective and insight about the predatory practices in the 403(b) world. You provided some much-needed awareness about the shortcomings of this account type, or better said, the bad actors and practices involved. Thanks again for bringing these many issues to light. I plan to share this with my brother and mother, both teachers.
Please revisit this topic. The issues are still there. Here in PA the unions contribute to the scam by accepting money from firms that are then “recommended” by the union. These firms then get time during retiree meetings to sell their non-403b products that are even worse than the annuities and other high fee products they sell to 403b investors.