“Make intimidating things painless. Make complicated things simple. Make boring things exciting.” – Morgan Housel
This brilliantly describes the attributes of great businesses.
The woeful world of public school teachers’ 403(b) retirement plans strikes out on all three of these concepts. It is unfathomable that a new kindergarten teacher will have mind-numbing terms like this thrown at her by some insurance salesman staking out the teacher’s lounge.
- Variable Annuity
- Market Index Annuity
- Rolling Surrender Charge
- Mortality and Expense Fee
- Sub Account
- High Water Mark
- Spread/Margin/Asset Fee
Of course, it will all be done over a “free” sandwich and claims to help her with her retirement plan.
It gets worse. There is no index card with the definition on the back to help explain these terms. This jargon is thrown into a 500-page prospectus to destroy any chance of teachers actually understanding the financial equivalent of hell they will soon be entering.
I recently received an email from a reader who is a Chartered Financial Analyst (CFA®) charter holder who was trying to comprehend the product his wife was sold. For those who are not familiar with this certification, I will make it simple. These people can do super complicated calculations to analyze investments. They have to take three agonizing exams; the failure rate hovers between 40-50%. If anyone should be able to understand the products in a 403(b), they should.
He wrote, “Thank you for pointing out the gigantic 403(b) problem that currently plagues the country. My wife is in a variable annuity 403(b) plan through [a well- known insurance company]. When we were initially dating way back in 2008/2009 she showed me her account statements and I looked at her choices and her current allocation. Being a CFA®charter holder myself, this is something I had done hundreds of times. However, the amount of digging I had to do just to find basic return and fee information for each of her choices was extremely surprising. Also, absolutely nothing in her monthly statement made it appear that she was technically invested in a variable annuity. I had to find out that information when I called the financial adviser listed on the account.”
And then, his story took a more sinister turn.
“…Also, as you can imagine, it wasn’t the first thing he told me. I had to explicitly ask him: ‘Tell me exactly what her fees are for everything involved in the account, from management fees, to trading fees, to mutual fund fees?’ At this point he told me she gets charged 200 basis points a year just for having the account, and each mutual fund has its own fee assessed with it. So, just to have a 403(b), she was paying over 3% a year. I was extremely shocked. To make matters worse, her school only has a few other plan providers, all of which are insurance companies who will all have similar bloated fee structures. This is a gigantic problem and these school teachers have no idea what they are signing up for.”
This is what is going on everyday in schools across our nation. Many teachers don’t know there are other options available. Companies like Aspire and state-run 457/403(b) plans are much better alternatives to crappy and expensive annuities. If you would like to find out more, let us know. 403(b) plans do not have to suck. We are currently working with public advocates, journalists, administrators, law makers and union officials to get rid of the bad guys once and for all.
Change will not happen overnight — but make no mistake, change is coming; that I can promise you.