403Beware

  Why do so many teachers have either high cost actively managed funds or even higher cost annuities in their 403b retirement plans??  First of all many teachers believe they must place an annuity in their plan because this investment vehicle is often called a tax deferred annuity. This is done to mislead and misinform teachers into believing they can only place an annuity in their plan. Most teachers have no idea that is not true and insurance salesman are certainly not going to disclose this. While annuities could have their purpose it almost never advisable to wear suspenders and a belt. Paying for tax-deferral when that is already included in the 403b package would be the same thing as the aforementioned fashion combination. So why are so many teachers being ripped off with these expensive retirement busting Molotov cocktails?  There are a myriad of reasons. Starting with unscrupulous salespeople who often receive large commissions for selling these products. For example, an agent could receive $8-10,000 for selling a contract to an unsuspecting teacher with $100,000 in rollover funds. The saying that these products are” sold rather than bought” has a great deal of merit. Why would an agent sell you a low-cost market index fund that would cost .05% in fees rather than the 3-5% they would receive from the annuity product? Often teachers rely on other teachers for their investment information. They refer the “nice guy” that sold them this garbage and the cycle continues. Even the teacher’s unions are complicit. Some have been found to recommend these products in exchange for contributions to the union by the insurance companies offering these products.  Teachers need to be vigilant with their school district about their options for their 403b plans. If their list only includes insurance companies who offer annuities they should demand low-cost providers be added to their list of choices. Teachers have an unbelievable opportunity to have both a nice pension and  a large lump sum in their 403b if they are proactive and diligent. Do not let a wealth transfer take place between  you and your hard-earned funds and salespeople posing as investment advisors. Always ask the salesperson “What is your compensation if I buy this product?” If there is any hesitation or attempt to distract, run don’t walk to your nearest low-cost provider on your district’s list.