How Can We Fix a Broken 403(b) System?

We can send a guided robot to Mars, but we can’t fix a retirement plan? This absurdity just received a counterattack from the State of Connecticut.

State Representative Matthew Lesser wrote a ground breaking bill to repair a broken system.

Nationwide, public school teachers’ 403(b) retirement plans are filled with the dregs of the investment world. High-cost mutual funds and variable annuities sold by conflict-ridden brokers dominate this charred landscape.

This is about to change in Connecticut.  Some insurance companies may be about to hemorrhage their captive clients.

According to Tara Siegel Bernard of The New York Times: “A bill passed by the Connecticut Legislature tries to improve this situation by requiring all 403(b) retirement plan providers to disclose fees and compensation to state and municipal workers. …The legislation — which will take effect in 2019, but could be changed to 2018 as language in the bill is completed — would require companies that operate 403(b) plans to disclose the charges and returns (after subtracting fees) for each investment offered. It would also require plan administrators to disclose fees paid to any person ‘who for compensation provides investment advice’.”

If employers decide not to follow this legislation, they must then abide by the Employee Retirement Income Security Act of 1974. This is a much more stringent standard that governs 401(k)s and other retirement plans.

State Representative Lesser declared, “This bill grants teachers the same fee and conflict-of-interest disclosures available to private sector workers having a 401(k) and allows the comptroller to make lower-cost plans available directly to local boards of education.”

Many states have low-cost 457 or 403(b) plans that mysteriously are not available to teachers; this will now change in Connecticut.

I have spoken with Rep. Lesser about the problems in this little known retirement segment. He is sincere in his beliefs to provide a fair playing field for public school teachers’ retirement accounts.

While this is great news, this is just one state out of 50; 2% of the entire market. There is much work to be done before this movement goes viral. The problem is too many politicians are captured by lobbyists for the insurers and brokers who fleece teachers’ retirement plans.

Lesser’s plan is nothing complicated. It reflects basic human decency and fair play. Unfortunately, too many politicians lack the courage and integrity to make the hard choice of biting the hand that feeds them.

I recently sent an e-mail to my own Assemblyman, Steve Engelbright, about what is being done in Connecticut and asked how we can begin to make these desperately needed reforms in New York.

The response I received was crickets. Not even an acknowledgement of receipt. This is why things that can be changed for the better often are not.

While I commend crusaders like Ms. Siegel Bernard and Rep. Lesser, far too few wish to emulate them.

Politicians need to realize their most important constituents should not be determined by how much money flows into their campaign coffers.

Rep. Lesser decided to make the right choice.

The question is: Will anyone follow his lead?


Source: Connecticut Bill Would Force Fee Disclosures For Teacher Retirement Plans by Tara Siegel Bernard