YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     Retirement Savings Plan Costs Teachers, Lawsuits Say   Mary Doclar and Mike Lee From the Fort Worth Star-Telegram, Sunday, 17 Sep 2000     After 16 years as a Dallas schoolteacher and administrator, Angie Moore had only $500 saved, not enough for her dreams of retiring early and traveling.   So, Moore said, she listened closely when a financial consultant told her that she could achieve her financial goals within a few years.   But the investments did not live up to her dreams. Now Moore is among an increasing number of people who have filed lawsuits concerning a program that they believed would help secure their retirement: the 403(b) savings plan for teachers and nonprofit workers.   "I couldn't understand how I had been taken in," Moore said.   Like its cousin, the 401(k), the 403(b) enables employees to invest pretax dollars for their retirement.   The 401(k) has helped a generation of workers cash in on the booming stock market. But many nonprofit workers, employed by schools, hospitals and charitable organizations, said they have been left out in the cold.   Many teachers say they are not told that they qualify for the 403(b). Others say they receive little or no information from their school districts about the plans and feel compelled to pick from a limited menu of investments.   In some cases, they buy from salespeople who say they are endorsed by professional associations or whose ties to a school district lead teachers to believe that they have official approval. Some vendors have been accused of churning investments — selling needless new ones to reap extra commissions.   Even the Internal Revenue Service says the rules are complex, often leading to problems with employees' withholding taxes. Some teachers said they owed thousands in taxes because salespeople filled out withholding forms improperly.   Alta Chesney, who oversees 403(b) enforcement for the Dallas IRS office, said auditors have found withholding problems with "every 403(b) that I have opened, and I would say the majority of the ones nationwide."   The bottom line is that many teachers earn tens of thousands of dollars less than their private-sector peers because they put money in plans that have low interest rates and high fees, industry experts said.   Web sites dealing with the 403(b) have popped up, and some teachers associations have cautioned members about some investment companies and products. Increasingly, teachers are filing lawsuits concerning the plans.   "I think we're just seeing the tip of the iceberg as far as complaints," said Richard Kouri, president of the Texas State Teachers Association.   Lawsuits and Confusion In the private sector, many employers make matching contributions to employees' 401(k) programs. But school districts do not contribute to 403(b) plans, and most of them provide little education about how the 403(b) works or how to pick a good investment.   In Texas, the Legislature went further, barring school administrators from restricting the number of 403(b) vendors in their districts. As a result, some districts are overrun with vendors — Dallas has 155.   "The effect has been to open the door for the unscrupulous companies and all the unscrupulous marketers to come in," said San Antonio lawyer Wade Caldwell, who is representing teachers in lawsuits against annuity companies. "The teachers don't buy things. They get sold them, and what they get sold is the high-commission garbage."   Dan Otter, an elementary school teacher in Riverside, Calif., who runs 403(b)wise, a Web site dealing with 403(b) plans, said the salespeople in his district were "pretty ruthless."   "They already have the paperwork filled out, and they come into the room, never explaining, never listening to what the teacher wants or needs," he said.   The presence of investment companies in some school districts can mislead educators into believing that the companies have official standing, critics said.   Three lawsuits in Dallas, one of which has been settled, contend that one company's relationship with the school district led teachers to invest in lower-performing products, such as annuities.   The target of the lawsuits is CMW Financial Education & Consultation, which is owned by Christina Gears and her husband, Irving Councilman Herbert Gears.   The lawsuits contend that the Gearses and their salespeople inveigled their way into the Dallas district's good graces by performing volunteer work and providing meals and other gifts, such as door prizes, to administrators and teachers.   The plaintiffs said they believed that CMW had been approved by the district.   The company has given hundreds of thousands of dollars to schools and education groups in Texas and Oklahoma. Its salespeople are required to be tutors or other volunteers, Herbert Gears said.   In 1994, CMW gave the Dallas School Administrators Association $50,000 to pay for an executive director. The association later sent its members a letter "to endorse and to commend them [CMW] to you for your consideration as you consider your financial planning and services needs in the future."   Moore, a former Dallas principal, said that at a principals orientation session in 1999, then-Superintendent James Hughey hugged Christina Gears and called her "the district's best friend."   Another plaintiff, Joan Covici, a retired Dallas teacher, said the principal at her school announced Christina Gears' visits on the loudspeaker.   "It certainly felt to me like a school-sponsored activity. DISD was very fussy about who could come and speak to us, and about what," she said.   Roy Kemble, president of Classroom Teachers of Dallas, said the organization has issued two letters alerting teachers about "insurance agents posing as school 'volunteers.' "   The confusion about CMW is easy to understand, he said.   "If you go to a staff development day at your building and the principal stands up there and says, 'This is a representative from CMW Financial, they've provided lunch for us and they want to say a few things,' then yes, you get the impression that at least the principal is dealing with that company and recommending it," Kemble said.   Herbert Gears and Tom Kelchner, president of the administrators association, said CMW did not pay for an endorsement.   "CMW has been extremely supportive of the Dallas schools, the children of the Dallas schools, the administrators and teachers for a number of years," said Kelchner, who is a Dallas school principal.   Gears said that his company does not have special access to Dallas schools and that his employees' volunteer work is not intended to help sell investments to teachers.   "They may be predisposed to think I'm a good guy, but that doesn't mean they're going to make an appointment with me," he said.   He dismissed the letters sent by Classroom Teachers of Dallas, saying they are attempts to discredit his company. He also said the group issued the letters because it had endorsed a competing company.   Other companies also donate to the district, said Oscar Rodriguez, an area superintendent in the Dallas district who is a customer and a friend of the Gearses. Metropolitan Life sponsored a Principal of the Year event that featured the Dallas Cowboys cheerleaders, he said.   Caldwell, the lawyer who is representing two other groups of teachers in lawsuits against annuity companies, said vendors have numerous ways to gain access to teachers.   "It's all about access. Whoever can get access to the teachers has the most success, and so this is the way they do it," he said.   The lawsuits against CMW have prompted Dallas school district officials to re-examine solicitation policies, said Katrina Robertson Reed, associate superintendent for human resource services.   The district allows salespeople to make presentations on district property only at an employee's request with the approval of the principal or a department head. Providing gifts, money or other rewards intended to influence participants is prohibited. Salespeople cannot provide such incentives in exchange for information about employees, Robertson Reed said.   But she said principals have leeway in enforcing the policy.   "The principal can permit that if it's [teachers'] duty-free time," Robertson Reed said. "It's not uncommon that a vendor might be set up somewhere and teachers can have access to them when they have duty-free time."   Officials in Arlington, Fort Worth and Keller school districts said they do not allow group sales pitches on their campuses. But they can exert only so much control on salespeople, they said.   "It is a buyer-beware market," said Steve Brown, associate superintendent for finance in the Arlington district. "They are allowed to go to individual employees and solicit their business. There's nothing the school district can do to protect them from that.   "Anybody can ask for a mailing listing [of teachers] if they pay the money for it," he said.   Fort Worth school district does not endorse vendors but allows them to meet with employees during off-instruction time.   "It does open up the door to companies coming in that might be a little riskier, but I don't know that districts have expertise or time to determine what's right for everybody," chief financial officer Steve Fortenberry said.   Slight Returns The 403(b) business was born in 1958, when Congress sought a safe way for workers at nonprofit companies to put money in annuities, which are contracts with insurance companies that guarantee a return on an investment. In 1961, the law was expanded to allow public school teachers, who in many districts do not participate in Social Security, a way to supplement pensions.   But there has not been a rush to join. Nationally, about 51 percent of teachers participate in the program, which has about $520 billion in investments, according to Spectrem Group, a market research firm.   In the private sector, about 80 percent of employees participate in 401(k) plans, and about $1.4 trillion is invested, Spectrem's research indicates.   Aside from sales tactics, the biggest complaint against most 403(b) plans is the returns on investments. Part of the problem is that the 403(b) market is dominated by annuities, observers said.   Annuities are virtually risk-free, but they have paid lower returns than other investments, particularly the no-load mutual funds popular in 401(k) plans. In 1974, Congress began allowing teachers to invest 403(b) money in mutual funds, but about 83 percent of 403(b) funds are in annuities, according to Spectrem.   Several companies selling annuities, including Commercial Union, College Life Insurance and General American Life Insurance, have been sued or disciplined.   In March, the Texas Insurance Department said Commercial Union's Flex XV policy was "unjust" and "contrary to the best interests of the public." The company was sued by teachers in Corpus Christi who contended that school administrators and their relatives working for the company misrepresented the annuities. Commercial Union said customers who bought Flex XV have been given new policies. Commercial Union general counsel Richard Kypta said "there is nothing inherently wrong" with company sales practices.   "You have to analyze each consumer's situation individually," he said.   College Life is being sued by teachers in two districts near Laredo. The teachers contend that the company gained access to them by selling health and other benefits to school districts, then peddling low-quality annuities to teachers. Ed Deyoung, lead attorney for College Life, said the company did not gain an advantage as a third-party administrator. "Any problems with sales of any products to any customers, including schoolteachers, would be isolated incidents," he said.   General American recently settled a class action lawsuit in federal court in Missouri that accused the company of churning its clients.   Ellie Lowder, a consultant with the National Tax Shelter Annuity Association, a trade group, said the industry has worked for years to police itself.   "The vast majority of the products and investment opportunities can be described as quality products," she said. "If there are some charlatans out there, they are fewer and further between, due to the efforts of the National TSA."   But critics said the preponderance of annuities in 403(b) plans harms teachers in the long run.   Annual fees on annuities can be as high as 2 percent of an investors' earnings. By contrast, the largest mutual fund program for teachers, TIAA/CREF, charges about 0.6 percent annually. Even small differences can add up to significantly lower earnings.   Annuity proponents said the policies and the higher fees are merited because they guarantee that teachers cannot lose the principals that they invest.   Unfortunately, many teachers turn away from 403(b) plans because of problems associated with some plans, said Don Kuehn, a national representative for the American Federation of Teachers.   "The teachers aren't making money hand over fist," he said. "They need some kind of supplemental nest egg on the outside."     Home | Disclaimer | © 2001 403(b)wise. 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