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| Wise Cracks Commentary with Dan and John Enroned Again: Lobbyists Mess with Innovative Texas 403(b) Plan |
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| Scores of unwitting small-time investors figure to be gored on their retirement plans in Texas. Sound familiar?
If we were talking about Enron this would be old news. Sadly, it isn't. While not as high profile nationally, this latest
Texas mess has the potential to be equally abusive to retirement savers. Background A series of successful lawsuits against unscrupulous 403(b) providers in the state of Texas led the Teacher Retirement System of Texas (TRS) to adopt innovative measures designed to protect 403(b) contributors. Known as SB 273, the new law, among other things, proposed to place TRS in charge of approving vendors selling to the K-12 market, and contained provisions strongly favoring low-cost, no-load vendors. Initial measures called for no front- or back-end sales loads; no surrender charges on variable annuity accounts; and surrender charges on fixed annuities capped at 6% and required to terminate within 6 years. Who could be against such common sense measures? Bingo. At a public hearing in Austin in January this year, insurance lobbyist successfully railed against the fee caps. As a result, on February 25, the TRS "staff" proposed changes to SB 273 that all but strip the plan of any meaningful oversight. Lowlights of Proposed Changes |
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Allows a front-end load and/or back-end load for annuity and non-annuity products, for
a maximum combined charge of 6% |
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Surrender charges allowed for fixed and variable annuities: capped at 10% declining annually
for up to 10 years; 1% allowed each year after 10 years if applicable, for a total maximum of 12 years |
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All other total aggregate charges as a percentage of total assets for both variable
annuity and non-annuity accounts capped at 2.75% |
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| "The initial regulations were excellent," said attorney Wade Caldwell, whose firm
Martin, Drought & Torres, Inc. of San Antonio, have represented teachers in numerous lawsuits against insurance
companies selling 403(b) annuities. "These changes are a patent cave-in to insurance lobbyists — especially
in the area of variable annuities, which should not be sold in 403(b) plans at all. The expense caps now allow even
the highest cost variable annuities to be sold to unsuspecting teachers." Certified financial planner and 403(b) advocate, Scott Dauenhauer calculates that after inflation, trading costs, and taxes at withdrawal, the new fee structure could lead investors to zero growth, or worse. In a post on the 403(b)wise message board he put it bluntly: "The proposed regulations are bogus and contrary to the participant's best interests." If Enron has taught us anything, it is that the best interests of participants are rarely served. We are more than curious to exactly how TRS "staff" were encouraged to propose such preposterous new rules. If any one of these so-called "staff" members argues these changes are in the best interest of participants, then we have some Enron stock options for them. Luckily there is still time for common sense to prevail. But not much. These "revised" recommendations cannot be enacted before March 28, 2002. TRS can be contacted at: |
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| Teacher Retirement System of Texas 1000 Red River St. Austin, Texas 78701-2698 512-397-6400 1-800-223-8778 |
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