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Wise Cracks Commentary with Dan and John
Teacher 403(b) Rip-offs Continue
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Hard to believe but it has now been six years since the launch of 403(b)wise. In that time the site has garnered mentions in
Kiplinger Personal Finance, USA Today, The Wall Street Journal and The Washington Post among other
publications. Today 403(b)wise averages more than 45,000 visitors a month, and our newest book Teach and Retire Rich is selling at a
rapid pace. In short it would seem that teachers and non-profit workers and their employers are finally getting wise to the value of a
quality 403(b) plan. As fees become more transparent (see: 403bcompare)
and investing becomes simpler (see: Target Date
Retirement Plans), it would seem that the investing landscape for teachers and non-profit workers is a whole lot better than in
2000. Perhaps not. We recently received the following emails within an hour of each other.
Email 1
Hello,
I am one of the unfortunate ones who fell prey to the insurance rep who sold me an annuity. In Spring 2002 I responded to a small
card in my mailbox at my school offering 403(b) retirement accounts. The rep came to my school and suggested that before I invest
in mutual funds I should build some equity in what I thought was the equivalent of a money market. In a couple of years I thought I could
then move the money into mutual funds without penalty. At no time did she explain to me that as an annuity, the money cannot be touched
until I am 59 years old without severe withdrawal penalties, or that she would collect significant fees. I had no intention of selecting an
untouchable investment with such a low return. This rep did not fully disclose the details of this annuity. Were any rules broken?
I spoke with the complaint officer at [a major provider of 403(b) annuity products], emailed the events as I remembered them, and
they responded in writing about 3 weeks later. They stated that I originally had ten days to examine the policy and close it if I wanted.
Since no rules were broken the surrender penalties apply. I will lose $4,000 when I remove my money. They also won't allow me to roll it
over into mutual funds. Is there any pressure I can bring to bear on this company to perhaps alter their decision? So much for customer
satisfaction.
Email 2 (received twenty minutes after the first email)
Good Morning,
A short note to tell you that after I read your book (Teach and Retire Rich), I began "Stirring-up-the-pot" with issues you brought
out in the book.
- My wife and I really suffered after we lost over 1/2 our 403(b) funds we had socked away for years in a mutual fund account
set up by our school district. We were advised by a "friend" who happened to also be my principal at the time. Anyway, when the
market went "South" and before we could roll-over any equity we had built into the account, we had lost any gains we had made up
to that time. Well, my friend/principal retired to a new job and greener pastures. My wife and I have some hard feelings about the
advice we were given and found out after the fact, they had immediately got out of the market with the fund and never notified us
that we should have gotten out too.
- Since this debacle, we finally rolled over what was left of our investment into a TSA (tax sheltered annuity i.e. a 403(b) plan
with an insurance company) out of Texas. Naturally, the investment person from the company came to our school and offered us a
"free-lunch" and explained how we might invest with his company in a TSA. Naturally, we fell for the ploy like you mentioned in your
book. We are now trying to see if we can add a low-cost plan at our work.
Thank you in advance for letting us "vent" our frustrations.
Typically we like to be a little humorous in this column. But there really is nothing funny about teachers being taken advantage of by
unscrupulous companies and employers who at best are ignorant of the workings of the 403(b) plan and at worst are complicit in taking
advantage of teachers (principal selling 403(b) investments to staff).
To the unscrupulous agents and companies out there who profit from ignorance: it may take time but the Internet and sites like this are slowly
opening the eyes of employees and employers. Our belief is that if you continue your current practices at best you risk suffering the fate of
General Motors and Ford whose outdated practices and often inferior products threaten these companies very existence; at worst you risk a
fate similar to Enron officials. Now that would be funny. |
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