YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     Opinion: NYSUT Has It Both Ways When It Comes to Retirement Plans New York State United Teachers endorses two high-fee 403(b) products. However, the union makes available a low-cost 401(k) for its employees.   by Joel L. Frank Current Pension Topics Columnist, The Chief-Civil Service Leader     It takes millions of dollars to operate a union the size of the New York State United Teachers NYSUT that has 500,000 members. Unions are always looking for sources of revenue to augment their reliable dues flow. Recognizing that pre-tax retirement savings plans funded through convenient payroll reduction is by far the most popular fringe benefit offered to teachers by the 620 school districts in the state of New York, the NYSUT saw an opportunity in 1989 to use section 403(b) of the Internal Revenue Code as a means of raising revenue. All it had to do was find an investment provider willing to buy advertising space in the union newspaper, the "New York Teacher." Once it found a willing investment vendor it would be more than willing to "endorse" its products. Later that year NYSUT endorsed two arrangements issued by ING Life Insurance and Annuity Company — the Opportunity Plus variable annuity and the Opportunity Independence 403(b)(7) custodial account.   Union Blessing Should Equal Quality Plan At first glance one might assume that the Opportunity Plus and Opportunity Independence plans must be outstanding programs lest it would never get the union's "endorsement." In fact the NYSUT website describes Opportunity Plus as "an innovative 403(b) tax-deferred variable annuity (TDA) designed specifically for NYSUT members and agency fee payers." Sounds good. Since school districts usually do a miserable job explaining the 403(b) to teachers it would only makes sense that the union would pick up the slack and offer quality 403(b) education and/or quality 403(b) investment products. Lets go inside the numbers to see if this is the case.   Opportunity Plus: Fees in Excess of 2% Nearly all of the choices in the 50-60 investment funds (sub-accounts) in the Opportunity Plus plan sport expense ratios of 1-2 percent and include the notorious 12b-1 fees. All of the funds charge a sales commission on withdrawals made within 5 years of purchase (contingent deferred sales charge). In addition to the expenses charged by the individual investment funds the teacher is also charged 1 percent for insurance expense by the Separate Account maintained by ING. This means that investors are paying on average more than 2% in fees with Opportunity Plus.   Why Didn't the Union Negotiate a Better Plan? It Did — for Itself! Why didn't the union "negotiate" with a superior low-cost investment provider along the likes of Fidelity, T. Rowe Price, TIAA-CREF, or Vanguard? These vendors offer a host of investments with fees well below 1%. It is my opinion that NYSUT did not seek out a low-cost provider because such firms do not have the advertising budgets that a high cost provider like ING has. So rather than endorsing a low-cost provider and communicating the endorsement through union paid mediums the union decided to endorse the high-cost provider and collect advertising revenue instead. I think this is a critical breach of trust on the part of NYSUT.   Ironically, NYSUT did negotiate a terrific plan — for itself! Since September 1, 1984 the NYSUT has collectively bargained for three 401(k) plans with three unions that represents its own employees: The NYSUT Managerial & Legal Association, the NYSUT Professional Staff Association and the NYSUT CWA local 1141 Union. All three plans are administered by Fidelity Investments and sport fees of about 0.5%. Lets see... 2% in fees for the teachers and 0.5% in fees for the union. Now that's some fuzzy math.   NYSUT Teachers Lose Tens of Thousands of Dollars It is important to remember that all of the expenses to maintain an investment in Opportunity Plus are paid for by the teacher/investor, not the school district, and not the union. Expenses translate into smaller account balances and less retirement income. Lets do some arithmetic to knock the point home:   The ING/NYSUT "endorsed" Opportunity Plus 403(b) program costs the public school teacher about 2 percent while the 401(k) Plans sponsored by the NYSUT costs the NYSUT employee about 0.50 percent. If we start with an initial investment of $30,000 (with no additional contributions), and earn an average 8 percent a year for 30 years the teacher investing in the ING/NYSUT endorsed 403(b) program sees his $30,000 grow to $172,305 while the NYSUT 401(k) Plan participant sees his $30,000 investment grow to $262,649.   Apparently the NYSUT believes high costs are both good and bad. It's good if NYSUT, the union, "endorses" the high cost ING 403(b) program for teachers, and then collects some of those high fees teachers pay to ING by selling ING advertising space in the union newspaper where ING boasts that its 403(b) arrangements are blessed by the union. But its bad if NYSUT, the employer, sponsors a similar high cost 401(k) plan for its employees. NYSUT cannot have it both ways.   Opportunity Independence More Than Twice as Expensive as NYSUT 401(k) Plan While cheaper than Opportunity Plus, investment choices in Opportunity Independence, the other NYSUT endorsed ING offering, average more than 1% in fees — twice as much as the NYSUT 401(k) plan. Many choices in this plan average 1.5% in fees. It is my opinion that an expense ratio in excess of 1.5% makes pre-tax investing inferior to after tax investing in a low-cost plan. But the real issue is why should teachers pay more than twice as much in retirement plan fees than NYSUT employees?   Why Plan Expenses Vary Why pay 2% for a mutual fund when the same type of investment is available at 0.50 percent? There is a reason why some plans charge more than others. The 403(b), for example, is really not a plan at all but a legal arrangement between the employee and the investment provider. The employer is simply responsible for deducting a pre-determined amount from the employee's paycheck and sending it off to the investment provider for investment pursuant to the employee's instructions.   The 403(b) arrangement contrasts sharply with the other two popular salary reduction plans, the 401(k) and 457(b). These savings vehicles are formal retirement plans and as such the law requires the plan sponsor (employer) to perform its due diligence and establish a Board of Trustees, prepare a written Trust instrument, write a Plan Document, appoint a Plan Administrator, and write a Summary Plan Description. The 403(b) arrangement does not require such due diligence, which is why the plan is generally more costly to the employee. This lack of oversight paves the way for the investment provider to sell commissioned based funds through a network of agents. It is not uncommon for these agents to be found in the workplace prospecting for customers. On the other hand, the due diligence required of employers offering 401(k)/457(b) plans results in fees being kept to a minimum (no commission, no 12b-1 fees, no surrender charges, no variable annuity).   School Districts Need to Do More While not specifically required by current law to establish a Board of Trustees, prepare a written Trust instrument, write a Plan Document, appoint a Plan Administrator, and write a Summary Plan Description as required in 401(k) and 457(b) plans, school districts, especially the 620 in New York, need to begin putting their employees first when it comes to the 403(b). Their laissez faire policy results in high cost 403(b) investment products being sold to their employees. School year after school year New York districts continue to shirk their responsibility by allowing the high cost ING/NYSUT endorsed 403(b) programs to be sold to the tens of thousands of teachers in this State.   Employees Need to Take Action Concerned employees should arrange a meeting with their school district's benefits director. Tell him/her how outraged you are that you do not have a low-cost program. Make the same statement at a Board of Education meeting. Write a letter to the editor of your local newspaper. The employer is a fiduciary and as such has a duty to its employees to offer a low cost 403(b) program. Send a letter detailing your outrage to:   Mr. Walter Dunn, Chairman of the Board of Trustees of the NYSUT Benefits Trust, Inc. 800 Troy-Schenectady Road Latham, NY 12110-2455 1-800-626-8101   May I also suggest that the leaders of the various local affiliates of the NYSUT call upon the NYSUT Professional Staff Association (PSA), the labor specialists employed by the NYSUT to help local affiliates negotiate collective bargaining agreements with their school districts, for help in negotiating 403(b) arrangements along the low cost lines (no commission, no 12b-1 fee, no surrender fee, no variable annuity) of the 401(k) Plan that the NYSUT PSA has negotiated for its members with NYSUT management. Mr. Jeffrey Cassidy is the President of the NYSUT PSA. He can be reached at 1-800-287-3903.   From NYSUT Agreement With ING NYSUT Benefit Trust is a non-profit trust organized and existing under the laws of the State of New York. This Trust operates for the benefit of its members and agency fee payers of the New York State United Teachers.   The Company (our,we) and NYSUT Benefit Trust agree to the following:   Sponsorship of the Opportunity Plus program by the NYSUT Benefit Trust;   Our provision, to all members and agency fee payers of educational programs focused on financial planning for retirement; and   Our employment of trained personnel to conduct these programs exclusively for members.     Additionally:   We reimburse NYSUT Benefit Trust for direct out of pocket expenses up to a maximum of $40,000 per year incurred in the promotion of the Opportunity Plus program.   We will pay NYSUT Benefit Trust $338,000 per quarter during 2002. This payment will increase in subsequent years, and may include in the future, an asset based component. NYSUT utilizes these amounts to enhance benefits to the participants in programs it sponsors.   We contribute to the cost incurred by NYSUT Benefit Trust for retaining up to six employees who assist in management of the Opportunity Plus program.   We compensate United University Professions $6,000 per month for the use of on-site campus facilities and the sponsorship of the Opportunity Plus program."     Of note: It is interesting to note that the largest local affiliate of NYSUT, the United Federation of Teachers (UFT)... the NYC teachers union... has been steadfast from the very beginning in not allowing its members to participate in Opportunity Plus or Opportunity Independence. Almost half of the teachers in the State of NY come from the City of NY. Notwithstanding the fact that these teachers through their UFT dues, pay dues to NYSUT the UFT believes it is in its members best interests to be precluded from participation in the 403(b) Programs sponsored by NYSUT. I guess its accurate to say that the UFT fully agrees with the principles as articulated in the AFT Shark Attack report.   See: NYSUT Rebuttal   Related Story: Shark Attack Teachers, college professors and other education workers are being threatened by sharks — but not the kind that swim in the sea!     Home | Disclaimer | © 2003 bWise Guys, LLC. All rights reserved.				Get REALLY Wise The 403(b) Wise Guide.