K-12 Story: How a 7th Grade Teacher Got a Better 403(b) Choice
by Mark Eichenlaub, Public School Teacher
It’s difficult defining an exact starting point when I began working to push my school district to pursue a better 403(b) option. I consider myself to be like the average teacher who has very little time for understanding the “ins and outs” of the investing and retirement world. Many times I attempted to teach myself about the specific investments inside my 403(b) and how to improve them (without much luck). Each time I restarted my pursuit of understanding 403(b)’s I became frustrated and embarrassed and assumed it was just me and I just wasn’t capable of understanding this topic and to leave it be. Terms such as IRA, Roth IRA, ETF’s, various stocks, dividends, bonds, annuities, mutual funds, index funds were all terms that I’d heard but I had little understanding of them or how they would factor into my 403(b) retirement plan.
Sold a High Fee 403(b)
I had begun a 403(b) back in 2007. I was approached by an AXA salesperson. No one ever even told me other options existed. I realize this is my own fault, I should have investigated this on my own but just starting out as a teacher I didn't know about investing and was totally overwhelmed with new teacher responsibilities. I began contributing about $75 a month. I did not put a large amount in for a variety of reasons, one of the main ones being I was never satisfied with the lack of knowledge about exactly where my money was going.
Help From an Uncle
Eventually, I overcame my embarrassment about lack of understanding and grilled my Uncle Joe, who retired through wise investing. Joe gave me a lot of fantastic advice. While he has primarily invested in stocks (different from what teachers can do with our 403(b) plans) his understanding of the general framework of investing and retirement was very sound. He also recommended I read up on Warren Buffett.
Vibrant Community of Advocates
Over the following weeks I became a sponge and read everything I could find on Warren Buffett and listened to a number of his interviews. I also discovered a whole new world that was totally unknown to me: an army of individuals online who were doing or had blazed an amazing trail on the retirement/investment front. I cannot thank these folks enough: Dan Otter of 403bwise; planner and former teacher Tony Isola; planner Scott Dauenhauer; planner Dave Grant; retired teacher and 403(b) advocate Steve Schullo; Andrew Hallam; Ed Mills, the Millionaire Educator; Mr. Money Mustache; Scott Alan Turner; Mad Fientist, the Boglehead forum and many others.
Initially it was difficult to take the lessons of a very successful stock investor (my uncle) and some of these others in other professions and convert it to the options available to teachers but Warren Buffett did state a number of times that if he were in a situation very similar to a teacher, he would go with index funds. This led me down another rabbit hole learning about index funds. I contacted AXA and was informed that I would not be able to invest directly in low-cost indexed funds. As you can imagine this was upsetting.
At this point my old and normal self would have thrown his hands up in the air, shrugged his shoulders and said: “At least I tried.” But having been listening to motivational guru Tony Robbins recently while running I wanted to keep pushing forward. I became determined to figure out a way that I, as a teacher, could have my retirement handled by a successful low-cost index fund provider such as Vanguard, Fidelity, TIAA or Aspire (a brokerage window that can provide access to low-cost mutual funds). The next step was asking my Human Resources department (I work for School District 161 in a suburb south of Chicago) how I could change providers and who my alternative options were. Upon finding out that my alternatives were not that appealing (Amerprise; Horace Mann Insurance Company; Lincoln Investment Planing, Inc.; Putnam Funds; ReliaStar Life Insurance Co.; Valic; and Waddell & Reed) I initially considered comparing the fees of all the companies available. I then realized that if I was going to do this I should just do it all the way, so I asked how I could add a low cost company.
I was first informed that any new provider would need to be approved by the third party administrator (TPA) who monitored 403(b) IRS compliance for the district. This group (TSA Consulting Group) informed me that my preferred provider could be added and to ask my district about it. I went back to Human Resources and was told that district policy was that 10 teachers would need to be willing to join the new provider for the district to add them.
I knew that simply asking my colleagues to do this with no data or numbers was not going to work so I set off to get some hard numbers comparing the fees and growth of the most common annuity based products teachers in our district were using (which I learned is similar to what teachers across the country are using). I compared this with the fees and growth of low-cost index funds. For my example I used Vanguard and Vanguard funds. When I began comparing the numbers I was literally appalled at how much money we were losing out on.
The chart below from Dan Otter’s 403bwise website was typical of what I was finding on my own:
How Fees Affect Return
Total value of investment after 35 years, assuming $250 contributed monthly with an 8% average annual return:
I wanted to be on the right side of this chart. My "choices" could only put me in the middle or left side of this chart.
Concerns About Not Being an "Expert"
I knew that I had to overcome my concerns and fears about not being an “expert” and “Who am I to talk to my colleagues about this?” I did proceed forward and made my presentations during lunches, after school and during personal planning time. I shared with colleagues the appalling numbers and soon 10 of them agreed to make the switch. The general reactions I was getting from my colleagues was that they were also disappointed with what they were seeing from their 403(b) but were too busy with teaching to do anything about it. Plus the whole topic of stocks, retirements, annuities, index funds, etc. was overwhelming and confusing. I felt their pain and shared with them the simplicity and value of index funds. This process took a period of months.
Upon garnering approval of nine colleagues, I contacted Human Resources again but ran into another speed bump (I had also been on the phone frequently with a very helpful representative at Vanguard). Human Resources informed me that there were some issues going on “behind the scenes.” Suddenly my brain drifted to: “So this is why no other schools have access to index funds.” I am aware that insurance companies are making BILLIONS of dollars off of teachers and was concerned that they had exerted some kind of pressure to prevent us from adding another (superior) provider.
What was actually happening was our district was unable to make this kind of decision without the approval of our Board of Education. There was also a hold up over who would pay the TPA compliance fee of $2 per month per teacher. Vanguard would not agree to pay this fee. Just when all looked lost, I learned that my district had reached out to Fidelity Investments, who was willing to pay the compliance charge. This was great news as Fidelity was my second choice. The Board of Education approved Fidelity on May 23, 2016.
Help From My Employer
While I put in a lot of work, I didn’t do it on my own. I have been incredibly fortunate to have had a very patient contact at our district’s Human Resource Department as well as an administrator working on this who knows what is right for teachers and is willing to help get it done.
My message to other teachers who are looking to get their district to add a better provider is this: Believe that this CAN be done. Listen to Tony Robbins if you have to (LOL). There is at least tens of thousands of dollars (if not hundreds of thousands) being left on the table that you could have in YOUR retirement. So be extremely polite to those who can help you get it done. They are also very busy and this is not something that happens very often. Respect their time and efforts and let them know that you respect their time and efforts. Share with them some of the hard numbers and data about how much more money teachers could be earning and how much your colleagues would appreciate this. Be prepared to make alliances with your union, friends you have in administration, fellow teachers, 403bwise discussion board members, and school board members if necessary. This is not an overnight process so you will need to be patient and persistent. Keep at it as it is worth it!
I have made a “cheat sheet” that I think will help most teachers with the process of saving for retirement that you can download for free here.This journey has led me to write about ways teachers can empower themselves to stress less, feel better and even earn more money. You can check my thoughts at ProsperousTeachers.com. Please stop by and leave me a comment on how your teaching is going. Also let me know what kind of 403(b) options your district makes available. I will provide free one-on-one coaching on how to get better choices to the first two teachers who contact me at mark(at)prosperousteachers.com
Mark teaches 7th grade and coaches in Illinois.