One Step Forward

Brian Graff (pictured), executive director of ASPPA/NTSAA (American Society of Pension Professionals & Actuaries/National Tax Sheltered Accounts Association) recently made an appealing offer to the Los Angeles Unified School District's 403(b)/457(b) Oversight Committee: partner on a fee disclosure initiative. The goal, according to Mr. Graff, would be "a model disclosure that would simply and concisely provide teachers with information on the products and services offered by various vendors and the fees for those products and services." [You can read a statement from Mr. Graff here.] As a teacher and long-time 403(b) advocate, fee transparency has been a major objective of mine. In his June 16, 2011 remarks, Mr. Graff mentioned that his parents were educators. All good stuff.

One Step Back

Unfortunately, this was the very same Brian Graff who in February 2011 created a lobbying group to fight a rumored effort by LAUSD to put their 403(b) plan out to competitive bid. Following Mr. Graff's opening remarks, Oversight Committee member and teacher Alan Warhaftig, produced the lobbying registration document and the list of vendors behind the effort. Note: AXA later disavowed membership in this group. Mr. Graff acknowledged his actions, which have been rescinded, but mentioned his trade group's position hadn't changed. For him it was a matter of taking away "choice." He recalled how vendor representatives came to his parents' house to help them with their 403(b) plans. He seemed to imply that a competitive bidding process would deny school employees such professional access. It was pointed out by a committee member that if LAUSD were to pursue a competitive bidding process professional advice would most likely be part of the requirement.

Currently there are two main 403(b) models in public schools: 1) "any willing provider" model in which virtually all-comers are allowed to offer product; and 2) "controlled access" model in which the employer puts the plan out to bid, and interested vendors compete to earn right to sell product. In the former model, there tends to be a lot of "choice." Unfortunately, it's typically bad choice. For example, the school district I taught at in California had more than fifty "choices" of high-fee variable annuity product which calls to mind Henry Ford's famous quote: "Any customer can have a car painted any colour (sic) as long as it is black." I later taught in a "controlled access" school district in Maryland which featured a handful of low-cost vendors and vendors fielding agents in the field. That employer got pricing breaks on variable annuity products including the elimination of surrender charges. Agents were phohibited from pitching products at school sites. While not perfect (it had nine vendors), it was superior to the California plan.

In 2011, the TIAA-CREF Research Institute released a study, Who's Watching the Door? How Improving 403(b) Administrative Oversight Can Improve Educators' Retirement Outcomes, showing how teachers in an "any willing provider" environment lose tens of thousands of dollars in lost retirement savings compared to those in a controlled access model.

Do As I Say Not As I Do

Oversight Committee member Barbara Healy, who recently resigned an ASPPA/NTSAA leadership role in part because of these organizations' position on competitive bidding asked Mr. Graff about his employer's plan. It turns out he enjoys the exact plan that he wants to prevent LAUSD and others from having: one put to competitive bidding that includes fee-based advice instead of commission-based advice. You can't make this stuff up. I am going to guess that Mr. Graff doesn't get pitched equity annuity indexed products in his office.

California Has Fee Transparency + 403(b)/457(b) Education Portal

The more transparency the better, so I hope Mr. Graff's fee disclosure initiative is successful. But one of the reasons it's so needed is because of the "any willing provider" environment. It truly is a scrum where sales pitches trump education. The good news in California is that since 2004 the state of California has required all vendors selling 403(b) product to disclose all fees and surrender charges. This information is posted on 403bcompare.com. And (self-serving warning), a recently launched web site that my company developed — 403(b) + 457(b) Information Portal — provides comprehensive 403(b) and 457(b) information and material customized to the school districts who participate. Participation is free — learn more here.

June 16, 2011 Meeting on Youtube

You can watch Brian's presentation and the follow up questioning
(including a few by me) here:

Brian Graff at LAUSD part 1
Brian Graff at LAUSD part 2
Brian Graff at LAUSD part 3
Brian Graff at LAUSD part 4

Brian's Statement

New 403(b) legislation has increased On behalf of ASPPA and NTSAA we very much appreciated the opportunity to meet with the Committee. The purpose of our presentation was to invite the Committee to participate in a project that we believe will provide teachers and other public school employees with better information as they consider their retirement savings options. Specifically, we would like to develop a model disclosure that would simply and concisely provide teachers with information on the products and services offered by various vendors and the fees for those products and services. The intent would be that this disclosure be given to the teacher or public school employee prior to entering into an agreement with any vendor so that they know exactly what they are buying and what the expected fees will be.

To be successful, we believe this disclosure initiative must include the participation of those with the perspectives of both school districts and public school employees. We have begun discussing this with various groups around the country who have those perspectives, and that is why we wanted to invite the LAUSD Committee to consider joining this important effort as well.

It is true that we do disagree with the views of some members of the Committee who believe that the way to address perceived marketplace concerns is to limit the number of vendors offering retirement savings products to teachers and public school employees. Instead, we believe providing teachers with a clear and complete disclosure so that they can have the right information to make the right choice is better than limiting their options.

Despite this difference in approach, we hope that the Committee will concur that giving teachers and public school employees better information so they can be more informed consumers of retirement savings products is an idea everyone can agree with.

Brian H. Graff, Esq.
ASPPA/NTSAA Executive Director/CEO

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