The Wise Cracks Blog by Dan Otter



What’s That Fishy Smell in the Teachers’ Lounge?

For years we've read about the heaping servings of bad nutrition cooked up in America's grade school cafeterias. Reports of pizza in a cup and meatloaf Monday can conjure up painful lunchtime memories. But what about that fishy smell emanating from the teachers' lounge? You know the routine, smartly attired "financial planner" sets up a meeting with the staff to chat about finances — food and refreshments provided.

It's easy to be seduced by the aroma of "investing" and "securing your financial future," but what's really on the menu?

How about an appetizer of high fees, followed by a healthy serving of average performance and then washed down with a bottle of expensive surrender fees. The meal? The dish that has made more than one insurance salesperson fat with commissions: the high fee annuity.

What might you ask is so unappetizing about the heavily promoted product? The same thing that's wrong with the double bacon cheeseburger and fries: fat.

Bacon has nothing on the annuity when it comes to pork. Annual operating expenses can tip the scales at more than 2%, and sales commissions often range from 5% to 12%. Salespeople trumpet the annuity's guaranteed rate of return, but at typically only 4% to 6% that hardly stands up to the stock market's historical return of near 12%. Then to add indigestion to injury, most annuities contain tasteless surrender charges. Participants often must wait seven years before removing contributed monies without penalty.

Next time your school, hospital or non-profit organization hosts one of these smorgasbords of bad information, you might want to say "thanks, but "no thanks," and instead make dinner plans at the 403(b)(7) Bistro. That's the increasingly popular investment eatery that takes its name from the 1974 amendment (paragraph 7) to the 403b which allows participants to contribute directly to mutual fund companies through 403(b)(7)custodial accounts.

At the 403(b)(7) Bistro you can graze on a salad bar of choices including lean meat-and-potato investments like the popular S&P 500 index funds. Feel free to add side dishes of small-cap, mid-cap, and international funds to your meal. Afterwards, if you still have room for dessert, you may want to nibble on a sampling of sector funds that invest exclusively in technology, science, health care, and financial firms, among others.

Of course to get a seat at the Bistro, your employer must first include no-load mutual fund companies (like Fidelity, T. Rowe Price, USAA, and Vanguard) and low fee variable annuity companies (TIAA-CREF) on their menu. That's where 403(b)wise can come into play. Use our information and knowledgeable community as a resource to help you learn about these healthy choices. Get wise with 403(b)wise. Happy dining.

Note: This story first appeard way back in 2000, the year that 403(b)wise launched. We thought it would be good to reprise it here for our relaunch. Sadly, much of what is detailed in this story still occurs.