Hidden Payments and Costly Plans Dent Teachers' Retirement Savings
Hidden financial ties exist between some administrators hired by school districts for their teacher retirement plans and the companies whose investment products those administrators promote, The Wall Street Journal found. The ties can encourage administrators to promote higher-fee investments that leave teachers with smaller nest eggs than they might otherwise have had.
The Journal’s findings come as the Securities and Exchange Commission is investigating whether schoolteachers are getting a fair shake from the companies they work with when they save for retirement. The agency has requested information from companies marketing retirement-income products to teachers and from those providing administrative services, the Journal has reported.
Keith Reed, a 58-year-old fifth-grade teacher in Joshua Tree, Calif., says he has learned the hard way how the deck can be stacked against teachers’ retirement savings. The school district where he works hired an outside administrator, SchoolsFirst Plan Administration LLC, a unit of SchoolsFirst Federal Credit Union, to handle its employees’ retirement accounts. That administrator’s representatives would show up in the teachers’ lunchroom bearing pizza or doughnuts.
Mr. Reed said he eventually concluded that neither the school district nor its retirement-plan administrator was working for the teachers’ benefit. After attending a workshop run by the California Teachers’ Association union in 2013, he said he was shocked to learn how much in fees he was paying on his retirement account, which he had started investing in during the early 1990s. He also learned that, sometimes, investment advisers defray administrative fees in return for the opportunity to pitch products to teachers. Mr. Reed switched from investments that charged about 2% a year to choices that cost around 1/10 as much. “The adviser in the lunchroom is there to make a buck,” he said.
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At issue is what is called a 403(b) plan. It is similar to the 401(k) offered in the private sector. But teachers with 403(b) accounts are far more likely to have high-cost investments, according to state securities regulators. Many of roughly 20 teachers interviewed for this story said they assume their school districts have bargained on fees and are acting in their best interests. But unlike 401(k) plans, whose overseers have a fiduciary duty under federal law to put participants’ interests first, federal law puts no such onus on the vast majority of school districts and outside firms that administer 403(b) accounts.
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https://www.wsj.com/articles/quiet-payments-promote-high-fee-investments-for-teachers-11575996392 (paid subscription)
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