Monday Morning Quarter-Buck 04/23/2018: Should You Trust the Sweet 403b Donut?

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I’ve probably put more time and energy in this blog than any other blog I’ve written.   When I wrote the first draft I was steaming mad.  My fingers were slamming the key board so hard and fast my fingertips were actually warm.  If steam could come out of my ears, it would have been for sure!    This is a little on the “rant” side, but what I am about to share with you is not a story, it has actually happened, more than once.

Picture this, you are in the Teacher’s Lounge, lunch room of a hospital, or some other “community” room that has a table full of donuts a financial advisor brought in today.  They are there to talk to you about saving for retirement with a 403b account.  They are one of the “approved” vendors that have the privilege of meeting with you in this environment. 

Most people I talk to assume that because these individuals have been permitted into their environment that they have been pre-screened.  The pitch is, “this is a great product to help you save for retirement.”  The problem is, the product costs are not clear and, as a general rule, most individuals have no idea what-so-ever what they are paying. 

But, don’t let that sweet donut sway you until you’ve done your homework first.  Not all products are created equal!  One of my XY Planning Network Colleagues, Ryan Frailich, was recently featured in a New York Times article that dove into this issue, the article was called, Teachers and Annuities: A Questionable Match and Hard Products to Shed.

What bugs me more than anything about the situation is that many in the education field (such as teachers or college employees), and some medical employees, select among a list of “providers” their employer works with in order to save for retirement, but the employer has very limited liability with regards to the options because they are generally non-ERISA plans.   ERISA stands for The Employee Retirement Income Security Act of 1974.  If you look at the Department of Labor website, it states that “ERISA protects the interests of employee benefit plan participants and their beneficiaries.  It requires plan sponsors to provide plan information to participants.  It establishes standards of conduct for plan managers and other fiduciaries.”   But because ERISA does not cover retirement plans of government entities, Churches, and other 501(c)3 non-for-profit (such as public universities and public hospitals), many do not have the same level of protection.

An additional frustration is that most individuals do not know how to evaluate their options, not that I expect them to – it’s not their area of expertise and many of the fees are “under the surface.”  How many other products do we buy as consumers without looking and know the price we are going to pay?  Wouldn’t it be nice if all of that information was not buried in the middle of a 50-page booklet?  Wouldn’t it be great if some general education and options were more readily available!  Thankfully 403bwise is making some headway on a mission to provide some education, but it’s hard work getting the word out about the awesome resources on their website (www.403bwise.com).  Full disclosure on this – I am listed in their Advisor Directory, but I’m not promoting their website for that reason – I truly believe in their mission to reform and educate the 403b industry.    If you are a 403b participant, I would encourage you to check out their “Quick Start Guides” section and the “Beware the Fee Monster” section. 

In the article I mentioned above by Ryan Frailich, it’s mentioned that when he wanted to extract his own 403b account it took him eight hours and he explains his experience as “brutal.”  Ryan is a teacher turned financial planner, so he knows the jargon, the process, and yet, he still called it “brutal.”

A situation like Ryan’s is what got me all fired up last Wednesday.  But before I share the story to hopefully help educate others, let me give you a little history.

In 2005, I had to do an internship in order to get my bachelor’s degree in Financial Planning.  I was a non-traditional intern in that I had worked in the industry for about 8 years before I went back to college, so I was a 33-year-old intern and it wasn’t my first rodeo, BUT fee only financial advisors were not well known at that time.  So, I looked around and met with several firms in the area.  One company in particular was insurance based but I was told they would really like to be more “financial planning centric”, they said the right things to me, spoke of an amazing vision and how I would be helping people if I joined their firm.   I am so thankful for that internship – SO THANKFUL because it showed me what I didn’t want to do!   Let’s just say I started looking for other opportunities before I finished my internship.  This company wasn’t truly about financial planning in my opinion, it was about selling annuities.  If I wanted to make a living under that company umbrella, that was exactly what had to be done.  I also witness the “games” that were played when an individual wanted to get their money out of any of the annuity products that were sold.

Fast forward to Wednesday, I have been trying to help a client move a 403b annuity since September of 2017, mostly to reduce the cost of the investment.  That’s right, we are almost on month 8 of the process.  What started with a nice individual coming into the break room with some sweet donuts many years ago is now causing bitter frustration.  Sadly, this client is not alone – I’ve witnessed it more times than I can count.

So what blew my gasket? 

  • Strike One: Back in September when we made the first phone call to get the forms, we were given the wrong forms, but we had to wait about 30-days to find that out.  They had sent us non-NY forms and even though the insurance company had sent them to us, they would not make an exception. 

  • Strike Two: So in early November  they sent us new forms and we faxed them to the company per the form; we call to confirm receipt and they let us know that they will review the application and let us know if they need anything…crickets!  December rolls around and still nothing – the paperwork is still being reviewed.  Then in January, they tell us they need the original signature documents (can’t accept faxed copies).  Okay, well I still have those, so I send them in.

  • Strike Three: In February, we call for an update.  They say they never got the original documents.

  • Strike Four: Okay, I know three strikes and your out, but they kept playing the game.  So, in mid-February, I have the client resign all the forms and I resend them.  March rolls around, the forms are still being reviewed to verify they are in good order.  The client is not hearing anything, I’m not hearing anything, the transfer remains in limbo.

  • Strike Five: Last Wednesday I called, spoke to five people about this situation.  I remained calm but inside I was really ready to blow.  Here are the final words I heard, “Ma’am, no matter how many different ways you try to ask the question, I’m not going to give you the answer.”  Click.  Yep, she hung up on me.

I was blown away!  The real kicker, the client then reached out and was told that additional information was needed in order to honor the request.

I hope if you have read this rather lengthy blog, you can share this as a warning to those that might be affected by a similar situation.  What if this person was dependent upon receiving this money for income?  What if they had an emergency and needed to get to this money?  Education and advocacy on these issues is extremely important!

Want more information, perhaps you will find this podcast of interest: Teach and Retire Rich – The podcast for teachers, professors and financial professionals