Tuesday, April 25, 2006

403(k) Plans Are Goodie Bags For Teachers Unions

The LA Times continues its series on retirement savings plans. The Times finds that teachers are often paying the highest management fees in the nation on savings accounts because their teachers unions have steered them toward expensive accounts that are providing the unions with payoff, perks, and "royalties":

As with a 401(k), the nest egg grows tax-free until the owner retires and starts making withdrawals. But there is a key difference. In the private sector, employers sponsor 401(k) plans and are required to screen the investment options and make sure employees have reasonable choices.

School districts are under no such obligation. Most leave it to teachers to find their own investments.

As a result, hundreds of insurers, mutual fund companies and financial planners compete for teachers' money, touting a bewildering array of products. A union endorsement confers a huge advantage, allowing a provider to stand out from the crowd.

Unions do more than simply give companies their blessing. Some help market and sell endorsed products. They tout investment firms on their websites and provide direct links to sites where teachers can sign up to buy annuities. Endorsed providers also enjoy special access to schools and teacher conferences where they can pitch their products.

Teachers generally are not aware that unions are paid for their endorsements, directly or indirectly. Such deals usually are not mentioned on union websites or in brochures describing the favored investments.

"This is a national problem," said Dan Otter, a former Maryland teacher and founder of 403bwise.com, which offers tips on finding low-cost retirement plans.

"It's a rare school district that gives teachers access to quality choices. In most cases, they just turn a blind eye to the problems. And it's the rare union that's advocating for better 403(b) investments for its members," Otter said. "In many cases, the 403(b) is a source of profit for unions."

I'm printing the whole article out, making copies and distributing it to my colleagues at school.

I'm a neophyte about this stuff, but it doesn't surprise me that teachers unions see investment accounts as a source of profit. I don't see the UFT in the LA Times article, but I would bet Randi and company have their greedy mitts in this business too.

The UFT doesn’t invest my money. The Teachers’ Retirement System handles the investments for me. The most it can cost me is .18% or 18 basis points a year.
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