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When Teachers Face The Task Of Fixing Their Retirement Accounts
FYI: When the Greenwich Alliance for Education held its annual trivia challenge last week, Carol Sutton worried a bit when the topic turned to finance. Ms. Sutton, the president of the teachers’ union in Greenwich, Conn., and her table full of educators weren’t quite equipped for the question about debentures.
Twice in recent years I have written to the Maryland retirement system offices with some polite questions about the 403(b) and SRA investment options available to us. Never have I received a response or even an acknowledgement. It only reaffirmed one of my major reasons why I selected the self-managed 403(b) option instead of the fairly black-boxy and advisor-riddled state pension system when I joined the university system in 2010.
Some facts about teacher retirement plans in CT (each state has it own approach):
-CT teachers contribute to medicare, but not Social Security. CT teachers contribute to a State run retirement system in lieu of receiving SS.
-CT is attempting (a bill proposed by the governor to help balance the budget this year) to shift the shared retirement contributions from (State & the Teacher) to the towns (State, Municipality & the teacher).
-City/town teachers and their unions negotiate with local Administration (superintentent, HR, etc...and now TPAs...Third Party Administrators) usually not (the state, city, or local Board of Ed) when it comes to 403(b) plans.
-Individual teachers have to advocate for non-annuity products and attempt to implement 403(b)(7) plans themselves. Many roadblocks stand in the way of making these changes and options available.
-There was once an escape hatch (90-24 transfer) where an 403(b) annuity account could be surrendered and the account balance (after surrender fees) could be transferred to a company like Vanguard who provide 403(b)(7) options like Index funds. Curiously IRS law was changed to prohibit this. Here's a link to this topic from 2005 before the law changed:403bwise.com/index.php?showtopic=830
A little known option for individual teachers in CT is to utilize (by making voluntary contributions) to their voluntary account with CTRB (CT Teachers Retirement Board).
There are no expense ratio, no fees, and you receive a yearly return equal to the return of the state managed retirement fund. These contributions are after tax contributions that can later be applied to an extra annuity that the state offers at retirement or can be transferred (trustee to trustee) to any brokerage house at retirement.
The NY Times article cited is really depressing reading for current or former teachers. I may have made this point in another thread, but my view, as a retired faculty member and union officer and the spouse of a retired public school teacher, is that the NEA and its state affiliates have failed to properly represent the interests of teachers, especially with respect to retirement. I have observed a paternalism that expresses itself in opaque arrangements with third parties, probably negotiated in expensive restaurants in full knowledge that most teachers won't notice the commissions and high ERs on the products sold. @bee is obviously very knowledgeable about what is available in CT (my home state) and I wish others were as well informed. I was ignorant about my retirement plan when I started work and I doubt I was alone. I wonder if a course in financial literacy in HS might help.
@bee You noted: "Curiously IRS law was changed to prohibit this"
As insurance companies established (lobbied) for the IRS section 403-b; I am most assured that the same companies needed to block "outbound" cash flows and not loose the ongoing fees. Yes?
These transfers were supposedly making it difficult for the original 403(b) contract provider (insurance company) to be held accountable once a transferred was made (for audit purposes). Potentially coincidental?
Lucky was my daughter who worked in a school district that already had some teachers (including her) enrolled in Vanguard products. They fought to keep that and won. The others were screwed over by, well, you know, whatever representatives of insurance companies etc who stuffed dollars in the school boards pockets.
My wife works at a local hospital. It is the "800 pound gorilla in the room" compared to any other area hospitals. They offer a 403b, and there is a small match from the employer. But the thing is administered by MassMutual. Logging-in at that website is almost useless. Their set-up allows you to look back at investment returns for no longer than one year, on a rolling basis. Basic stuff like finding how much in fees have been taken is surely designed to be difficult. Ya really gotta DIG to find any USEFUL information. The good news is that a good number of Vanguard funds are available. She's doing quite well, in VSCIX. But I have to look elsewhere, at WSJ or Bloomg. or google to find any longer-term info. And it lets me track the fund, but it is of course disconnected from my wife's specific account. The fees are low. But NOTHING should be so difficult to navigate as that MassMutual "Retire Smart" page. ORK! UGH!
@Crash, If there is an employee match (unheard of in teaching) contribute to the max. Use your knowledge from other site (like this one) to inform her and you. Sounds like she avoided annuities...that's great.
Keep making her lunch and hot coffee to take to work in the morning, invest the difference.
@bee Thanks, yes! "I'm on the case." I was on the phone to them a year or two ago, and I recall being told that when retirement comes, she COULD annuitize it. I just don't like the way they smell.
@Crash From conversations and observations over the years I find many 403b plans, especially related to hospitals are annuities. Do you find either of these in the naming and/or literature regarding the plan?
TSA, Tax Sheltered Annuity or TDA Tax Deferred Annuity
The VSCIX fund you noted has full data available at M*, etc. So, at least this portion of the 403b may be easily monitored.
These annuity products are offered for private sectors on their deferred pension and deferred contribution plans. Nuts! I will rollover the deferred contribution or 401(k) into a rollover IRA, but I have to take the pension portion part as annuity. It get worse if you take survivorship option.
Receiving a steady stream of income over the course of your retired life is not a terrible concept, in fact it's necessary. Not all annuities are designed the same. Most 403(b) annuities have high initial costs, poor investment choices, and many ongoing costs. In my case, I looked closely at my retirement systems options, I ran my budget, and I evaluated how to construct my retirement plan. I, too, had a required pension (annuity) in lieu of Social Security. I realized that this pension alone was not going to keep the light on and the beer tap flowing. So I saved additionally to help compliment my pension annuity. These were non-annuity choices such as Roth IRAs, 403(b)(7)s, T.IRAs.
If I had, instead, funded additional annuities I would have had fewer retirement choices. The retirement distribution options for these annuity plans seemed hard and fast. I decide these choices had too many restrictions, too many fees and too few investment options.
An annuity is a contract...understand the fine print before you start investing in one. They often are very difficult to understand and, like quicksand, awful difficult to get out of without paying an ultimate price.
My wife was a teacher in the SF Public School System for 35 years (and deserves a hero medal). She was extremely fortunate, in that the SF teachers had a decent pension system (CA Teachers Retirement), were allowed to also contribute to Social Security, and also were allowed a self-funded, self-directed 403B. After she retired we rolled the 403B over to an IRA.
Because of that, we contributed self-funding to the max on her salary, and Social Security and self-funded IRA on my salary. For the twenty years of my final job with San Francisco as a radio tech I also received a city pension.
While we were very fortunate to be in the right spot at the right time for those benefits, we also saved like crazy for forty years, and are now very comfortable.
@Nick: While I don't know the figures, many states are moving public employees away from defined benefit plans (the traditional pension) towards 403(b)-type plans for which employees need to make greater contributions and for which they must take a more active role in selecting investment options. Employees must be more knowledgeable than ever before, must make greater voluntary contributions, and often face (as described in the Times article) bad or confusing choices. Ideally, a group of employees, similar to those described by David at his college, can exert pressure on the employer (municipality, school board, etc.) to offer low-cost, no-load funds. One of the sad consequences of the "gig economy" or the "right to work" movement is to leave workers with no voice or place at the table, especially with respect to funding retirement. Even those who are represented face reductions in funding and, primarily in the private sector, complete abandonment when an employer is bought out or ceases operations.
Comments
-CT teachers contribute to medicare, but not Social Security. CT teachers contribute to a State run retirement system in lieu of receiving SS.
-CT is attempting (a bill proposed by the governor to help balance the budget this year) to shift the shared retirement contributions from (State & the Teacher) to the towns (State, Municipality & the teacher).
-City/town teachers and their unions negotiate with local Administration (superintentent, HR, etc...and now TPAs...Third Party Administrators) usually not (the state, city, or local Board of Ed) when it comes to 403(b) plans.
-Individual teachers have to advocate for non-annuity products and attempt to implement 403(b)(7) plans themselves. Many roadblocks stand in the way of making these changes and options available.
-There was once an escape hatch (90-24 transfer) where an 403(b) annuity account could be surrendered and the account balance (after surrender fees) could be transferred to a company like Vanguard who provide 403(b)(7) options like Index funds. Curiously IRS law was changed to prohibit this. Here's a link to this topic from 2005 before the law changed:403bwise.com/index.php?showtopic=830
A little known option for individual teachers in CT is to utilize (by making voluntary contributions) to their voluntary account with CTRB (CT Teachers Retirement Board).
Link:ct.gov/trb/lib/trb/formsandpubs/VoluntaryBulletin.pdf
There are no expense ratio, no fees, and you receive a yearly return equal to the return of the state managed retirement fund. These contributions are after tax contributions that can later be applied to an extra annuity that the state offers at retirement or can be transferred (trustee to trustee) to any brokerage house at retirement.
Other state might have similar options.
Here's how the fund invests and its return:
ott.ct.gov/pensiondocs/fundperf/FundPerformance12312016.pdf
403bwise is a good resource for asking questions and seeking answers.
403bwise.com/
You noted: "Curiously IRS law was changed to prohibit this"
As insurance companies established (lobbied) for the IRS section 403-b; I am most assured that the same companies needed to block "outbound" cash flows and not loose the ongoing fees. Yes?
These transfers were supposedly making it difficult for the original 403(b) contract provider (insurance company) to be held accountable once a transferred was made (for audit purposes). Potentially coincidental?
withum.com/kc/90-24-transfer/
Keep making her lunch and hot coffee to take to work in the morning, invest the difference.
From conversations and observations over the years I find many 403b plans, especially related to hospitals are annuities. Do you find either of these in the naming and/or literature regarding the plan?
TSA, Tax Sheltered Annuity or TDA Tax Deferred Annuity
The VSCIX fund you noted has full data available at M*, etc. So, at least this portion of the 403b may be easily monitored.
Nick de Peyster
Undervalued Stocks
If I had, instead, funded additional annuities I would have had fewer retirement choices. The retirement distribution options for these annuity plans seemed hard and fast. I decide these choices had too many restrictions, too many fees and too few investment options.
An annuity is a contract...understand the fine print before you start investing in one. They often are very difficult to understand and, like quicksand, awful difficult to get out of without paying an ultimate price.
Because of that, we contributed self-funding to the max on her salary, and Social Security and self-funded IRA on my salary. For the twenty years of my final job with San Francisco as a radio tech I also received a city pension.
While we were very fortunate to be in the right spot at the right time for those benefits, we also saved like crazy for forty years, and are now very comfortable.