NYSUT Settles With Spitzer Over ING Endorsement
I'm happy to announce that NYSUT has agreed to change its practices regarding the marketing of 403b plans to teachers. On June 13th NYSUT reached a settlement with New York State Attorney General Eliot Spitzer. The settlement centered on annual payments ING was making to NYSUT's Member Benefits Trust. While ING's payments weren't illegal, they led to the promotion of a 403b product which wasn't necessarily in the best interests of the hundreds of thousands of NYSUT members. Here are the proposed reforms:
- NYSUT will retain a panel of independent consultants to discuss changing the 403b program and try to find better investment options.
- A program will be created to provide union members with investment advice at least once every year for as long as the Trust continues to make endorsements.
- ING Opportunity 403(b) program participants (there are tens of thousands) can transfer at no cost their 403b account to a new plan recommended by NYSUT.
- Improved future disclosure of endorsement deals.
These proposed changes should have a positive reaction in school districts across New York. A few of these changes I still have some questions about. For example, NYSUT is now going to retain a panel to discuss 403b plans. My common sense would suggest that they should just stop endorsing retirement plans and let the teachers make their own decisions. The assumption in making any endorsement is that these products are confusing to people who aren't in the finance industry (this is very true) and without an endorsement they may get led into the wrong product. The irony here is that the ING product is the exact platform (variable annuity) which an uninformed investor may accidentally get led into. They have high fees, sales loads, and withdrawal penalties.
Here's what will probably happen but shouldn't: They will hire Vanguard or T. Rowe Price (no-load mutual fund companies) to administer the plan. The logic here is "well, you didn't want fees or sales loads, now you don't have fees or sales loads." This is running in the opposite direction to attract good press. The problem with no-load mutual fund providers is that they don't offer investment advice. You get cheap access to funds at the cost of not having an educated advisor help you make decisions. Because the 403b is a tax-deferred account, investment advice is needed more than ever. What NYSUT should do is find a mutual fund provider which will give investment advice (such as Oppenheimer Funds or American Funds) but offers a share class which has no load. This would be the best option for the teachers.
Because of my research and experience in the 403b arena, I will make every effort to participate in the NYSUT panel once it is created. I called NYSUT who said the website will provide updates in terms of when the panel will be created and how individuals can get involved. My hope is to make this reform as beneficial to the teachers as is possible. My position in all this is interesting because I am both a strong advocate of educators and a financial professional. I understand the need for plans such as the 403b to provide supplemental income during retirement.
I hope this clears up any confusion for my readers regarding this issue. I will post again on this topic when more information is available. In the meanwhile, feel free to contact me if you have any questions or comments.
Russell Bailyn
rbailyn@gmail.com
