ntssa cover summer 2011

8/6/2019 NTSSA Cover Summer 2011

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1 | 403(b) Advisor | Summer 2011 | www.403b-advisor.net

Don’t Be RelegateD

to the SiDelineSThe ConsequenCes of ConsolidaTion

By Brian H. Graff, Esq., APM

E ven as we adjust to the impactthe IRS 403(b) regulationshave had on our industry, wecontinue to ace an even bigger

threat: the continued ocus by variousstates and school districts to consolidate

and perhaps even replace existing 403(b) programs or teachers.

Te result o this kind o consolidation isnot better products or teachers. Te realconsequence is that teachers have ewerchoices, including the right to work withthe very advisors they’ve grown to trust.

Tis trend toward cutting the numbero eligible 403(b) options in avor o asingle provider is oen recommendedby “consultants” with clear conicts o interest. Many earn large set-up ees,commissions, and trails rom the nancialservice providers awarded the contract.Business ocials have been told that asingle provider will lower their costs as

well as lower ees to teachers. Tere is noreal evidence that shows that either is trueand there is some evidence that teacher

participation rates are sufering.

In addition to school districts, stateshave increasingly been getting into theact. Iowa passed legislation to create astate-run 403(b) program that is limitedto only three providers. Although it’snot mandatory or school districts to

participate, they’re under tremendous pressure do so, and school districts in Iowaare not given the choice to ofer their ownselected options to teachers. Te FloridaModel Plan, or example, does allow each

participating school district to add itsown options on top o the core options

provided in the plan.

eachers should not be denied the abilityto choose who they work with when

planning or their retirement. NSAA, with the support o the resources oferedby ASPPA, has engaged in a concertedefort to tell our side o the story and stemthis tide. And we’ve already produced

positive results.

Last year, the LA Unied School District was planning on using an RFP processto consolidate and limit the number o 403(b) providers that would be permittedto ofer their products to teachers. Weought back, arguing that such an efort

violated state law and would ultimatelyhurt teachers. Although the schooldistrict is going orward with hiring aPA to administer the program, theybacked of, at least or now, on any efortsto limit the number o providers.

Just this year, there was an efort inIllinois to create a state-wide 403(b)

Eliminating choice will hurt public school employees.

I you’re a 403(b) advisor,

you should know that

NTSAA is the only

organization fghtingor you and fghting or

your right o teachers

to work with you.



2 | 403(b) Advisor | Summer 2011 | www.403b-advisor.net

program, similar to the one in Iowa, tobe established by the state comptroller’soce. We engaged quickly and

with the help o our lobbyist in Illinois,

the proposal is on hold and probably won’tbe considered until next year. Even i it isreconsidered we have commitments rom thestate comptroller to work with us to nd asolution that doesn’t limit teacher choice.

Tere are a number o other statesconsidering similar proposals or a state-

wide 403(b) program. Further, as statesdeal with growing budget decits many areconsidering replacing existing dened benet

plans with state-run dened contribution plans, particularly or new employees.

Tese proposals to create state-wide denedcontributions typically limit the number o investment providers. By steering teachersaway rom existing 403(b) programs, thesestate-wide dened contribution plans willalso have the efect o l imiting teacher choice.

Where states are contemplating limiting their existing dened benet programs orteachers, NSAA strongly believes theyshould utilize their existing 403(b) programsas part o the solution. In other words, i a

state wants to change the benet structure orincoming teachers, it should use the existing 403(b) program as the dened contribution

plan or teachers. Tis could mean that403(b)s could now be receiving matching and other employer contributions in additionto the teacher’s own contributions.

We’re certainly not saying the 403(b)industry is perect as is. Tere are manyinstances where hiring a single PA to gain

eciencies and lower administrative costs tothe school district may make perect sense.Further, NSAA supports transparentdisclosure o investment ees and all otherexpenses so that teachers clearly understand

what they’re paying and what they’re getting in return. However, both o those objectivescan certainly be accomplished withoutlimiting the number o 403(b) providers and

curtailing teacher choice.

NSAA stands or the proposition thatteachers should be able to choose theinvestment option that best suits their needsand the reedom to work with the advisorthat they trust. Te right advisors can helpteachers be inormed consumers and helpthem select rom among their array o

products the ones best suited to their clients’unique needs.

Tere will, o course, be some teachers who

want a very low-cost option with limitedservice and those schools that want to ofersuch an option to their teachers should beable to do so. But that should not be at theexpense o the teachers who want to workclosely with an advisor on a one-on-one basis,and are willing to pay or that level o service.

Along these lines, the NSAA LeadershipCouncil has developed a set o working

principles as we continue to deal withdeveloping state proposals that potentiallyimpact existing 403(b) programs. Tese

principles are:

1) For teachers and other eligible governmentemployees, the 403(b) should be the primaryretirement savings vehicle or such employeesand should not be displaced by a state-widedened contribution plan.

2) o the extent any state considers a state-sponsored or state-wide 403(b) program,

participation in such a program should beoptional on the part o any school district orother qualiying governmental entity.

3) Such a state-sponsored or state-wide403(b) program should be administered bya truly independent PA rm that agreesto never ofer any investment products toemployees covered by the program.

4) Although the state-wide 403(b) programitsel can negotiate with certain investment

providers to be ofered through the program,

each participating school district or othqualiying governmental entity must

permitted at its election to ofer an unlimitenumber o additional investment optioto its employees. Tese options shall albe administered by the same PA thadministers the state-wide program.

5) Te state-wide 403(b) program sh

not establish, limit, or otherwise attemto inuence the costs, ees, or other termor conditions o any additional investmeoptions selected by the participating schodistrict or other qualiying governmenentity.

6) Any terms that apply to such additioninvestment options or participating in tstate-wide 403(b) program, such as a pe

participant monthly ee or administratiomust be no more onerous than thoapplicable to the investment provide

selected by the state-wide 403(b) program.

7) State-wide 403(b) program marketimaterials to school districts and othqualiying governmental entities, as was their employees, must not avor thinvestment providers selected by the stat

wide 403(b) program, and must airly aclearly indicate that other investment optioare available.

I you’re a 403(b) advisor, you should knothat NSAA is the only organization ghti

or you and ghting or the right o teacheto work with you. I you’re interested in theissues, we maintain an ongoing spreadsheetstate proposals being considered throughothe country that could have an impact oexisting 403(b) programs. It’s available NSAA members at NSAA.org.

I you’re a 403(b) advisor, now is the time join. You can get more inormation abomembership by contacting the NSADirector o Membership Development

[email protected].

Brian H. Graf, Esq., AP

is executive director and CE

o the American Society

Pension Proessionals

Actuaries in Arlington, Va.

NTSAA stands or

the proposition that

teachers should be able

to choose the investment

option that best suits

their needs and thereedom to work

with the advisor

they trust.

ntssa cover summer 2011

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