California Teachers Association

April 2017

Issue link: http://educator.cta.org/i/812811

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A s a busy third-grade teacher with little time to think about financial investments, Angelia Brye-Jones was excited to sign up for a new 403(b) savings plan during a lunchtime presentation at school last year. In addi- tion to the free lunch, the enrollment came with a $100 gift card, just for switching to the new plan. It seemed a no-brainer. After all, Brye-Jones knew that her pension wouldn't cover her entire salary when she retired, and she knew that she would need additional savings. She also knew that one of the best ways is a 403(b) plan, which is available to educators in public schools and colleges. In addition to retirement savings, the plan provides immediate tax breaks. What Brye-Jones didn't know was that her new plan would cost her thousands of dollars in excessive investment fees over the years, plus an added $8,000 to $10,000 in surrender fees if she wanted to switch to a different plan. "I was crushed. ey made it seem so great. I just wasn't knowl- edgeable about all those fees," says the Sacramento City Teachers Association member. Brye-Jones isn't alone. An analysis by Aon retirement consul- tants found that the millions of people enrolled in 403(b) plans may be losing nearly $10 billion each year in excessive investment fees, according to a report in the New York Times. It wasn't until Brye-Jones participated in a CTA retirement workshop that she learned "retirement specialists" are making large commissions selling high-fee plans that are complicated and hard to understand, even for educators. High fees, large commissions "There are many vendors in the lunchroom or on campus that sell teachers 403(b) plans that pay commissions or have sur- render fees, and these are not disclosed up front," explains Carole Anne Luckenbach , manager of CTA Ri sk Managem ent/Busi- n e ss In it i a t iv e s a n d D e v e l o p m e n t . " O u r members think that because the plans are approved through a payroll deduction, they are endorsed by the district." Districts are indeed responsible for the 403(b) programs they offer. As plan sponsors, districts must ensure the program follows all the IRS rules, just like a private- sector employer. However, districts are not required to vet or review any fees or product offerings, such as high-fee annuities or mutual funds that carry front-load fees up to 5.7 percent, says Luckenbach. The 403(b): Buyer Beware Protect yourself (and your money) when considering retirement savings plans By Dina Martin " We want to make sure our members have a dignified, financially secure retirement. That's why CTA created a best-in-class plan." — CTA President ERIC HEINS 47 April 2017

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