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279 | Be Wise, Your Financial Future is at Stake | Dan Otter

40 min • 18 december 2020

Teachers have been getting taken advantage of when it comes to their investment options. Thankfully, the internet and technology have made it easier to get the word out and help teachers wanting to do better.
During his first year of teaching, Dan Otter was asked if he cared about his financial future. He politely listened to a hardball sales pitch about an investment scheme he didn't fully understand.
Rather than blindly following other teachers at his school who had invested in it, Dan began to educate himself by learning about John Bogle, Vanguard, and low-cost investing.
He learned the salesperson who had approached him was trying to sell him a high-cost annuity inside a 403b and that it was a terrible product.
Unfortunately, most of his colleagues had signed up for these poor investment products despite having more than 100 options available to them, including Vanguard.
Dan began to speak up and asked pointed questions when other teachers began to talk about their sales agent in the teacher's lounge. Though he had never done it before, he started looking at their statements and showing them how much the fees were.
Appreciating Dan‘s insight and help, it was suggested that he put on workshops. After thinking about it, he bought the domain 403bWise, and with help from a friend, they built and launched the website in March 2000.
The mission of the website was education and advocacy, where teachers and school employees could come and learn about the 403b in a non-sales environment and also advocate for low-cost options like Vanguard.
Although this was 20 years ago, Dan says the problem with 403b persists today. Teachers usually find 403bWise after they have been sold one of these expensive products.
Dan says that not all 403b's are created equal. After working in different environments where 403b's are available. They were largely terrible in the public school systems with many vendors. Private schools generally have just one vendor, as do universities, like Fidelity, TIAA-CREF, or Vanguard.
403b's fall outside of federal oversight, specifically Arista regulation, so the employer does not have the same kind of fiduciary duty. Just being on the list signifies tacit endorsement, however, the vendors are not vetted by the school districts.
Just because you aren't paying money out of pocket, doesn't mean there are no fees. Vendors make the fees hard to find.
Teachers all over the country can get fee information on the website, 403bcompare.com.
Dan says to look for costs in two places; mortality and expense, and then look at the mutual funds that are part of the annuity. If you find out that you are in a bad product, you may also have to pay 7% of your balance just to get out of it.
Using the hypothetical example of a relatively new teacher earning $50,000 per year who expects to retire after 30 years, the difference between investing in one of these terrible annuity products versus one found after learning more from 403bWise can be $200,000.
Over 35 years, a teacher contributing $250 a month earning 6% will earn $185,391 when investing with one of the lunchroom sales agents, while the teacher investing the same $250 a month earning 6% interest with a low-cost company will have $343,000 at the end of 35 years.
Dan was able to visit the Vanguard campus as a guest of their 403b unit and says they are very focused on this market and getting on vendor lists.
A good fee for a 403b is 0.5, or 50 basis points, or less. Companies like Fidelity, Vanguard, and Aspire Financial Services are good. In California, CalSTERS, the state pension agency, created their own 403b after and is on most vendor lists.
Do not confuse Fidelity with American Fidelity Assurance, which is a high-cost company.
A 457 may be an even better plan than the 403b. Reputable 457 plan companies include TIAA-CREF, T. Rowe Price, and Vanguard.
The National Tax Deferred Savings Association is a well-funded lobby with an interest in maintaining a high cost, multi-vendor 403b environment.
Montgomery Country schools in Maryland is one of the few school districts to put their 403b plan out for bid. They reduced the number of vendors down to just one, Fidelity, and plan participation and contribution have increased.
Dan would like to see every district do what Montgomery County did, but it needs to start with the teachers from the ground up.
The 403Wise website has three main sections, education, advocacy, and community. Under the Quick Start Guide, the tool, Find a Good Vendor, on the home page allows teachers to search within their own school district.
403b compliance is often outsourced to third-party administrators who bring in vendors who yield them revenue.
Even one of the big national unions, the NEA, has an endorsement deal with a financial company called Security Benefit, which offers a product called the NEA Value Builder with load fees of 5%. After being sued, they offer a fantastic and unadvertised product called NEA Direct Investment.
Anyone who would like to try and make a difference in their school district should reach out to 403bWise because they are building a network of advocates.
In addition to joining the Facebook group, reviewing the website, and learning about the 403b vendors available to you, check to see if a 457b plan is also available.
A 457b works similarly to a 403b but has a few more amazing benefits. If you separate from service, you can access the money in a 457b tax and penalty-free. Also, when just three years before retirement age, you may double contributions. And finally, 457b's requires more fiduciary oversight.

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