Blowing Smoke: More Weak K-12 403(b) Multi-Vendor Arguments 💨
August 6, 2019
It was good to see another publication cover the state-based insurance industry push to inoculate itself against competition. PlanSponsor ran a piece today called State Laws Prevent Single Provider for Some K-12 403(b)s. The story is a look at the spate of awful state laws that are really good for the insurance industry and really bad for 403(b) participants.
Insurance Industry Loves Multi-Vendor
The story rehashes the multi-vendor vs. single provider debate. Which is really not a debate. It’s an anti-competition insurance industry market protection scheme. No unbiased savings expert would ever recommend a multi-vendor environment over a competitively-bid single vendor plan. Please show me the private sector company that has fifteen 401(k) vendors staffed by non-fiduciary sales agents slinging high fee products in break rooms and offices? You can’t, because such a system is burdensome for the employer and toxic for investment balances.
The voices pushing the multi-vendor environment model do so because they are compensated by the very industry that benefits from the status quo. These voices are not besieged by sales agents at their place of employment, and these voices do not invest in high fee products because they know better. Sadly, most teachers don’t.
Like car dealerships facing a future of consumers demanding online shopping and purchasing options (see how Carvana sells used cars), the insurance industry sees the future (move to reduce plan fees via competitive bidding) so it has to change the rules. Too bad there are so many legislators willing to do their bidding.
420 or 403(b)?
I appreciate PlanSponsor covering this issue. This is not intended as a dig at them. They didn't create the broken K-12 403(b) system, and they certainly do not subject their employees to a multi-vendor environment. I think it would be interesting if the next time a story looks at the K-12 403(b) multi-vendor vs. single vendor “debate” the reporter would call say, Apple Computer, and ask their head of benefits the following: “Why don’t you have fifteen 401(k) vendors with sales agents pitching products costing north of 2.5% annually and surrender charges lasting 10 years, trawling your lunch rooms and foosball table areas?" I am pretty sure I know their response: “What are you smoking?”