Education Consortium Throws Teachers Under the Bus
January 23, 2024
In a story that could only come out of the non-ERISA (non-fiduciary) world, an education consortium designed to secure employee benefits at a "lower cost than districts can get on their own" put a red-rated 403(b) vendor in charge of their 403(b) plan. Fox meet henhouse.
The tragedy for participants is that the Fringe Benefits Consortium of San Diego had actually created a pretty decent mutual fund product (record kept by Empower). We initially gave it our highest rating. Then things started going south. The FBC began offering higher-cost products sold by one of the lowest rated vendors: National Life Group.
It Just Got Worse
On January 12th, 2024 the Board of Directors (made up of school officials from 90 districts) voted to approve PlanMember, a red-rated company owned in part by another red-rated firm, Equitable who was recently fined $50 million by the SEC. The FBC touted that they had "negotiated" a discounted advisory fee of 1.50%. Again, only in the non-ERISA world would the hiring of sales agents charging 1.5% + investment costs be legally permitted. ERISA attorneys would feast on 401(k) plan sponsors offering something similar.
My partner fiduicary advisor Scott Dauendhauer, CFP, and I sat in via Zoom on the Board meeting. It was part inspiring — several board members spoke bravely and knowledgebly about the dangers of this non-fiduciary arrangement. One mentioned the front page San Diego Union-Tribune questioning the inherent conflicts of interest of the arrangement. Veiled shots were directed at 403bwise.org for our objection to this arrangement. Only 20 of the 90 districts voted. As Scott said to me: These people (from the districts) are good people who don't understand this decision.
Time to Make K-12 403(b) Plans Subject to ERISA
Why are education (and not-for-profit) employees the only non-protected class of defined contribution plan savers? Why do 401(k) participants get fiduciary protections while governmental 403(b) plan participants don't? Maybe it's because of the big bucks education workers are paid. Oh wait.
Stay wise and well (and let your representative know it's time to make the K-12 403(b) subject to ERISA).
