NTSA Puts the Tax in the K-12 403(b)
August 30, 2022
Scores of available vendors in a retirement plan might seem like a benefit. It’s not. As professor Scott Galloway has said: “Choice is a tax. Consumers don’t want more choice. They want to be more confident in the choices presented.”
K-12 403(b) participants have very little reason to be confident in the vendor choices presented. The reason: Multi-vendor plans with exorbitantly priced products, many with surrender charges. One of the most available companies — Equitable Financial — just paid a $50 million SEC fine. As I wrote recently multi vendor K-12 403(b) plans equate to a tax on time and retirement plan balances.
How Bad Are K-12 403(b) Vendor Plans?
To date we have graded close to 3,500 school district 403(b) vendor lists. More than 96 percent of these plans are multi-vendor, meaning participants must wade through numerous financial companies each offering dozens of investments. Close to 40% of the districts we have graded offer zero quality investment choices. Contrast that with employees of Apple Computer who have one low-cost vendor: Fidelity Investments. The grades...
- 126 A (3.6%)
- 16 B (<0.5%)
- 1975 C (56.7%)
- 799 D (22.9%)
- 569 F (16.3%)
Total graded: 3485
How we grade
Have we graded your plan?
Just the Way NTSA Likes It
The National Tax-Deferred Savings Association (NTSA) is an organization working hard to maintain the multi-vendor K-12 403(b) environment. How hard?
The organization regularly releases dubious "research" supporting the multi-vendor landscape. Fiduciary advisor Scott Dauenhauer, CFP® isn't buying it:
- ASPPA/NTSAA Research Falls Flat (note that NTSA used to go by NTSAA)
- "Study" Rebutted with Own Data
- NTSA and the Swimming Pool Dilemma
Opposed Single Vendor in Los Angeles Unified School District
In 2011 the NTSA dispatched its then-chief lobbyist to a Los Angeles Unified School District meeting because of a rumor that the district might move its C-rated plan to single vendor. We recounted the meeting in episode 4 of our pod series Learned by Being Burned: Teachers and the K-12 403(b). You can listen beginning at the 22:16 mark or read the transcript below.
Narrator (22:16):
Then in 2011 word got around that the Los Angeles Unified School District, the nation's second largest district by enrollment was considering reducing its sprawling 403(b) plan down to a single vendor. The idea was to mirror the way that a typical 401(k) plan operates, where multiple companies bid for the right to be the plan's sole provider, thereby driving down the fees paid by investors. The industry group that lobbies on behalf of the companies that sell 403(b) plans and is now known as the National Tax-Deferred Savings Association (NTSA) sprung into action to stop the proposed reform. The association threatened to sue the LAUSD if it attempted to restrict the number of companies that could pitch their plans to teachers. Scott Dauenhauer of 403bwise.org recalls one discussion during an LAUSD committee meeting about the proposal in 2011. Association lobbyist Brian Graff was urging the committee not to select a single vendor for its 403(b) offerings. One committee member asked Graff whether his association had a single vendor for its retirement plan. He replied that his plan was provided by Vanguard.
Scott Dauenhauer (23:33):
Here this guy is threatening to make a ruckus over the fact that retirement plans should be multi-vendor. When in fact they only had a single vendor and it was a good vendor and it was a low-cost vendor. So it was just hypocrisy at its worst.
Video of Brian Graff Being Asked at LAUSD Meeting if NTSA Employees Have a Single Vendor Retirement Plan
Click here and go to the 1:03 mark (note: NTSA was part of ASPPA)
Open Invitation for NTSA to Refute this Blog Post
Contact us at: hello(at)403bwise.org
Stay wise and well (and fight the K-12 403(b) tax).
