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Thanks to Dan Flynn, Texas Teachers Can't Win

November 12, 2019

I have heard some crazy anti-consumer talk in my 19 years of 403(b) advocacy. I once had a Riverside County, California public school benefits official tell me that he could “care less” about vendor quality. The reason? He was solely focused on compliance. As if the two things are mutually exclusive.

And then there’s Texas Representative Dan Flynn, a Republican who wrote what can only be described as anti-teacher legislation. He authored House Bill 2820 which eliminated a 403(b) product registration requirement, and ended modest fee and surrender charge caps. The legislation went into effect on September 1, 2019. Instead of strengthening the already laughable provisions, he eliminated the following:

  • Product registration requirement
  • Max front end and/or back end charge of 6%
  • Surrender charges cannot exceed 10 years.
  • Annual fees capped at 2.75% per year.

Open Season on Teachers

Veteran Dallas Morning News writer Scott Burns wrote that the new law “declared open season” on teachers and made Texas safe for investment “predators.” My podcast partner and fiduciary advisor Scott Dauenhauer, CFP®, minced no words either: “The original provisions were abusive, but not abusive enough for the insurance industry.”

Say What?

When challenged on his law, Flynn, who received $176,264.31 in campaign contributions last year from finance, insurance and real estate interests, said: “Whole reason we did this was to open up the markets, get more transparency, get away from a monopoly."

A monopoly on what? Already expensive products. How does eliminating 403(b) product registration advance transparency?

Flynn saved his craziest explanation about his legisislation for the organization that will benefit most: the National Tax-Deferred Savings Association (NTSA), which lobbies on behalf of high-cost 403(b) firms and pushes multi-vendor 403(b) plans. He told them: “limiting fees may not only reduce product offerings, but also limits a company’s ability to offer services that provide valuable advice and educational tools that can assist teachers in making appropriate choices for their retirement income. Further, focusing only on fees ignores product performance and could deny teachers access to products that may have higher returns.”

That's more nonsense than, as they say in Texas, "You can shake a stick at." 

It’s All About Selling Indexed Annuities

The phrase "open up markets" and "limits company’s ability to offer services" are code words for the sale of high commission, high cost products. “This legislation is about one thing: Indexed Annuities,” says Dauenhauer. “It also helps the variable annuity companies because their surrender charges usually exceed 6%, but it really helps indexed annuities. We are about to witness a dramatic increase in the amount of indexed annuities sold in Texas K-12 403(b) plans.”

Jonathan Clements, former personal finance writer for The Wall Street Journal and operator of HumbleDollar summed up equity-indexed annuities best in an April 14, 2019 Tweet.

Ironically this is the exact amount of sense Dan Flynn’s words and bill makes.