Meta Effect of Being Non-ERISA
January 30, 2024
Last week Scott and I did one of our favorite educaton and advocacy activities. We hosted a free one-hour Get Wise to the 403(b) and 457(b) Zoom event for employees in the Menlo Park City School District. We love speaking to educators. What we don't love is learning about all of the horrible, expensive products participants have been sold. This district has some doozies.
The $400,000 Difference
A core education tool we use is to spotlight the difference in retirement savings between two hypothetical district employees: One who uses a low-cost company like Fidelity Investments or Vanguard and one who uses a high-cost company like Equitable. The difference over 30 years can be close to $400,000. Think about that. An educator who uses a low-cost company instead of a red-rated firm like Equitable could have $400,000 more dollars in retirement.
As we present our slides we can see the messages in the chat box: Oh, no I have one of the bad ones... Yikes, I'm in a red-rated vendor... Why would my district allow these companies to sell these products? We spend most of the Q&A section describing how to get out of a bad 403(b). District after district it is the generally the same thing. Why? Why are K-12 403(b) plans so bad? It comes down to five letters.
ERISA vs. Non ERISA
The simple reason the K-12 403(b) plan stinks? The 401(k) is subject to protections under the Employee Retirement Income Security Act (ERISA) of 1974. The K-12 403(b), known as a governmental 403(b), is not. It's as simple as that.
The Meta Difference
Meta, better known as Facebook, is headquartered in Menlo Park. If they offered the same vendor list as the city's school district they would be danger of being sued. Why? Because of the dozens of red-rated vendors in the plan. Offering a terrible, multi-vendor plan filled with red-rated vendors would put them in legal jeopardy.
What does Meta offer? One low-cost financial company: Fidelity Investments. While the school district offers Fidelity Investments, they also offer dozens of red-rated vendors sold by sales agents trawling their schools. Guess which companies the employees sign up with? The red rated ones. Why? Lack of education about the plan and investing, and see above (sales agents trawling the schools).
Meta Problem with a Simple Solution
Congress needs to amend ERISA and make the K-12 403(b) subject to it. That's it. Seems pretty bipartisan to me. Who would be against this? The financial companies who profit from this loophole. So do we care more about educators or predatory financial companies?
Stay wise and well (and let your representative know it's time to make the K-12 403(b) subject to ERISA).
