As the adage goes, charity begins at home. And I hope that school district administrators and teacher unions will see this dire situation for what it is: an opportunity to take a stand for their colleagues.

For too long, teachers have suffered at the hands of salespeople peddling investments with offensively high fees in their 403(b) plans. What is supposed to be a great benefit and a responsible way to prepare for retirement has turned into a deceptive dance, with teachers blissfully unaware of the deception. They assume that, like their friends and family members who have 401(k) plans, someone vets the investments, choosing those that are reasonably priced. They also assume that the fees are transparent and readily available, that the investment options are solid choices, and that they have access to some form of education.

Not so.

In the K-12 403(b) market, none of this is required by the district. And without someone accountable for monitoring fees – teachers have been left as targets for abuse. The irony is if they weren’t public servants, these high-cost offerings inside a 401(k) plan would be grounds for a lawsuit against an employer for lack of fiduciary oversight. In effect, teachers bear a punishment for being a public servant. They are not entitled to these protections.

What does the abuse look like?

Teachers are told they pay no fees. They are misled into thinking the salesperson works for them and makes recommendations for the betterment of their financial situation. They unknowingly lock themselves into investments that bear high surrender fees that go on for years every time a dollar gets invested. They are sold annuities and mutual funds with fee structures. that go back to the 1970s – before low-cost options were available to everyday investors. It is the equivalent of teaching students that the earth is flat, while the rest of the world snickers and sells insurance on how not to fall off the edge.

It shouldn’t be allowed. But it is.

In fact, insurance salespeople continue to freely dominate the space – and not because they have a better product, but because they have deeper pockets to cover themselves against fines and disciplinary actions.

That is no way to conduct business. And that is why my husband, Tony, and I got involved in this space while he was still teaching, over a decade ago.

We wanted to offer teachers something they aren’t legally entitled to: fiduciary oversight.

And when we joined our advisory firm with Ritholtz Wealth Management, we knew it was the right place for us. They were appalled by this injustice and supported our efforts to forge a relationship with Aspire to offer teachers access to low-cost investments and the freedom to choose to invest on their own or with an advisor.

We knew the challenges: many didn’t know about this problem. So, we spoke to the press, to Congress, to advocacy organizations, such as 403bwise and Next Gen Personal Finance to get the word out to government leaders, school officials, and teachers. We started a private FaceBook* Group, Teacher Money Matters, to educate teachers about personal finance matters so they can look out for themselves. And in doing so, we met teachers who enlisted our help in their classrooms, to educate their students about personal finance, so they can start their adult lives with confidence.

On any given day, we assist teachers in the complicated process of extricating their life savings from these “reputable organizations.” One teacher was paying over $10,000 a year in fees, when she could have paid one-third of that had she chosen differently. Fortunately, her district had a good option, she was simply unaware of the disparities in the quality of the offerings.

Yet, there are plenty of teachers with no course of action. As long as their school districts fail to offer low-cost options, they are stuck.  with a miserable choice. Not all districts understand the issue and some are unwilling to add new options, or they take comfort in the “safety” of what has always been done, even though it no longer makes sense. Whether it is ignorance, fear, or apathy – it doesn’t matter. The end result is the same: teachers are not being supported in the manner they could be. It is easy to right this wrong, for those willing to do so.

If you are a teacher, administrator or union head and you are wondering what lurks in your plan, email us at 403b@ritholtzwealth.com.

This can be fixed. We can show you how to be a hero to the teachers in your district.

iStock photo: SIphotography

 

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