Changes In Teacher 403(b) Plans Create Angst Among Financial Planners

<p lang="en-US">Sep. 21--DES MOINES -- Changes are under way that affect teachers and administrators in Iowa's 360-plus school districts who have been planning for their retirements.</p> <p>As a result of changes the U.S. Internal Revenue Service announced in 2007, school districts are now in charge of administering supplementary retirement programs, called 403(b) plans.</p> <p>The plans, which will have to be operational by Jan. 1, are designed to streamline supplemental retirement programs that heretofore could have involved countless individual investment brokers and insurance providers.</p> <p>Under changes the Legislature passed, each school district in the state has to limit the number of 403(b) program vendors to no more than eight. A district also can opt to participate in Iowa's plan, which limits options to six providers.</p> <p>"Anytime you have change that causes concern, people aren't sure what to do next, but I think, in the long run, it's going to be a positive change," said Randy Richardson, a director with the Iowa State Education Association. "Communication has been there. We've put out a lot about it."</p> <p>Locally, teachers are just beginning to learn about the changes, said Sharon Miller, spokeswoman for the Waterloo Community Schools.</p> <p>"We're just beginning to provide some opportunities to learn more about what this means," Miller said.</p> <p>Waterloo teachers will get one of those opportunities at informational sessions at noon, 4 p.m. and 7 p.m. Oct. 9 at Central Middle School, 1350 Katoski Drive.</p> <p>"I'm not sure how widespread the understanding is yet," Miller said. "That's why we're planning these sessions."</p> <p>Waterloo has opted to go with the six-vendor state plan, Miller added.</p> <p>Contributions to a supplementary retirement are not mandatory; of about 1,400 employees in the Waterloo district, for example, about 367 have signed up, Miller said.</p> <p>She added that employees have been sent a packet of information that includes frequently asked questions, a provider summary and credit ratings of providers.</p> <p>Cedar Falls Community Schools also are going with the state-designed system, said Doug Nefzger, director of business affairs for the district.</p> <p>"We felt it provided the most options for our employees," Nefzger said, adding that striking out on its own would have led to more expenses, such as hiring consultants and managing a plan.</p> <p>Nefzger estimated 17 to 18 percent of the district's 650-700 employees had signed up.</p> <p>There have been "one or two complaints" about the changes from longtime teachers who, after years of contributing to their own supplementary retirement plans, are now asked to switch to something new, he said.</p> <p>"I've had one or two employees express a concern about that, but they seem to understand the complexities of the new situation and the rules and regulations," he said. "I think most of our staff is taking a wait-and-see approach."</p> <p>Cedar Falls district employees have their own informational meeting about the 403(b) changes at 4 p.m. Wednesday at Cedar Heights Elementary School, Nefzger said.</p> <p>The changes do have critics, who say the new rules limit the investment options for teachers and longtime teachers now have to start up new funds.</p> <p>"The way I'd look at it is, especially with respect to some of the older educators, it's taken away their right of choice," said Glen Henry, a financial planner with Cedar Falls-based Investors Professional Services, who has put together investment plans for teachers in the region. "They lose sight of the fact that you may have a teacher that's three or four years from retirement, and they've been funding a program with me for 20 years and now they're told they can't fund that program."</p> <p>Dick Dobson, president of Investors Professional Services, said the changes deprive teachers of their freedom to invest where they want -- and some of his clients would be pulled away from funds in which they've invested for 20 years or longer.</p> <p>"You can't get personal contact out of an 800-number in Des Moines," Dobson said.</p> <p>Confusion can result, Henry said.</p> <p>"In a lot of cases, (teachers) are not going to be sure what (investments) they switched into, so they can no longer continue funding plans they may have been funding for, maybe, 20 years," he said.</p> <p>Henry said it also can cost vendors business, since a client who has to seek out an adviser for 403(b) investments is just as likely to shop elsewhere for other financial planning needs.</p> <p>"It takes away the ongoing service and overall financial planning we do with our clients, above and beyond what they happened to be doing with the 403(b)," he said.</p> <p>The changes compromise relationships -- and established trust -- between the financial adviser and the client, Henry noted.</p> <p>"It kind of loses its personal touch," he said. "We work with a lot of teachers in the old system."</p> <p>Younger teachers, who perhaps might not have been investing long in their retirements, may not feel the effects as keenly as their older colleagues, Henry acknowledged.</p> <p>But, he added, when they start thinking about investing, the lack of a personal local adviser could be a problem.</p> <p>The National Association on Insurance and Financial Advisers-Iowa, in Cedar Falls, also opposes the changes on restraint-of-trade grounds.</p> <p>"In our opinion, we feel that any limitation of any kind by anybody is not good, because it limits the amount of choice an individual, especially a teacher, might have, young or old," said Michael Gaeta of Muscatine, the association's president.</p> <p>Iowa's statewide plan includes six vendors: AIG, The Hartford, Horace Mann, ING, Security Benefit and TIAA-CREF.</p> <p>Dobson noted that AIG lost 19 percent of its stock value Sept. 8; a week later, it plunged 61 percent in the financial crisis that forced investment house Lehman Bros. into bankruptcy.</p> <p>None of the providers are based in Iowa, which is "problematic," according to Gaeta, a Prudential Insurance agent in Muscatine.</p> <p>"To me, I'd imagine Iowa wants to bolster its insurance industry, since we are the second- to third-largest insurance state," Gaeta said.</p> <p>There are also further restrictions in the new rules, Gaeta said.</p> <p>"Of those six companies, only three have captive agency forces and two have limited agents contracts," he said. "None of the companies I represent are in this pool, so I'm no longer able to advise my clients in that marketplace."</p> <p>According to a white paper issued by NAIFA, the changes had support from numerous quarters within Iowa's educational establishment. Among the supporters were the Iowa Association of School Business Officials, School Administrators of Iowa, Iowa State Education Association, Iowa Association of School Boards, community colleges and Iowa Department of Administrative Services.</p> <p>Streamlining the system was a necessary step simply because school districts, in some cases, had to juggle hundreds of investment vendors, said Dan Smith, executive director of the School Administrators of Iowa.</p> <p>"There were problems just managing many, many vendors," Smith said. "There were some that had 120-125 different vendors."</p> <p>The changes came about because the IRS had recognized the difficulties in administering such a jumbled system, Smith said.</p> <p>"With the change with the IRS at the federal level, responsibility for having management plans in place and making sure regulations were being followed appropriately now falls to the school district, so, in an effort to try to do two things -- to really make managing this responsibility something that could be manageable -- there was a feeling that limiting the number of vendors a school district would have to deal with would be a positive thing."</p> <p>Shelly Staker, director of the Hawkeye UniServe Unit, the Waterloo Regional Office of the Iowa State Education Association, declined to comment on the changes.</p> <p>The association's Richardson notes that competition still exists and that vendors will have to demonstrate the quality of their products on a regular basis.</p> <p>"We'll select vendors based on the quality of the products they offer," he said.</p> <p>The new system also is better because it's more transparent, Richardson said.</p> <p>"Transactions fees are all listed," he said. "When teachers learn what the fee is and what difference it makes over 20 years, it's significant. I'm optimistic it will be a positive thing."</p> <p>Kurt Subra, chief financial officer of the West Des Moines School District, agreed and added that the system will be available to financial planners across the state.</p> <p>"At least a couple of the six providers are willing to add agents, and they'll continue to have that relationship with their customers," Subra said.</p> <p>Teachers in the system shouldn't be confused about the changes because there's plenty of information available, Subra said.</p> <p>"There's been a lot of information made available to employers," he said. "I wouldn't see it different from a private employer making a change."</p> <p>The system also will be subject to regular reviews, Subra said.</p> <p>"Ultimately, the very strong winner in this is the employee," he said.</p> <p>Contact Jim Offner at (319) 291-1598 or [email protected].</p>