In case you missed it, the contribution limits to your 401(k) plan, IRA and Roth IRA—set by the government each year based on the inflation rate—will not go up in 2017. Just like this year, you will be able to defer up to $18,000 of your paycheck to your 401(k), and individuals over age 50 will still be able to make a “catch-up” contribution of an additional $6,000. (The same limits apply to 403(b) plans and the federal government’s new Thrift Savings Plan.) Your IRA and Roth IRA contributions will continue to max out at $5,500, plus a $1,000 “catch-up” contribution for persons 50 or older.
You might be surprised to learn that your pension and IRA assets are protected from fraud, malfeasance and sly predation by an entirely different government agency than your taxable and brokerage accounts. Under the Investment Advisers Act of 1940, the Securities and Exchange Commission polices investment advice and the fairness of recommendations and markets related to taxable accounts. Retirement accounts are policed under the Employee Retirement Income Security Act (ERISA) of 1974, by the U.S. Department of Labor.
Ever wonder why that “financial planner” is recommending the product they are recommending? It could be the compensation or the extra bonuses that are offered to incentive them to sell a certain company’s product.Given these incentive plans, is the product being sold really in your best interest? I’ll let you decide.
Here is a recent advert that showed up in my e-mail:
Here is a link to a website with the same advertisement:
Wondering which insurance company must be sold to secure that $1,000 Visa card (and trip qualification to Italy)? Here is the small print…enlarged:
*Available only on all Allianz Life Pro+® and Allianz Life Pro+ SurvivorSM Fixed Index Universal Life Insurance Policy Applications. Offer ends 12/31/14. Exclusions may apply; contact your Annuity Store Marketer at 800-825-6094 for complete details.
Policy #P54350 & #P61843 are issued by Allianz Life Insurance Company of North America.
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.
Product availability and features may vary by state. New York production is not included.
Registered representative participation is subject to Broker/Dealer approval.
The Annuity Store reserves the right to alter or discontinue this promotion at any time. Agent must be in good standing. All federal, state and other tax liabilities arising from the award are the sole responsibility of the agent. VISA is not a participant in, or sponsor of, this promotion.
TAS226-38610 For financial professional use only – not for use with the public.
Notice that the marketing company doesn’t want you to know about this – marking the e-mail “For Financial professional use only – not for use with the public.” It seems to me the public SHOULD know about the incentives driving the product recommendations being made.
This practice should not be allowed.
Scott Dauenhauer, CFP, MPAS, AIF
While some organizations continue to promote “disclosure” over an actual requirement to be a fiduciary – 403(b) (and 401(k)) participants have made it clear – they want investment advice to be in their best interest.
A recent AARP survey, titled “Fiduciary Duty & Investment Advice: Attitudes of 401(k) and 403(b) Participants” could not have been more clear in its results. According to AARP, “The survey was administered online from May 24, 2013, to May 31, 2013, by GfK Custom Research to its national KnowledgePanel, a probability-based web panel designed to be representative of the U.S. population. The findings are based on 1,425 adults ages 25+ who currently have money saved in a 401(k) or 403(b) plan.”
A few key findings (taken directly from the AARP site linked to above):
More than nine in ten (93%) respondents indicate that they would favor requiring plan providers to give advice that is in the best interest of plan participants. Nearly as many (89%) favor requiring plan providers to explain, prior to giving advice, if the advice is not required to be in the best interest of plan participants.
More than three in four (77%) respondents indicate that they are concerned by the fact that investment advice from plan providers is not required to be in the best interest of individual plan participants. Fewer—yet still a majority (62%)—describe themselves as concerned by the fact that their plan provider can give advice to plan participants while making money from their investment selections.
Before reading a statement explaining that investment advice from plan providers is not required to be in the best interest of individual plan participants, just over nine in ten (93%) plan participants indicated that they either “completely” or “somewhat” trust their plan provider to manage their 401(k) or 403(b) investments in their best interest, while nearly as many (87%) respondents said that they trust their plan provider to give them investment advice that is in their best interest.
After reading that advice from plan providers is not required to be in the best interest of plan participants, half (50%) of respondents indicate that this information makes them “less likely” to trust their 401(k) or 403(b) provider for advice while just over one in three (37%) indicated that it has “no impact” on their level of trust.
When asked to indicate whether they would prefer to receive advice about their 401(k) or 403(b) plan from someone that may make money from their investments or no investment advice at all, reactions are mixed. Almost four in ten (39%) said that they would choose “advice from someone that may make money from the investments I choose,” but nearly as many (31%) indicated that they would choose “no investment advice at all.” Another three in ten (29%) indicated that they “don’t know” which they would choose.
Approximately eight in ten (81%) respondents agree that it is important to get investment advice about their retirement from an independent advisor who does not earn money based on their investments.
Fewer than four in ten (36%) respondents would trust the advice from an advisor who is not required by law to provide advice that is in their best interest.
While this is no surprise to me, it provides further support that Associations working to undermine fiduciary based advice in 403(b) plans are pursuing a goal that is clearly divergent from the participant base they seek as clients.
The Executive Summary is below:
Update: ASPPA/NTSAA has now update their blog and remove my name, it never should have been there to begin with.
ASPPA/NTSAA continues to submit a white paper titled ” “Protecting Participation: The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans” to school boards and state legislatures across America (including recently in California, where I live), despite it being shown (by me and now others) to be biased, misleading and containing assertions not supported by facts.
There have been other refutations since mine came out, but the one I’ve posted below is special because it is written by the consultant to one of the employers mentioned in the ASPPA/NTSAA study – Jefferson County, CO – JeffCo Public Schools.
In my refutation I mentioned many reasons for potential drops in participation that have nothing to do with changing provider structure, they were:
- Participants retiring – how many of those participants retired? Given that the percentage of participants who are older is usually much higher than the percentage of participants who are younger, people retiring would have a larger affect on participation rates.
- Layoffs. I’m sure no one who was contributing to a 403(b) was laid off during this time period.
- Other retirement plans. School employees also have access to a 457(b), how many switched to contributing to a 457(b) instead of a 403(b)? I happen to know of a county in Southern California or two that actively pushes to get participants into their 457(b) plans at the expense of participation in 403(b) plans. How many of these participants stopped contributions to a 403(b), but started to a 457(b)?
- Greatest financial collapse since the Great Depression happened during this time frame – could that have an effect on participation?
- Greatest housing collapse since the Great Depression was occurring during this time frame – could that have an effect on participation?
Other reasons for lower participation after a switch could be poor communication during the transition or requiring participants to re-sign up for a 403(b) as opposed to allowing contributions to continue to the new provider without a new salary reduction agreement. A full study that included employers where participation stayed the same or increased after a reduction would be helpful for everyone as it would help create a “best practices” for transitions of this sort – the ASPPA study was not designed to address such questions.
While each of my reasons above could be likely factors for potential drops in participation, it turns out that one in particular accounted for much of the drop, yet was not mentioned in the ASPPA/NTSAA study – the addition of a 457(b) plan. In the letter below, the consultant states:
“At JeffCo Schools, in point of fact, the number of contributing participants in their retirement plans have been unchanged from 2005 – 2011. JeffCo Schools rolled out a 457 plan option on January 1, 2006. Because of more attractive distribution options, many participants chose to switch to a 457 from their previous 403(b). The ASPPA study ignored this fact. Even with attrition from the 403(b) to the 457, 403(b) and 457 plan participation in 2011 was 4,243 from 4, 262 in 2005.”
ASPPA/NTSAA chose to illustrate the JeffCo example with the following info graphic:
This graphic clearly demonstrates falling participation – yet it also fails to capture the entire story and turns out to be very misleading when put into full context – at least according to the data provided below from Innovest and JeffCo Schools.
One must ask, what has happened to ASPPA/NTSAA? I’ve spoken to many members who are disappointed with this sad turn of events for what is (was?) a great organization. The zeal to protect a 403(b) industry stuck in the past has blinded them to the reality of the day.
Regardless of ASPPA/NTSAA’s reasoning to release a study that they knew or should have known to be misleading (this is my opinion), the study should not be taken seriously. It is time that ASPPA step up and withdraw the study and stop distributing it to unsuspecting school boards and legislators.
Who at ASPPA/NTSAA will step up and finally say what the members are thinking? Perhaps this devastating letter provided below will be the impetus.
ASPPA/NTSSA has responded to the below letter with a bizarre post on their blog, which targets yours truly, titled “Supporters of California Bill Attempt to Defame Study”. In the post they claim:
Supporters of the bill are attempting to bolster support for the bill by defaming a 2011 study on participation in 403(b) plans. Correspondence was sent to the the Honorable Jose Solorio of the California General Assembly by INNOVEST and Scott Dauenhauer (the “Bill Supporters”) which challenges the validity of the study.
Innovest never sent the letter to me directly and has never communicated to me that they were even sending a letter. Until the letter became public record I did not know it existed. Having said that, I do support the right for employers to bid their 403(b) plans (just like they have this right for their 457(b)) and the rights of employees to have fiduciary based retirement options and this bill takes steps toward that end.
As I detailed above and on my sister blog, I thoroughly discredited the ASPPA/NTSAA study with objective facts, no defamation. The Innovest letter goes further by using ASPPA/NTSAA own example and providing the full context (and data) to demonstrate that the ASPPA/NTSAA got it wrong (or at least didn’t provide the full story). Innovest used data, facts and context to discredit that portion of the “study” – they never attacked the people who wrote it personally or resorted to statements that were knowingly false.
Defamation is a strong word – the proper term here is discredit. I believe that both Innovest and myself have discredited the “study” using logic, context and facts – no personal attacks. I honestly believe the study is flawed and could never be accepted by scholars or allowed in a scholarly journal. I’m fully prepared to withdraw my claim of “discredit” if ASPPA/NTSAA can get their study published in a reputable scholarly journal.
The claims made in the Bill Supporters’ letter are baseless and unfounded. The Bill Supporters accuse the authors of the study of omitting data for the Jefferson County School District in Colorado, without providing any evidence substantiating their claims. Furthermore, the Bill Supporters’ letters fail to address that the study found similar reductions in participation in California and Pennsylvania when retirement savings options were eliminated for those participants.
I’ll let you read the letter below and decide who is telling the truth, it becomes rather obvious.
Scott Dauenhauer CFP, MSFP, AIF
For those of you who think ASPPA’s position that advisors shouldn’t be fiduciaries I present the #1 Midland National sales rep in Arizona for 403(b)’s. He promises the following on his Facebook page “Is your stock account dropping like a rock? Our accounts have NEVER lost 1 penny for anyone. Come into Cameron Financial Group today and put a turnakit around the bleeding. We can GUARANTEE you 7% on ALL your money for the next 10 years!!!”
So there you have it – its that easy to earn 7%. Here is a recent flyer from the same group left at a district office for teachers and school employees. This is what ASPPA now endorses and what Brian Graff wants to fight to protect. Is this really what ASPPA wants to support? Should our school employees really be subjected to this non-fiduciary behavior?