Teachers Pay High Fees for Retirement Funds

https://www.wsj.com/articles/teachers-pay-high-fees-for-retirement-funds-unions-are-partly-to-blame-11576684664

67 108 7 years ago

bifrost• 7 years ago

Unions in CA are also why teachers can't get disability insurance. Have to go out for surgery? You get nothing.

kazagistar• 7 years ago

If a union isn't democratically controlled by the workers it's not a proper union, and if it is, it is possible to make work for the majority of its employees, at the very least. So what's the full story you are missing here?

bpodgursky2• 7 years ago

Union bosses have control over raises, promotions, and hours granted to members. They also have built-in powers of communication and messaging control (both publicly and within the union)

In corrupt unions, the bosses absolutely will use that power to punish employees seen as challenging their authority or a leadership change.

Saying "oh, they can vote them out" sounds great from the outside, but if you have a family, you're not going to start an insurrection if it means losing your job, healthcare, and getting blacklisted from being employed in other (union) shops.

gamblor9566• 7 years ago

This didn't sound correct, so I polled my many teacher friends about it.

And it turns out you're not correct. The districts decide who gets disability insurance, not the unions. If the district doesn't offer disability, the teachers don't get disability unless their union chapter separately provides it or the teacher individually acquires a policy.

lotsofpulp15• 7 years ago

I don't see any reason an employer or union wouldn't offer Vanguard/Fidelity/Schwab for 401k/HSA with access to the < 0.05 ER index funds if they really were putting their employee or union members' interests first.

I assume they're probably getting some kickback or something from the arrangement of restricting the 401k/HSA member's funds to high fee investments.

Edit: At least for an HSA, one can transfer the funds out into a Fidelity HSA account immediately. With a 401k, you have to wait until you leave your employer, but with an HSA, just request a transfer of funds to your Fidelity HSA, which is free and you can invest in anything you like.

Ididntdothis6• 7 years ago

I don’t understand why 401k even exists. The money should go into an IRA controlled by the owner. The employer should have no say in this. The same should go for health insurance....

lotsofpulp15• 7 years ago

It exists to give large employers who can afford to pay for administering those benefits an advantage over smaller employers. Same for health insurance.

sebasmurphy• 7 years ago

And even if it does. I don't really see the reason that I should be locked into the employers 401k and not be able to choose my own.

toomuchtodo• 7 years ago

401ks should not exist. IRAs should support the same contribution limits, with funds deposited in the same way payroll is done. This would be extremely beneficial to everyone saving for retirement, as fees would be driven down due to the ability to shop your account around, and there is zero friction in opening an IRA compared to your employer needing to sponsor and support a 401k plan.

Support retiring 401k legislation. Call your representatives.

harikb• 7 years ago

Edit: See jlmorton's correction below. Creation was indeed accidental. Leaving my comment unchanged.

When 401k-s originally started, it was considered ground-breaking in that it was a way for employers to use their purchasing power (or choosing power) to get lower cost management of funds. It was envisioned as a great thing for employees and employers.

But we all know that is now how new laws are created. A bunch of lobbyists from financial sector lobbied to create this new instrument, which in turn directs more money to them.

Any instrument where the employee doesn't get to control the management of the money is bad for the employee.

There is a similar situation with FSA (Flexible Spending Account). That is day light robbery. Employee has to guestimate how much medical expenses they have in the year. Estimate too little and you lose the tax savings. Estimate too much and the FSA management organization keeps the unspent money. What was originally deducted from your paycheck doesn't come back to you with a 10% additional penalty. No, the person loses 100%. FSA says the money goes to the employer to offset the management costs. This is like the real-estate sales person claiming the seller is paying them.

jlmorton• 7 years ago

It exists as a historic accident. It was not originally intended as a retirement savings program, but simply a way to help a small number of rich people avoid tax on deferred income invested in the stock market.

Though the program has become widely popular, it's still very clearly a giveaway to the rich. Not only are the wealthy capable of saving a larger amount, we also allow their employers to contribute up to $56,000. Obviously, most employers are not going to contribute $56,000 to their employees retirement savings plan.

Up to 80% of the tax expenditure of 401k plans is captured by the top quintile of income earners. The plans amount to welfare for the wealthy, and indeed the government loses more revenue from these tax expenditures than it spends on many welfare programs like food stamps.

kyrra• 7 years ago

One important difference is that teachers tend to use 403b vs 401k. One difference the WSJ calls out is that the rules around 403b aren't as strict, and the employer (ie: the school) isn't required to act in the best interest of the teacher when offering the plan.

lotsofpulp15• 7 years ago

401k rules aren't strict enough either, otherwise making sure employees have access to the extremely low cost total market index funds would be required. When an employer or union offers access only to funds with expense ratios 20x+ the going rate, that is not in the best interest either.

MrFoof• 7 years ago

I assume they're probably getting some kickback or something from the arrangement of restricting the 401k/HSA member's funds to high fee investments.

"Liz Cannon, who heads the Indian River chapter of the Florida Education Association, urged union members to buy retirement investments from Valic Financial Advisors Inc. through a firm owned by the union. That way “we also make money,” she said in a November 2017 newsletter, through regular dividends."

It's stated clearly in the article that there functionally are.

Tip of the iceberg at that. I'm sure there's a few folks between the investment firm and related parties that have bought themselves a boat based on the massive haircut the teachers are taking.

The kick in the gut though is the WSJ article itself. To the naive reader, it makes it seem as if 1% fees are good. They're not. 1% is wildly un-competitive in today's environment.

mbreedlove• 7 years ago

They're not. 1% is wildly un-competitive in today's environment.

Especially now that Fidelity offers zero expense radio funds.

https://www.fidelity.com/mutual-funds/investing-ideas/index-...

whb07• 7 years ago

Last I checked most of Europe is expecting interest rates in the NEGATIVE. In the US interest rates are being chained to the floor at 2%.

So yes, 1% is beyond massive and the difference between 1% to 2% isn’t 1%.

joncrane• 7 years ago

It's minor kickbacks and a lot of information asymmetry.

The big kickbacks come from the "benefits consulting" companies that "help" small to midsize businesses figure out what vehicles to use to offer benefits for their employees. (This sometimes includes health insurance but we're not talking about that) Their main source of income is commissions to their company for funneling their clients' employees money into the funds themselves. Unsurprisingly, the funds with higher fees pay higher commissions.

The kickbacks to the companies themselves take the form of offloading HR functions onto the "broker" aka benefits consultant. They will do things like print all the materials, give lunch and learns to the employees about the plans, fulfill all the regulatory functions, etc. They also tend to take the HR decision makers out to fancy lunches and things of that sort. So mostly the HR departments are being bribed to look the other way in order for their jobs being easier.

I've pointed out suboptimal fund offerings at multiple small companies and been ignored/rebuffed every time. Every large company I've worked for had really good fund offerings.

It's amazing how simple human laziness and willful ignorance leads to literally millions in wealth being siphoned off of hard working employees into the pockets of benefits consultants and mutual fund companies. The HR departments of many of these companies literally don't care.

lotsofpulp15• 7 years ago

It's amazing how simple human laziness and willful ignorance leads to literally millions in wealth being siphoned off of hard working employees into the pockets of benefits consultants and mutual fund companies.

Surely the bosses at these employers, who are smart enough to be bosses in the first place, can recognize that they are getting taken for a ride for their own 401k investments just like the employees are. Therefore, the only reason I can come up with that makes sense is the somehow the bosses themselves are getting incentivized to choose suboptimal investment options for themselves.

Spooky23• 7 years ago

Most good ones do.

Unions are democratic institutions and members have the ability to drive changes to this type of thing. Often in many places local teachers unions affiliate with pools of unions or upstream affiliates to get better buying power. Sometimes issues like this are legacy things -- in the past many public school teachers had to use 403(b) plans, as they weren't eligible for or had issues with using 401k or 457 (more common for government) plans.

When my wife was a teacher, her union negotiated membership a "best of breed" 457 plan as a secondary retirement option (they have pensions) that picked investments from different investment firms based on price and performance, as well as negotiated reimbursements. Typically they would get 10-15% rebates from companies like Vanguard or T Rowe Price.

This was, however in a closed-shop environment, not a "right-to-work" state, and both the union and school districts had much better leverage due to the size of the pool.

The fact that you're reading a story about a union in Florida in WSJ is meaningful context. I'm sure they picked this one for a reason.

downerending• 7 years ago

ER is important, but general account maintenance fees also count. I was quite surprised at how high Fidelity's are compared to Vanguard.

lotsofpulp15• 7 years ago

I was under the impression that there basically were no fees for for Fidelity and the other big brokerages:

https://www.fidelity.com/why-fidelity/pricing-fees

I do see that Fidelity charges $48 per year per account to employers that want to use an HSA though:

https://www.fidelity.com/bin-public/060_www_fidelity_com/doc...

I guess they might have different fees for consumer accounts vs employers, but I have a hard time imagining that they would be more expensive than any other option, given that their whole business seems to be driven by the desire to gain as many AUM as possible by lowering expenses.

thatfrenchguy• 7 years ago

Can we just stop the 401k nonsense and have IRA have the same rules as 401k ?

aphextron4• 7 years ago

Unions are not perfect. But they are the only protection individual laborers have left against the unstoppable power of modern corporations. Don't ever fall for the endless slandering laid against them by capitalists.

seibelj• 7 years ago

Employees have the ability to switch jobs, whereas unions make it hard to join a different shop at the same seniority level as before. I would rather be able to switch jobs easily than have to follow union rules.

aphextron4• 7 years ago

Employees have the ability to switch jobs

Skilled employees, sure. But the vast majority of unskilled labor is completely at the whims of their employer without the protections afforded by unions. People fought and died for the right to create these organizations in the past, and we should be reticent to give that up just because the system isn't perfect.

Pfhreak4• 7 years ago

This is FUD. There are seniority based unions, and there are merit based unions. Nothing about a union means you can't negotiate, have merit based promotion, etc.

Also, as someone in tech, I constantly hear people talking about downleveling when they change jobs, I hear people talking about unclear promotion criteria, etc.

dvdhnt2• 7 years ago

I would rather be able to switch jobs easily than have to follow union rules

What do you think society is? We live in a giant union of citizens.

The point of the union is to protect labor from capital; and protect the rest of us from selfish attitudes.

gamblor9566• 7 years ago

Different unions work differently.

In Hollywood, for example, the unions are not an impediment to job-switching. In fact, they've enabled a sort of frictionless job switching that even tech is decades behind.

I have friends in Hollywood unions that have worked for multiple studios in the past month. No need to interview, or prove their chops. They just showed up for the job, worked, got paid, and moved on to the next shoot. And because of their union membership, they didn't have to worry about health insurance, or whether the checks would clear.

And I'm not even talking about SAG or the other guilds. I'm referring to the actual unions of all the people who work behind the camera, from the camera operators to the makeup artists.

sseveran• 7 years ago

Most teachers work for local/state governments not unstoppable modern corporations.

ummonk• 7 years ago

Unions are often rent-seeking monopolies. Labor organization is important, but that doesn't mean those claiming to organize labor are actually always doing what is in labor's best interests.

aphextron4• 7 years ago

Unions are often rent-seeking monopolies.

And so are corporations. Unions at least have the interest of employees as their central (espoused) tenant. There is and always has been a concerted effort between capital and the media to undermine that fact in the mind of the public. This is a huge contributing factor to the falling bargaining power of labor over the last 50 years. Don't fall for it.

kaonashi• 7 years ago

Biggest problem with unions in the US is they lack seats at the board, which allows management to treat them in a very adversarial manner with no formal means for pushback.

theOneTrueOld• 7 years ago

Nickel and dimed to death.

The person that first came into my classroom to offer to help me set up a 403B ends up being one of the most expensive 403Bs options I have per the website https://www.403bcompare.com/

And then on top of it all my school district employer even charges me a monthly fee of $3 just to send money to my 403B.

Edit: It's actually the 403B admin that is charging me the $3 a month.

dangerboysteve• 7 years ago

This Frontline doc (2013) paints a nice picture.

https://www.pbs.org/wgbh/frontline/film/retirement-gamble/

Many pension funds are screwing their members with high fee mutual funds resulting in 2-3%+ haircuts on annual returns. And this does not include all the mystery fees on top of everything else. Imagine what the compounding effects on this is. And these funds are shitty compared to Vanguard index fund over time. It comes down to shady backroom deals, kickbacks and incentive based selling.

edit: added year of the doc.

elliekelly2• 7 years ago

12b-1 fees[1] are the biggest scam the mutual fund industry has going.

[1] https://www.fool.com/investing/general/2010/10/15/why-we-opp...

blaser-waffle3• 7 years ago

Is anything like that in Canada?

My RRSP returns are not impressive despite shooting for low cost options, including popular Vanguard funds...

bryanlarsen2• 7 years ago

Unions are the reason that teachers have retirement funds in the first place. That doesn't excuse them from the ridiculously high fees, but don't throw out the baby with the bathwater.

dvdhnt2• 7 years ago

I can't believe how much union busting is going on in these comments. People take for granted the little wins labor has gotten over the last century.

bluGill4• 7 years ago

The union has done good, but they are taking more credit than they deserve for those wins. Many would have happened anyway because labor is a limited competitive resource (at times, for some jobs) and so if you want to get good people you need to treat them well even when times are bad.

Unions have done good. They have also done bad. Most people will only acknowledge one side of that.

blaser-waffle3• 7 years ago

I can't believe how much union busting is going on in these comments.

I'm guessing a mix of: professional shills and marketing firms trying to build consensus by appealing to high earners (plenty of them on HN) + the concentration of knowledge worker types on HN, who, in many cases, went straight into tech and haven't had to deal with truly shitty work experiences.

I'm reminded of my brother's roommate at Carnegie Mellon who went straight into a (scholarship-funded) Master's program, then a FAANG immediately out of school musing about how easy it is to have insurance, a nice car, and "why can't they just figure it out?". Super nice guy, but also living in a different universe.

aphextron4• 7 years ago

Unions Have Lost Most of Their Power, and Labor is at the Complete Mercy of Capital. Slander like this is partly to blame.

gamblor9566• 7 years ago

It's the myth of merit. Tech workers like to think they're highly-paid based on merit (and not simply because demand far exceeds supply), and also that they are the best at negotiating high salaries.

Of course, these same workers were getting completed shafted out of tens of billions in collective salary due to anti-poaching agreements that limited their bargaining power.

sct2022• 7 years ago

Many private companies also have high fee funds in their investment fund options and pensions. A lot of people running these things aren't always aware of all the options they could be taking because they only meet with sales people.

kevindong• 7 years ago

It amazes me how inexpensive the bribes companies pay out are in comparison to the profit they make off of the deals generated by the bribes.

The Nationwide subsidiary paid $4.58 million to the National Association of Counties in 2017, the latest available data. About 1.6 million county employees and retirees have participated in 457 plans for which Nationwide is the record keeper, said Brian Namey, a spokesman for the county association.

$4.58 million / 1.6 million employees = $3.03/employee

At the International Association of Fire Fighters, about 100,000 of the 292,000 members are in a Nationwide retirement plan, according to union President Harold Schaitberger. He said the union’s for-profit subsidiary, called the International Association of Fire Fighters Financial Corp., earns $3.4 million a year for various product endorsements—$2.5 million of it from Nationwide—and sends the parent union $2.45 million to support programs that benefit firefighters.

$2.5 million / 100,000 employees = $25/employee

ptmcc• 7 years ago

My wife works for the local school district, and when she started I helped her navigate the retirement plan options.

They actually have numerous 403b providers to choose from, including Vanguard, but they basically offer no guidance (probably fear of some sort of liability or fiduciary duty).

But of course they allow their providers to come to facilities and offer "retirement advising" meetings. Naturally, the most predatory providers are the ones that have sales people to send out to make field visits. What's worse is that it is very unclear that this is not a district/HR-sponsored event, but purely a sales meeting from a provider.

My wife, thinking she was doing the responsible and proactive thing, went to one of these meetings with Valic. She very nearly got hooked into their scam of expensive, high-fee, garbage annuity products within her 403b. When she brought the paperwork home I was dumbfounded with how utterly terrible the product is, and how lengthy and opaque the prospectuses are. By the way, "Valic" literally means Variable Annuity Life Insurance Company.

She was massively frustrated by the experience, especially on top of the stresses of being new to a job she nearly got suckered into an awful retirement plan, and the district does basically nothing to oversee that the providers are actually any good.

Fortunately we were able to bail on Valic and sign up with Vanguard, which is a great option. Unfortunately, one has to a) know what they are looking for, and b) go out of their way to find it and sign up.

This is one of those cases where "freedom of choice" devolves into "buyer beware". Having lots of options is not inherently a good thing when many of those options are hot garbage and information and guidance is not transparent.

pathseeker• 7 years ago

The title on HN apppears to have been altered to leave out the substantive part. The purported cause is unions.

" Teachers Pay High Fees for Retirement Funds. Unions Are Partly to Blame. "

blaser-waffle3• 7 years ago

It was changed because "partly to blame" is disingenuous and creates a bias right off the bat.

"Partly to blame" could be anything -- could be 5%, could be 50% responsible.

Sure, they're partly to blame, but greedy hedge funds could be 90% responsible and the Unions just sort of went along with them.

Teachers Pay High Fees for Retirement Funds

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