Teachers Deserve Better From Retirement-Plan System
How U.S. pension laws cheat employees of nonprofit organizations.
Bloomberg, March 15, 2019
How is it possible that two variations of tax-deferred retirement accounts, born of similar ideals and motivations, have evolved into shockingly different animals?
I refer to 401(k) and 403(b) investment accounts. Despite being part of similar tax codes with nearly identical goals, in practice the portfolios of each bear little resemblance to each other. As a result, millions of American teachers, among others, are retiring with less in savings than they deserve.
It’s a problem policymakers know about but haven’t fixed. A subcommittee in the House of Representatives has been hearing disquieting testimony about it since February, but the politics of the issue are tough.
Yesterday, Dina Isola testified to Subcommittee on Investor Protection, Entrepreneurship and Capital Markets Hearing about issues in the 403(b) space. (Dina, and her partner Tony run RWM’s 403(b) group, specializing in helping teachers get out from under very bad portfolios in their retirement plans).
She explained why the lack of ERISA protections for teachers had terrible consequences in practice — 403(b) plans invest way too much money in annuities — 76% on average. Annuities are much more expensive than mutual funds, in part because they are tax exempt. Which raises the obvious question why pay a premium for a tax exempt product for an account hat already is tax exempt? While the past decade has seen most of the country enjoy falling portfolio costs, 403(b) participants have not. . . .