Cops and Teachers Are Getting Soaked
As a sheriff's deputy in the Pinellas County (Fla.) Jail, Adrian Nenu sees many tough guys. But he also has run into plenty of recalcitrant ones in the county's personnel bureaucracies. For a decade, Nenu has pushed to improve his retirement savings plan, which is full of high-cost, inappropriate investment options. He has made only modest headway. "I got the big runaround," he told me.
Yet Nenu is one of an increasingly vocal vanguard of retirement savers who keep agitating for better deals. While many corporate 401(k) plans have improved, offering more and better investment options at lower cost, so-called 457 plans for municipal workers and 403(b) plans covering teachers and employees of nonprofits remain dominated by costly variable annuities sold by insurers. These plans often cost twice as much in fees as 401(k)s (table), according to consultant Ron Bush of Brightwork Partners. With an estimated $580 billion in such plans, an extra 1% in fees would drain $5.8 billion each year from these employees' retirement accounts.
This remains an unhappy truth despite widespread warnings from experts against using annuities, which are already tax-deferred, within tax-deferred plans. Progress is slow. Over five years, efforts by Los Angeles school district activists have won just one small change: Paychecks now note payroll deductions as going into a 403(b) instead of a "TSA"--tax-sheltered annuity--which had implied an endorsement of annuities over cheaper mutual-fund options. The issue is surprisingly contentious. In May, a measure to create a public list of the investments available to California teachers and their fees was linked in flyers to Hitler and the Holocaust by anonymous foes. The bill's author, Assemblyman Darrell Steinberg, told me he was "offended and outraged," yet still hopes the bill will pass. Proponents complain that it since has been gutted.
Like other activists, Nenu, 37, blames ignorant local officials and an insurance industry that's intent on keeping its leading market share regardless of clients' best interests. Nenu first got annoyed back in 1992 when an insurance agent told him and dozens of fellow deputies at an employee meeting that yearly fees on the 457 plan's annuities totaled just 1% of assets. In fact, Nenu learned, the fees came to 2% or more.
So he started campaigning. The sheriff's office pointed him to the county personnel department. Personnel pointed him back to the sheriff. And so on. Recently, I called these officials and asked about Nenu. "He can get a little pushy," Dave Libby, Pinellas County's personnel director, said. "But other than being a son of a gun to deal with sometimes, he knows what he's talking about." Yet the officials remain sadly ill-informed. Neither Libby, nor his associate overseeing the 457 plan, Sigrid Tanberg, nor the sheriff's fiscal affairs director, Bill Puller, can say what their 457 investment options cost. Tanberg told me: "We haven't been able to decipher just what the employees pay."
Nenu reckons investment options in his 457 plan still average 1.8% to 2% in annual fees, depending on the vendor. A few--index funds sold since 2000 via American International Group's AIG VALIC--run about 1%. It offered those in Pinellas only after Nenu pleaded with a local rep, Al Sanchez Jr., who confirmed Nenu's story.
It need not be this way. In Florida, the state will enroll local public employees in its low-cost 457 plan, if only their bosses ask. Federal workers and military personnel can save for retirement via the Thrift Savings Plan, with fees of 0.05% to 0.06%. Nenu thinks TSP should be extended to all public employees. I think that when America is expecting more from our cops and teachers, giving them investment choices on par with corporate 401(k)s is the least we can do.