"...Teachers unions are complicit partners in this dubious pursuit. Insurers cut murky deals with labor unions to buy exclusive access to their members, sometimes paying the unions millions of dollars in fees in exchange for the unions' endorsement of their annuity plans. Invariably this foists on teachers some of the most expensive annuity products around.
"Unions play a very large role in teachers' decision making," says Michael Beczkowski, a consultant with Bolton Partners who evaluates retirement plans for school districts. "Some companies offering these plans make large union donations, so it's very difficult to get rid of them even if their products are substandard. The participants pay for it."
The National Education Association, with 2.7 million members; the American Federation of Teachers, with 1.3 million people in its ranks; and New York State United Teachers, with half a million members, all endorse high-cost annuity products. The NEA won't disclose the fees it receives from its retirement savings provider, Security Benefit, a firm in Topeka, Kans. But one source says the fee was likely $3 million. The New York union gets $3 million a year from ING, which gets the shop's exclusive endorsement as a provider of annuities for New York teachers. AFT says it gets less than $100,000.
At the center of this thriving scheme is the inelegantly named 403(b), which, like the private sector's 401(k), takes its name from an IRS regulation. Both plans allow workers to invest for retirement free from taxes until the money is withdrawn. The key difference: Private employers have a legal duty to run 401(k)s in the interests of employees and spell out the terms; 403(b)s carry no such burden...."
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